Monthly Archives: October 2015

Archived Posts

October 29, 2015 by: James Bone Categories: Risk Management Risk in review: Decoding uncertainty; delivering value – PwC

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Our senses are an early-warning system that keeps us alive in a world of constant risk.  Those who attune their senses to  their environment are armed to succeed. Those who don’t might not survive. It’s the same in business: Companies that treat risk management strategically are arming themselves with the knowledge to make efficient and well-informed business decisions—anticipating and mitigating risk, seizing opportunities, and enabling better overall business
performance.
This year’s PwC Risk in Review survey gained insights from 1,229 senior executives and board members from around the world, including 82 from Canada. Of these global respondents, 73% agreed that risks to their companies are increasing, compared to 63% of Canadian respondents
October 16, 2015 by: James Bone Categories: Risk Management Blackstone Group: Riddle of Ethical Dilemmas

free_136985 business manIs it possible to manage an ethical company and be successful? Logically, most people would agree that, yes, ethics and success are not mutually exclusive conditions of sound governance. Yet, the Securities and Exchange Commission has found that private equity firms are more likely than not to break the law or have material conflicts of interests. Has the principle of fiduciary responsibility, the “Prudent Man” rule, been relegated to the dustbin of financial market ethos?

Recently, Blackstone Group, the world’s most profitable fund manager, was ordered to repay fund investors $28.9 million and assessed a $10 million fine by the SEC for failure to disclose the collection and handling of fees that should have been used to benefit investors. Blackstone, to its credit, reported that its internal audit group uncovered the problem and reported its findings to investors. However, senior executives within the firm had to conceive the idea and present the proposal to a governing board for approval. What is the cause of a lapse in ethical judgment?

Blackstone is not alone, in the same article several incidents of regulatory violations related to fee disclosure by fund managers were cited. Blackstone Group has $330 billion under investment and close to $3 trillion dollars under administration so what causes successful firms to cut corners? How does governance break down? A spokesperson for Blackstone Group responded to the violation by explaining, “our Limited Partner Advisory Committee did not exercise its right to object.”

One of the hottest topics in financial services is a new concept called Conduct Risk. The phrase “conduct risk” comprises a wide variety of activities and types of behavior which fall outside the other main categories of risk, such as market, credit, liquidity and operational risk. In essence it refers to risks attached to the way in which a firm, and its staff, conduct themselves. There is no clear definition for Conduct Risk so it is more like pornography right? You know it when you see it! But, that is not exactly correct. The reason conduct risk is hard to define is because we are misled by the frequency of certain events leading to errors in judging when bad ideas become bad behavior. These incidents beg the question of whether the unethical behavior by private equity firms is any different from Volkswagen’s emissions scandal?

The public outrage and media attention attributed to Volkswagen pales in comparison to reports of financial services firm misbehavior. Why is this the case? The answer is found in the field of cognitive science. Our views of events are shaped in large part by the frequency of news reports on a variety of risks we face. Shark attacks are a great example of this phenomenon. We believe that more humans are killed or maimed by sharks than cows. We know, empirically, that humans are killed or maimed by cows more frequently because farmworkers encounter more cows than beachgoers do sharks. Local news accounts of “death-by-cow” events just don’t draw the same attention as a shark attack leading us to misdiagnose the risk.

The same can be said to explain how we view misbehavior of financial services firms. The frequency of regulatory and financial misbehavior has become almost invisible and is often relegated to the second or third page of news. The shock factor has worn out and we are no longer surprised to find that some fund manager has over charged or failed to follow the rules.

So how does risk management, audit, compliance and ethics officers address conduct risk? What defense can be used when the argument is, “everyone else is doing it why can’t we?” This is the riddle of ethical dilemmas. There is no risk framework or internal control to deal with conduct risk. It represents 98% of all operational risk failures according to a recent study. For the largest firms, regulatory fines are no longer a deterrent and the costs of compliance, risk and audit has already been absorbed as a cost of doing business. The public is no longer outraged about being fleeced, and in fact, car buyers will return to Volkswagen and investors will, undoubtedly, return to Blackstone Group. Solving the riddle of ethical dilemmas is the biggest challenge faced by risk professionals who are ill equipped to adequately mitigate this risk.

It is possible to run an ethical company and be successful. But it is also possible for unethical behavior to creep into the boardroom and C-Suite because the costs no longer exceed the benefits.

October 13, 2015 by: James Bone Categories: Risk Management 2015 CyberThreat Defense Report by CyberEdge Group

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Published in 2014, the inaugural Cyberthreat Defense Report began the process of looking beyond headline-grabbing breaches and the nth stage in the evolution of cyberthreats to better understand the perceptions, concerns, and priorities of the IT security professionals charged with defending today’s networks.  Representative findings from that first report included the revelation that one in four security professionals doubts whether their organization has invested adequately in cyberthreat defenses, the identification of mobile devices as IT security’s “weakest link,” and the expectation that more than three-quarters of businesses will adopt bring-your-own-device (BYOD) policies by 2016.

October 12, 2015 by: James Bone Categories: Risk Management Risk USA 2015 October 20-23 New York Marriott Marquis

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Risk USA 2015 brochure-graphic-risk-usa-130x169TheGRCBlueBook members get 20% 0ff!  Please include the discount code SUBRTE.  Please hurry and sign up today for one the largest risk conferences of the year!  Risk USA is Risk’s flagship annual conference for senior directors in risk management, derivatives trading and regulatory compliance. This 21st annual gathering is the eminent risk management event for top tier Wall Street banks, buy-side and regulators. The highest quality of content presented by the finest in the industry has been developed following months of meticulous research with senior executives and driven by the sophisticated editorial intelligence and insight for which Risk is renown.

October 11, 2015 by: James Bone Categories: Risk Management Cisco 2015 – Midyear Security Report

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As adversaries rapidly refine their ability to develop and deploy malware that can breach network defenses and evade detection, the security industry, as a whole, struggles to innovate at a similar pace. This dynamic creates a significant problem for organizations investing in security products
and services: They often end up choosing individual solutions to address security gaps, only to create more weak points in their threat defenses. The Cisco 2015 Midyear Security Report examines these intersecting challenges while also providing updates on some of the most compelling threats. Using research by our experts, it provides an overview of the major threats observed in the first half of 2015.

This report also explores likely future trends and offers advice for small, midsize, and enterprise organizations that seek security solutions and services.

 

by: James Bone Categories: Risk Management Cyber Risk Oversight – NACD’s Director’s Handbook Series 2014

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In the past 20 years, the nature of corporate asset value has changed significantly, shifting away from the physical and toward the virtual. One recent study found that 80 percent of the total value of the Fortune 500 now consists of intellectual property (IP) and other intangibles.1 Along with the rapidly expanding “digitization” of corporate assets, there has been a corresponding digitization of corporate risk. Accordingly, policy makers, regulators, shareholders, and the public are more attuned to corporate cybersecurity risks than ever before. Organizations are at risk from the loss of IP and trading algorithms, destroyed or altered data, declining public confidence, harm to reputation, disruption to critical infrastructure, and new legal and regulatory sanctions. Each of these risks can adversely affect competitive positioning, stock price, and shareholder value.

October 9, 2015 by: James Bone Categories: Risk Events Bilderberg Conference Schedule

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The Bilderberg conference is an annual three-day meeting designed to foster dialogue between Europe and North America. The pioneering meeting grew out of the concern expressed by leading citizens on both sides of the Atlantic that Western Europe and North America were not working together as closely as they should on issues of common interest.
The first meeting took place in Hotel De Bilderberg in Oosterbeek, Netherlands, from 29 to 31 May 1954. Representatives from economic, social, political and cultural fields were invited to hold informal discussions to help create a better understanding of the complex forces and major trends affecting Western nations in the difficult post-war period.
Through the years, the meetings have become a forum for discussion on a wide range of topics – from trade to jobs, from monetary policy to investment and from ecological challenges to the task of promoting international security. In the context of a globalized world, it is hard to think of any issue in either Europe or North America that could be tackled unilaterally.

October 7, 2015 by: James Bone Categories: Risk Management Economic Conditions Snapshot, September 2015: McKinsey Global Survey results

Executives astock-photo-933134-chicago-downtown-high-colorre more downbeat about the state of the global economy now than at any time this year, according to McKinsey’s latest survey on economic conditions. Recent turmoil in global markets has fueled concern over the strength of respondents’ home economies—and of the world economy, too. At the same time, executives cite volatile economic conditions and exchange rates as emerging threats to both domestic and global growth in the short term.

A majority predict that oil prices will stay low in the next year, which could potentially spur future growth. It’s unclear, though, how much a growth spurt from oil prices could offset the economic risks posed by increased volatility. Executives in emerging markets are particularly concerned with volatility at home—especially in China, where four-fifths of respondents say their economy has worsened in the past six months. Across regions, the domestic and global economic outlook for the coming months is more tempered. The same is true of expectations for China’s economy, which most respondents believe will meet (or come close to) the Chinese government’s 2015 growth target of 7 percent.