Rick Waugh, president and CEO of Scotiabank, leans on the podium at the bank's annual meeting in Halifax in this April 5, 2011, file photo.Andrew Vaughan/The Canadian Press
Bank executives typically don't say much about risk management. Often they're preoccupied with appeasing shareholders and growing their businesses.
But Rick Waugh has long been a notable exception. The top dog at Bank of Nova Scotia has been on a crusade to shore up risk governance globally, serving as vice-chair of the Institute of International Finance.
Each year the IIF, in conjunction with Ernst & Young, releases a survey on the state of risk management and on Tuesday the two groups came together to host a roundtable on the most pressing issues.
Their key message: risk management isn't just about implementing new checks and balances. It's about transforming your culture.
"If you don't have a uniform, consistent, risk culture, you run a big risk of getting it wrong," Mr. Waugh said, presumably unaware that he delivered a pun at the same time.
Doing that, though, isn't so simple. "There's no silver bullet," he said. You can't just send out a message from the CEO stating that the bank takes risk management very seriously.
"You can't achieve a culture just by making a statement about your values," said E&Y partner Patricia Jackson.
Instead, you have a do a "thousand little things," Mr. Waugh said, and the process can be slow and tedious. "The best practical advice: just keep at it."
A small example of what Scotiabank implemented: management requires every employee to read a code of conduct and sign off on it. Each year management goes to the board with the number of employees who have and haven't signed, and they have to answer to directors if the latter group is too large.
Now, Mr. Waugh was the first to admit getting employees to read something and then quickly sign their approval isn't going to end risk abuses. But it's one of the small things that banks can do to signal that everyone's on board.
On a more practical level, risk management requires solid systems that can flag problems, many of which are outdated.
"The systems across finance, treasury and risk, weren't built to deal with the needs today," Ms. Jackson said. And even if there have been updates within each unit, they're often bespoke systems that don't communicate well with the back end. Banks must shell out the cash necessary to streamline these systems.
And financial institutions must then use them much more frequently. Sure you can do the necessary stress testing to meet regulatory demands, but that isn't going to cut it in markets like these. The panelists strongly advocated running continual 'what if?' analyses, because new problems can flare up at any moment.
While there's still much to be accomplished, Mr. Waugh said there's already been a big change within banks – and it goes a long way. Before the crisis, the chief risk officer was often viewed as a secondary figure. Now he or she "is at the table for the business decisions."
(Tim Kiladze is a Globe and Mail banking reporter.)
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