Looking to Satisfy Risk Management Demand

Companies are now beginning to shore up their risk management practices and are hiring more risk management professionals as a result.  An article in the New York Times this week discusses the increase in demand for risk management skills and how prominent business schools are preparing graduates for the field.

Among the hot areas now are positions related to minimizing risk, as firms try to mitigate the chances of another financial crisis. Risk in general is a relatively new focus, and the openings range from business, credit and operational risk to product and technology risk. “Risk is everywhere,” said Jeanne E. Branthover, head of the global financial services practice at Boyden Global Executive Search.

This year, the Stern School of Business at New York University started offering an executive master’s in risk management in partnership with the Amsterdam Institute of Finance. During the program, which lasts a year and costs 42,000 euros, or about $60,000, students meet 10 times for multi-day sessions and study subjects including risk metrics, credit risk and liquidity risk. The course covers about 75 percent of what one is required to know for the professional risk manager certification, said Ingo Walter, a professor of finance at Stern.

Stern also offers a less technical three-day executive education session on integrated risk management. Columbia Business School and the Kellogg School of Management at Northwestern University are among other institutions that offer similar programs, which range in cost from $3,750 to $10,000.

As more business school graduates with a foundation in risk management enter the corporate world, corporations will certainly benefit from having these skills proliferate throughout the organization.

Educated Fools

In the volumes written about the cause of the current financial crisis, very little has been said about what the nation's business schools did to prepare the leaders involved in creating the crisis.   Michael Jacobs, a professor at the University of North Carolina Kenan-Flagler Business School, had this to say in an op-ed column written in today's Wall Street Journal.  

There are three profound failures of sound business practices at the root of the economic crisis, and none of them have been adequately addressed by our business schools.  Just about everyone agrees that misaligned incentive programs are at the core of what brought our financial system to its knees. Secondly, as Washington scrambles to restructure the financial regulatory system, those who still believe in the private sector are asking why corporate boards were AWOL as institution after institution crumbled. 

The third breakdown came in the investment community.  Nationally, finance departments at business schools offer hundreds of courses in asset securitization and portfolio diversification. They have taught a generation of financial leaders that risk can be diversified away. But in their B-school days, few investment bankers examined the notion of "agency costs." That concept explains that as the gulf between the provider and the user of capital widens, the risks involved with selecting and monitoring the participants in the portfolio increase. It should come as no surprise that financial institutions amassed securities that consist of a diversified portfolio of deadbeats.  

By failing to teach the principles of corporate governance, our business schools have failed our students. And by not internalizing sound principles of governance and accountability, B-school graduates have matured into executives and investment bankers who have failed American workers and retirees who have witnessed their jobs and savings vanish.

Mr. Jacobs is spot-on and should know more than anyone since he is a professor at a leading business school. As we begin to emerge from the current crisis and re-build our foundations of business, our business schools must re-tool their programs to develop competent business leaders.