Page 27 - The Insurance Times January 2022

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

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