Honesty and transparency 'are key'

LONDON – Carol Sergeant, chief risk director at Lloyds TSB, has urged risk managers to create a culture of honesty and transparency at firms to help prevent loss events that spring up unexpectedly as a result of fundamental flaws in business strategy or tactics.

A member of the audience at the OpRisk Europe conference, held in early April in London, asked Sergeant how a chief risk officer could 'know' all that goes on in an organisation. "This is, of course, the thing that keeps all chief risk directors awake at night – 'Do I know?'" said Sergeant. "I think the best way of being sure that 'I know' is being sure that the people who run the businesses know. You can have the best risk oversight functions and analytics in the world, but if the guy who runs widgets doesn't understand his business, you are in a pretty bad place."

Sergeant said she had spent much of the past two years engaging "directly and personally" with the business lines to make sure they understand their accountabilities in terms of risk, to know where they can come for help, and to keep them very much up to date. She says, "if they don't understand the risks in their business and are not aware of them, then it is quite difficult for the oversight people.

"The second thing is to have a culture where you actually get rewarded for being self-critical and for owning up to things," she said. "Our consolidated risk report is very, very self-critical, and in fact several people we have hired from other organisations have asked: 'Are you sure you should really be giving that an amber or red?' It's an important cultural thing, however, that you really are very self-critical, and that as long as you 'bring out your dead' and deal with your dead effectively, that's OK."

She said the firm's control self-assessment programme had more than 200 questions when she arrived, but now it just has 15 – shortly to be reduced to 12 – open-ended, 'bring out your dead' type questions with supporting guidance.

'Bring out your dead' is a reference to the time of the Black Plague in London, when carts roamed the streets, pushed by a man who called 'bring out your dead' to houses with recent victims to dispose of. The theme was turned into a famous sketch Monty Python in the 1970s. OR&C