Heed the Warning Signs

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Past president of the Association for Federal Enterprise Risk Management and former member of the federal Senior Executive Service

Education: BA in chemistry, political science, and German, University of California at Davis; MA in international relations, Yale University; and JD, Harvard Law School.

Author and editor of books and articles on topics including risk management, the 2007-08 financial crisis, effective government, and executive organization and management.

Served as a staff member of the Financial Crisis Inquiry Commission (2010-11), focusing on governance and risk management, and the mortgage market.

Currently Johns Hopkins University adjunct faculty member (Krieger School of Arts & Sciences), with expertise in risk management, federal credit programs, government corporations, financial institutions, and government regulation.

Boats in the Water

Hard-Earned Advice for Aspiring Corporate Leaders: “The whole point is, you want to look at the big risks.”

The common element [as organizational crises develop] is the people at the top sit there thinking that everything is great, and if you were to talk to people down in the organization, what’d you find is, “Gee, we’ve got problems,” but there seems to be a layer of cork that stops the information from rising from the bottom to the top.

When I was on the staff of the Financial Crisis Inquiry Commission, we would have all these officials from failed companies telling us how nobody could foresee the drop in housing prices. Well, it turned out in the midst of all the companies that failed, there were a number of companies that navigated the crisis.

And the answer, in my mind, had to do with information flow. In the successful companies, you had a flow of information from bottom to top and top to bottom and across the silos.

Warning signs are there. [After crises], it is so clear in retrospect that there was a problem. Enterprise Risk Management is a way to deal with that, and it asks a simple question: What are the major risks that could stop us from achieving our mission? The whole point is, you want to look at the big risks.

At one of the failed companies in the financial crisis, the chief credit officer went to his executive vice president and said, “We’ve got problems, we’re not pricing for the mortgages we’re buying.” And the executive vice president said, “How come you’re the only person in the company who believes in your models?” Well, that was really stupid. By the way, the chief credit officer is still there, and the executive vice president is long gone.




Remarks from TEDxJHUDC event, 2/18/17, co-organized by Carey Business School students; Stanton video at youtube.com/watch?v=voGyHN-tWMg

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