The future of risk management is under construction, sculpted by outside forces like regulations and technology. So does this industry currently have the knowledge and capacity to deal with this new future? Risk managers need fresh blood to ask the right questions, and it is clear where these new talents and perspectives should come from.
This is a man’s world – or is it? Global initiatives like the United Nation’s Sustainable Development Goals (UN SDG) and international campaigns like #MeToo suggest that maybe this used to be a man’s world, but the narrative is changing. Gender equality is a key UN SDG, and it can hugely impact younger generations’ perceptions of businesses and whole industries. Last year’s Deloitte Millennial Survey found that 43% of millennials and 62% of Gen Zs are prepared to leave businesses that they think act unethically, and look for businesses that are proactive in creating a better world.
Gender diversity is, therefore, valuable, and its impact goes deeper than a company’s reputation. A McKinsey research reported that “companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians”. But how does this translate to the financial services sector?
Diversity – an issue for financial services
In 2015, PwC reported that 59% of the financial services industry leaders have a strategy to promote diversity and inclusiveness, and 14% are planning on adopting one. While this is definitely a positive step forward, a survey of female millennials in the sector found that 73% believe that their organisations talk about diversity, but the opportunities are not equal for all.
Adriana Reis, Modelling and Corporate Risk Manager at Sul America, noted that at the companies she has worked at, women and men are well represented.
“Of course, there is room for progress, especially in management and C-level positions”, Reis told us. “From my point of view, it is time for us to be more present in these positions, since more women occupy roles in middle management.”
Speaking of her past experiences, Laura Omero, Director, Europe Customer Risk Management at Mastercard, agreed: “There is more progress to be made, particularly at the top level.”
“Working in the EMEA region, being “the only one” is still a common experience for me”, Amal Merzouk, Senior Subject Matter Expert (EMEA) at Fiserv, admitted. “I am often the only woman or one of the only women in the room at a meeting. However, in some regions like Northern Europe or countries like Canada, France or Italy, women are represented in senior roles in risk management.”
Eugenie Molyneux, Chief Risk Officer for Commercial Insurance at Zurich Insurance Group, also experienced “being the only woman on the team”, but noted that there are variations by country and company.
“When I think about the two leadership teams I currently work with at Zurich, gender representation is roughly 50/50”, she told us. “I am very proud to work for a company that is committed to diversity, gender equality and fostering inclusiveness in the workplace, and consequently is included in the 2019 Bloomberg Gender-Equality Index.”
The impact of diversity on finance and risk management
Looking beyond gender diversity, Molyneux, Omero, Reis, A. Merzouk, and Lani Bannach, Director of Essenta and Well U Trading, advocate for diverse teams but in a multidisciplinary way.
Molyneux believes that “diversity, in all forms, is incredibly important for every business or sector. When I say “all forms”, I would even include things like cultural diversity, diversity in the level of experience, and even diversity in operating styles.”
“There are several studies where a diverse workforce is proven to enrich the working environment by providing different solutions to the same problem and by opening up constructive debate, ultimately resulting in a better outcome. Companies that do not diversify lose out on competitiveness and talent”, Omero explained.
“If the sector doesn’t value and embrace diversity appropriately it will lose a powerful taskforce and source of knowledge and creativity”, Reis added. “The sector is always open to new ideas and innovative solutions for old and new issues. The more diverse an environment is, the more creative and revolutionary will the business solutions be.”
According to A. Merzouk: “In risk management, we can have many different specialisations; strategic, operational, quantitative, compliance, cybersecurity, IT, etc. Some of these zones have very specific and complex requirements but they all rely on individuals being able to ‘see’ in 360 degrees. It is these comprehensive perspectives and tendency to ask questions that are essential in risk management. This is where the diversity in thinking is important. No diversity means no diversity in thinking which is essential for risk management.”
“In an extreme scenario, could ineffective risk management pose an existential threat to your business?”, Molyneux asked.
The short answer is yes, particularly in a world of “emerging or re-emerging risks that that we have little experience with in recent years”. Molyneux proposes a data driven approach to understanding these risks, but when it’s not available, what can you do?
“We will have to inject more judgment”, Molyneux concluded. “In order to give ourselves the best possible chance at informing that judgment, we will need to hear a broad range of views, even the unpopular “out there” suggestions. Diversity helps to deliver that range of views.”
“I think that it is more important to have diversity of different perspectives, experiences, and disciplines”, Bannach said. “Multidisciplinary teams are hell to manage sometimes because they look at things from different angles, but you do get better decisions out of this process.”
Bannach, who is on the Danish Women’s Council and lectures at Westminster University and at the Copenhagen Business School, shared that in her recent study, it was found that there is a remarkable difference in the way men and women assess information given to them. While women take longer with the assessment, men – in general – are quicker and get it wrong more often.
“This is interesting from a decision making point of view because in order to make good risk decisions – whether you take the risks or not – you need to understand the proposition or the choice”, Bannach explained. “When decisions go wrong, whether they are financial or board decisions, somebody would step up and say that the data supported that decision. But actually, it did not. They misinterpreted the data. So our research suggests that misinterpretation is more likely to happen when a man is making the assessment.”
A. Merzouk also warned that a lack of diversity could cause high-risk situations.
“The confirmation came from the case of Bernie Madoff – a classic example. Madoff was trusted strongly by the stakeholders and he escaped examination for many years from his peers and risk managers because he looked to have a clean Wall Street DNA. He appeared to be ‘one of them’. The issue with over-confidence on trusted stereotypes like Madoff is that risk managers can be blind to danger. That is obviously what occurred with Madoff.”
The future of future risk managers – where is the new talent?
“There have been many studies that found somewhat consistently (although there are, obviously, variations by country, company, etc) that the gender balance at entry level for the finance sector can be relatively balanced. But once you reach the executive or senior management levels that is no longer the case”, Molyneux recounted. “When that is coupled with the evidence that suggests other sectors are increasingly more attractive to millennials, perhaps the focus should be on maintaining the entry level flow but then also retaining that talent.”
In order to that, however, the industry needs to understand what young women are looking for in their career.
“Attracting millennial women into finance and risk management requires changing the way we think about work”, A. Merzouk explained. “For so long, the systems that have governed the finance sector has been created by men for men – and they replicate their requirements and priorities. For those organisations that are prepared to make real change, they must start by understanding what women and young people now expect from their companies and careers. That means making a creative and dynamic work environment where leaders support career development and employees are encouraged by the work they do. It means creating an employee experience that is challenging and rewarding, and above all, flexible and inclusive. Organisations must do more than talk about the importance of diversity – they must work to establish a workplace culture, where everyone can share opinions and work together to solve problems. In risk management, different ideas should be shared to get the best results. That means going beyond updating a mission statement or creating a business resource group.”
“Catch them young, train them early”
The challenge with attracting new and young people is that other industries are taking huge steps to make themselves visible. The scientific community campaigns tirelessly to promote a future in engineering and medicine to girls and young women. Omero gave us an account of what that means for her own daughters:
“When they project themselves into the future they talk about medicine, science, engineering, mathematics, and computer science – things that they see because somebody has mentioned these to them at school. I don’t think that they are aware, nor do they understand what finance or risk management is about, so they are taking steps towards other sectors. I think we’re missing out on early visibility in the education system.”
A. Merzouk agreed: “Many active risk management individuals do not consciously set out on a career path in risk management. We somehow stumble. To make the finance sector and risk management more visible, careers in finance should be incorporated into education curriculums to expose children to finance from a young age and this can be effective in bridging the gender gap.”
Bannach also recommends a ‘catch them young and train them early’ approach to talent acquisition and said: “I think that risk is incredibly interesting. It has got all the hallmarks of making an impact. Ultimately, risk management is about making the world a better place with better decisions, better risk prevention, contingency plans, insurance, protecting people’s assets… I think this story is incredibly interesting. I have never found anybody who was not interested in the subject. The problem is that they didn’t know what it was all about.”
Indeed, our survey of #FutureRiskMinds found that those under 35 in risk management thought the sector gave them the ability to make a difference in the success of the banking industry. But the future of this industry is being built rapidly, and by the time young people start working, it won’t be the same as today.
Omero suggested that those who talk about the industry should also talk about the future of the industry like AI, robotics, and automation.
“While industries are trying to attract people, there are controversial discussions around automated jobs. This discussion should be balanced and thought-through and we need to explain to the best of our knowledge what the job will be by the time these young people enter the workforce.”
So why risk management?
Bannach noted: “one thing that stood out to me of the female risk managers that I’ve met is that they love the complexity. They love that there are various elements that not only challenge their analytical brain but also takes into account the human factor and advocacy.”
“Having a job in financial services gives me an opportunity to grow and it always keeps me on my toes”, A. Merzouk told us. “Hard work and motivation in this field can help reach new heights.”
But perhaps Molyneux summarises it best: “I have spent most of my career within the finance function but when an opportunity arose I was eager to move to risk management. Why? I wanted to build experience by gaining insight into other functions within the business. Risk management provides that opportunity, and I have not been disappointed. On any given day you can be moving from cyber risks to climate risks, geopolitical risks, and risks associated with product development. With that variety, it is hard to get bored!”