Page 35 - RMAI Bulletin July - September 2021
P. 35

RMAI BULLETIN JULY TO SEPTEMBER 2021

             functions. Interaction between the CRO and the Board  of the institutions where volume and growth are the
             should occur regularly and be documented adequately.  most important factors - financial crisis is imminent.

             What challenges could come when                  World over, there is no-one-size fits-all model of CRO
                                                              reporting structure. There are multiple models
             CRO reports to Board?                            prevalent in the enterprises some of which are:
             In case, CRO has a direct reporting line to the board  1. CRO reports to another senior executive e.g., CFO
             of directors, the Board and the CEO must have mutual  or directly to CEO
             understanding of the value contributed by the CRO  2. Dual reporting for CRO - to the CEO and the Board
             with the intent of preserving his or her independent
             role within the organization.                    3. CRO reports to RMCB or ACB i.e. a Committee of
                                                                 the Board
             Over the period, the regulator has started having close
                                                              4. CRO reports directly to the Board
             engagement with the entities, forcing a change in role
             of CRO. Now, the Board is more sensitive to risk-related  The conventional model of having a CRO report to
             issues and requires Chief Risk Officers to have a direct  either the CEO or anyone lower to him poses a
             reporting line to the board. As CROs are spending more
                                                              dilemma in situations where there are serious
             time complying with the regulatory aspects than on  differences of views about the risk assessment of a
             the serious issues of risk management, this can prove  particular business model or proposition. The potential
             to be very costly to the organizations.          conflict of interest in such a situation between the deal
                                                              makers and the risk managers can best be avoided if
             As competition grows and market share is at stake,
             risk-taking will naturally rise and prudent risk-taking  the CRO reports directly to the Board or to the Risk
             will become necessary to achieve the business goals.  Management Committee of the Board (RMCB) and the
                                                              Risk Management team reports to CRO. The Board
             At such times, CROs cannot remain beholden to the
             Board because timely decision taking is of essence in  may, depending on its composition, decide to opt for
             such situations.                                 option (3) above also. In either of these situations the
                                                              Directors have the option of interacting with the CRO
             Ultimately, the question of reporting relationship is less  in the executive sessions to share their concerns. In
             important than three other attributes or critical  none of the situations, however, it would be prudent
             success factors for the position: unfettered access to  to alienate the CEO from the process completely as this
             the CEO and the Board of directors; leadership of an  would jeopardize the success of risk enterprise in the
             enterprise-wide risk management committee; and a  organization. The system would function best when
             mutually supportive working relationship with the CFO  the Management is working in tandem with the Board.
             and the CCO of the organization.
                                                              References:
             Being executor of entire risk management functions,  1.  What is the role of ‘Tone at the Top’ in setting
             CRO needs free access to the Board as well as the CEO.  culture? by NICHOLAS BARNETT Chief Executive
             Not providing such access would cause disconnect in  Officer, Insync file:///C:/Users/TRM/Desktop/
             communication, causing delayed resolution to various  Project-Risk/What%20is%20the%20role%20of
             strategic problems.                                 %20%E2%80%98Tone%20at%20the%20Top%
                                                                 E2%80%99%20in%20setting%20culture_.pdf
             Conclusion:                                      2.  RBI Discussion paper on Governance in Commercial
                                                                 Banks of India – June 2020
             Often, the CRO is the ultimate champion of the risk
             management process in the organization. To be    3.  Best Practices for Structuring ERM Within the
             effective, he/she must have a prominent and effective  Organization | ERM - Enterprise Risk Management
             voice in the management. At the moment when crucial  Initiative | North Carolina State Poole College of
             issues are being discussed and CRO needs to put in a  Management https://erm.ncsu.edu/library/article/
             contrarian view to protect the shareholder interest,  erm-organizational-structure
             how can a CRO go against a CEO who holds all the  4.  The Chief Risk Officer: your business ally https://
             powers relative to CRO’s career, viz., Salary, Incentives,  www2.deloitte.com/content/dam/Deloitte/xe/
             Promotion etc.? And if the CEO doesn’t believe in the  Documents/AboutDeloitte/mepovdocuments/
             value of risk management -as is the case with some  mepov3/dtme_mepov3_The-Chief-RiskOfficer.pdf


                                                           33
   30   31   32   33   34   35   36   37   38   39   40