David R. Koenig, QRD®

In the governance and management of risk, we are called upon to help our organizations make the most effective use of scarce risk capital, even in difficult times. In this work, we have become adept at identifying potential risks of loss, deferred liabilities and externalities created by our organization’s actions or decisions. But, it is also incumbent upon us to turn the analysis around and look critically at our processes and mindset — asking about potential losses and externalities from the… Show more

In the governance and management of risk, we are called upon to help our organizations make the most effective use of scarce risk capital, even in difficult times. In this work, we have become adept at identifying potential risks of loss, deferred liabilities and externalities created by our organization’s actions or decisions. But, it is also incumbent upon us to turn the analysis around and look critically at our processes and mindset — asking about potential losses and externalities from the work of risk management and seeking our most positive impact. Show less

The NED is a leading publication focused on governance issues for fund managers and alternatives. This article discussed the new Qualified Risk Director guidelines and their likely importance for fund managers.

On June 5, 2013, the Directors and Chief Risk Officers group (“the DCRO”) issued its guidance to organizations seeking to better govern risk through the identification and recruitment of Qualified Risk Directors to their boards of directors and risk committees of the board.

In the spirit of the Audit Committee Financial Expert, where specific board members are designated as experts in the analysis of financial statements and control processes, the Qualified Risk Director guidelines were… Show more

On June 5, 2013, the Directors and Chief Risk Officers group (“the DCRO”) issued its guidance to organizations seeking to better govern risk through the identification and recruitment of Qualified Risk Directors to their boards of directors and risk committees of the board.

In the spirit of the Audit Committee Financial Expert, where specific board members are designated as experts in the analysis of financial statements and control processes, the Qualified Risk Director guidelines were developed by an international group of active board directors and chief risk officers to assist organizations of all kinds in the governance of risk, helping them to better achieve their goals.

The guidelines are designed for voluntary adoption, inclusion by regulators in ongoing assessments, or in the development of future legal requirements. Show less

Ultimately, our work as risk managers is about preserving and enhancing the ability for organizations to create value. That value can be defined by the value, or utility, our organizations can deliver to those in their networks. When we consider that all organizations operate in a kind of social network, seeking to acquire scarce resources, or economic capital, in exchange for goods, services, or money, it is surprising how little risk managers focus on the human aspect of our jobs.

A unique examination of how networks, systems, complexity, risk, and behavior intertwine to help us redesign and regovern how organizations work. The concepts outlined in this book are applicable to for-profit, non-profit and social organizations as well as political economies. There is no other book quite like it.

Introduction to the JRMFI Special Issue on Risk Governance - Risk, for most people, is uncertainty, especially in the domain of losses. But, in my work, risk has always been viewed as being two-sided, with account given to both potential gains and losses.

Based on excerpts from Governance Reimagined - Organizational Design, Risk and Value Creation, published by John Wiley & Sons, May 2012, the author explores the relationship between value and the pursuit of values with a specific focus on the role that resiliency plays in our ability to be successful in creating value. Psychological influences like loss avoidance are greatly under-appreciated and forms of corporate governance like Network Governance can play an important role in minimizing the… Show more

Based on excerpts from Governance Reimagined - Organizational Design, Risk and Value Creation, published by John Wiley & Sons, May 2012, the author explores the relationship between value and the pursuit of values with a specific focus on the role that resiliency plays in our ability to be successful in creating value. Psychological influences like loss avoidance are greatly under-appreciated and forms of corporate governance like Network Governance can play an important role in minimizing the impact of these factors, along with enhancing the ability of organizations to create value. Show less

Businesses exist to take risk. Without the acceptance of this premise, there is no reason to deploy capital and no reason for a governance function to exist. The fiduciary governance of a business’ strategy, and therefore the firm’s risk taking, rests with
the board of directors. Yet, with complex organizations, sufficiently meeting the fiduciary obligation of care—in which
risk taking and risk management are embedded—may require a more specialized understanding of risk than can be… Show more

Businesses exist to take risk. Without the acceptance of this premise, there is no reason to deploy capital and no reason for a governance function to exist. The fiduciary governance of a business’ strategy, and therefore the firm’s risk taking, rests with
the board of directors. Yet, with complex organizations, sufficiently meeting the fiduciary obligation of care—in which
risk taking and risk management are embedded—may require a more specialized understanding of risk than can be managed effectively by the board as a whole. Show less

Over the past decade risk management has evolved from a technical discipline focused on specific exposures to an expectation of shareholders, regulators and others affected by the performance of governance at publicly held companies. A survey of large institutions around the world helps to benchmark the state of the practice.

Whether a stream of cash flows from a retail or commercial loan, an equity investment or a bond, the value of receiving those cash flows in today's currency is an aggregation of all expected future cash flows, discounted by some measure of alternative returns and perceived risk. Risk management influences the value of any asset that generates cash flows in multiple ways and its optimal execution can generate substantial additional present value. Optimality, though, is an elusive level of… Show more

Whether a stream of cash flows from a retail or commercial loan, an equity investment or a bond, the value of receiving those cash flows in today's currency is an aggregation of all expected future cash flows, discounted by some measure of alternative returns and perceived risk. Risk management influences the value of any asset that generates cash flows in multiple ways and its optimal execution can generate substantial additional present value. Optimality, though, is an elusive level of practice, further challenged by an inability to recognize what constitutes optimality and the blind spots that threaten to undermine any preconceived notions of how optimality is best pursued. Show less

Enterprise Risk Management is about increasing the value of an enterprise or system. The value of a system today is the discounted present value of some perceived set of possible future states of value of that system. By creating ductile systems that respond well to risk events, we can positively change the distribution of and perception about expected future states of value of the system. We can also increase the expected life over which the system is being valued.

Case studies of major financial scandals have usually focused on the controls and processes that might have prevented their realization. However, a deeper look into the behavioral aspects of the cases leads to some interesting insights about the environments in which these losses were allowed to occur. The dynamics of authority influence an incentive compensation may actually be primary contributors.

Risk management and governance are in vogue. Some of those who missed this trend are in jail. We are now wondering if the serious attention given to these critical elements will continue or if corporate focus will somehow shift away, relegating value-adding governance to a role of diminished and perfunctory process. It is essential that this not be allowed to happen.

Every management decision, whether explicitly identified as such or not, is a decision on how to best take risk. One might wonder, then, why there is no overwhelming enthusiasm from line and middle managers and, to some extent, from senior managers for 'risk management' to be seen as a value creating activity on a par with increased market share, sales revenue or product innovation.

ERM is not a black box from which answers emerge. It is a discipline, where managerial decisions are made with enhanced information. They remain managerial decisions, subject to human error. But, ERM-influenced managerial decisions are vast improvements on any ad hoc managerial styles.

Risk managers should ideally act as "Business Line Advocates" and can do so without compromising their independence.