A View from the Top

Yesterday in the Financial Times, Lloyd Blankfein, CEO of Goldman Sachs, provided his view of the current crisis and how risk management can be improved in the future.  Unlike many CEOs, Mr. Blankfein was particularly candid in his viewpoint and offered some solid insights.  Here is a sample of what he had to say.

...complexity got the better of us. The industry let the growth in new instruments outstrip the operational capacity to manage them. As a result, operational risk increased dramatically and this had a direct effect on the overall stability of the financial system.  Risk and control functions need to be completely independent from the business units. And clarity as to whom risk and control managers report to is crucial to maintaining that independence. Equally important, risk managers need to have at least equal stature with their counterparts on the trading desks: if there is a question about the value of a position or a disagreement about a risk limit, the risk manager’s view should always prevail.

This perspective is encouraging and should be adopted by more chief executives and boards of directors as we work to strengthen our risk management practices.