Thursday, October 18, 2012

University of Washington Hosts Risk Management Symposium

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On October 5, 2012, the University of Washington School of Law hosted an outstanding symposium entitled Managing Risk in a Complex World. The program provided the broadest overview of business risks conceivable. The keynote speaker, Bill Ayer, Chairman, Alaska Air Group, articulated a rationalized vision of risk-management that should be a model for CEOs. Professor Anita Krug organized this excellent and timely program.

My contribution focused on risk management failures in the financial sector leading to the financial crisis. More specifically, I focused on whether the Fed's new proposed rules requiring enterprise-wide risk management committees (promulgated under the Dodd-Frank Act) address the underlying causes of those risk management failures. (See video above).

In general, the Fed's rules are a positive step. Nevertheless, the rules would benefit from improvements such as a more robust definition of independence for members of the new risk management committee required for all systemically important firms. I argue that the board of every systemically important firm should certify (under penalty of SEC disbarment from service on boards) that the members of the risk management committee have no substantial personal, familial, social or business relationship with senior management or the firm (other than serving as director). I expand on these points in a forthcoming law review article entitled Enterprise-Wide Risk Management after the Financial Crisis, which is outlined in this PowerPoint presentation.  

Given the role of risk mismanagement in driving and amplifying the financial crisis, Dodd-Frank lights the way for superior corporate governance outcomes in the future (both within and outside the financial sector). Unfortunately, the proposed Fed rules are still suboptimal.

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