[Applause] that’s right
that’s right
that’s right thank you we live in an increasingly
thank you we live in an increasingly
thank you we live in an increasingly complex world and one of the results of
complex world and one of the results of
complex world and one of the results of that complexity is that a number of
that complexity is that a number of
that complexity is that a number of organizations are surprised when risks
organizations are surprised when risks
organizations are surprised when risks emerge that actually take them down on
emerge that actually take them down on
emerge that actually take them down on the private sector side you can think of
the private sector side you can think of
the private sector side you can think of the BP Gulf oil spill where complexities
the BP Gulf oil spill where complexities
the BP Gulf oil spill where complexities led to a huge disaster in the Gulf of
led to a huge disaster in the Gulf of
led to a huge disaster in the Gulf of Mexico you can think of the GM ignition
Mexico you can think of the GM ignition
Mexico you can think of the GM ignition switch problem and in those cases of
switch problem and in those cases of
switch problem and in those cases of course people fire the CEOs they fire
course people fire the CEOs they fire
course people fire the CEOs they fire people companies are hurt seriously in
people companies are hurt seriously in
people companies are hurt seriously in the case of the Takata airbags you may
the case of the Takata airbags you may
the case of the Takata airbags you may actually see a company go out of
actually see a company go out of
actually see a company go out of business on the government side you see
business on the government side you see
business on the government side you see the same problem the Veterans
the same problem the Veterans
the same problem the Veterans Administration had a series of Veterans
Administration had a series of Veterans
Administration had a series of Veterans Hospitals and it turned out that over
Hospitals and it turned out that over
Hospitals and it turned out that over stretched hospitals have long wait times
stretched hospitals have long wait times
stretched hospitals have long wait times but the head of the VA had let it be
but the head of the VA had let it be
but the head of the VA had let it be known he didn’t want to hear about long
known he didn’t want to hear about long
known he didn’t want to hear about long wait times he wanted to hear that
wait times he wanted to hear that
wait times he wanted to hear that everybody was being dealt with within
everybody was being dealt with within
everybody was being dealt with within two weeks so if you tell me that’s what
two weeks so if you tell me that’s what
two weeks so if you tell me that’s what I got to say that’s what I’ll say and it
I got to say that’s what I’ll say and it
I got to say that’s what I’ll say and it turned out that VA hospitals in fact had
turned out that VA hospitals in fact had
turned out that VA hospitals in fact had such long wait times that veterans were
such long wait times that veterans were
such long wait times that veterans were dying before they got their health care
dying before they got their health care
dying before they got their health care and when that finally came to light once
and when that finally came to light once
and when that finally came to light once again they fired the secretary they
again they fired the secretary they
again they fired the secretary they fired people down the organization and
fired people down the organization and
fired people down the organization and Congress started to do surgery on civil
Congress started to do surgery on civil
Congress started to do surgery on civil service protections in the VA the same
service protections in the VA the same
service protections in the VA the same thing happened with the IRS where people
thing happened with the IRS where people
thing happened with the IRS where people were looking at exempt organizations and
were looking at exempt organizations and
were looking at exempt organizations and decided not very bright to look at
decided not very bright to look at
decided not very bright to look at organizations that all had the name Tea
organizations that all had the name Tea
organizations that all had the name Tea Party in it when that came to light the
Party in it when that came to light the
Party in it when that came to light the resulting explosion led to firing people
resulting explosion led to firing people
resulting explosion led to firing people from top of the organization down and
from top of the organization down and
from top of the organization down and Congress again did surgery on the ir
Congress again did surgery on the ir
Congress again did surgery on the ir the common element and all of this is
the common element and all of this is
the common element and all of this is the people at the top sit there thinking
the people at the top sit there thinking
the people at the top sit there thinking that everything is great and if you were
that everything is great and if you were
that everything is great and if you were to talk to people down in the
to talk to people down in the
to talk to people down in the organization what you’d find is gee we
organization what you’d find is gee we
organization what you’d find is gee we got problems we got problems but there
got problems we got problems but there
got problems we got problems but there seems to be a layer of cork that stops
seems to be a layer of cork that stops
seems to be a layer of cork that stops the information from rising from the
the information from rising from the
the information from rising from the bottom to the top I first learned about
bottom to the top I first learned about
bottom to the top I first learned about this when I was on the staff of the
this when I was on the staff of the
this when I was on the staff of the Financial Crisis Inquiry Commission and
Financial Crisis Inquiry Commission and
Financial Crisis Inquiry Commission and we would have all these officials from
we would have all these officials from
we would have all these officials from failed companies telling us how nobody
failed companies telling us how nobody
failed companies telling us how nobody could foresee the drop in housing prices
could foresee the drop in housing prices
could foresee the drop in housing prices well it turned out in the midst of all
well it turned out in the midst of all
well it turned out in the midst of all the companies that failed there were a
the companies that failed there were a
the companies that failed there were a number of companies that navigated the
number of companies that navigated the
number of companies that navigated the crisis and I began to understand the
crisis and I began to understand the
crisis and I began to understand the difference between successful companies
difference between successful companies
difference between successful companies and unsuccessful companies and the
and unsuccessful companies and the
and unsuccessful companies and the answer in my mind had to do with
answer in my mind had to do with
answer in my mind had to do with information flow that in the successful
information flow that in the successful
information flow that in the successful companies you had a flow of information
companies you had a flow of information
companies you had a flow of information from bottom to top and top to bottom and
from bottom to top and top to bottom and
from bottom to top and top to bottom and across the silos so the Baron’s would
across the silos so the Baron’s would
across the silos so the Baron’s would talk to each other so in in JP Morgan
talk to each other so in in JP Morgan
talk to each other so in in JP Morgan Chase all of a sudden their mortgage
Chase all of a sudden their mortgage
Chase all of a sudden their mortgage side realized that they were having
side realized that they were having
side realized that they were having serious delinquencies and the news
serious delinquencies and the news
serious delinquencies and the news immediately went up to the operating
immediately went up to the operating
immediately went up to the operating committee at the very top of this multi
committee at the very top of this multi
committee at the very top of this multi trillion dollar organization and there
trillion dollar organization and there
trillion dollar organization and there was a food fight among the executives
was a food fight among the executives
was a food fight among the executives what’s going on here and they realized
what’s going on here and they realized
what’s going on here and they realized their delinquencies were better than
their delinquencies were better than
their delinquencies were better than their competitors delinquencies so the
their competitors delinquencies so the
their competitors delinquencies so the instructions went down get rid of
instructions went down get rid of
instructions went down get rid of subprime mortgages and that was in
subprime mortgages and that was in
subprime mortgages and that was in October of oh six well before the crisis
October of oh six well before the crisis
October of oh six well before the crisis the same thing happened with Goldman
the same thing happened with Goldman
the same thing happened with Goldman Sachs in December of oh six where
Sachs in December of oh six where
Sachs in December of oh six where somebody reported the head of their
somebody reported the head of their
somebody reported the head of their mortgage desk reported that they where
mortgage desk reported that they where
mortgage desk reported that they where their models said they were supposed to
their models said they were supposed to
their models said they were supposed to make money for two weeks they had lost
make money for two weeks they had lost
make money for two weeks they had lost money immediately the news went up and
money immediately the news went up and
money immediately the news went up and Goldman hedged their subprime portfolio
Goldman hedged their subprime portfolio
Goldman hedged their subprime portfolio those were the successful companies so
those were the successful companies so
those were the successful companies so the lessons I took for them from that
the lessons I took for them from that
the lessons I took for them from that or that information flow is essential
or that information flow is essential
or that information flow is essential but also warning signs or the air if you
but also warning signs or the air if you
but also warning signs or the air if you look at the post-mortem on the BP Gulf
look at the post-mortem on the BP Gulf
look at the post-mortem on the BP Gulf oil spill or on Massey mining where 29
oil spill or on Massey mining where 29
oil spill or on Massey mining where 29 miners were killed or any number of
miners were killed or any number of
miners were killed or any number of disasters the NASA Space Shuttle
disasters the NASA Space Shuttle
disasters the NASA Space Shuttle disasters
disasters
disasters it is so clear in retrospect that
it is so clear in retrospect that
it is so clear in retrospect that there’s a problem Enterprise Risk
there’s a problem Enterprise Risk
there’s a problem Enterprise Risk Management is a way to deal with that
Management is a way to deal with that
Management is a way to deal with that and it asks a simple question what are
and it asks a simple question what are
and it asks a simple question what are the major risks that could stop us from
the major risks that could stop us from
the major risks that could stop us from achieving our mission and the whole
achieving our mission and the whole
achieving our mission and the whole point is you want to look at the big
point is you want to look at the big
point is you want to look at the big risks government particularly but also
risks government particularly but also
risks government particularly but also the private sector are always distracted
the private sector are always distracted
the private sector are always distracted by all these little risks that they’re
by all these little risks that they’re
by all these little risks that they’re worried about that they tie up in red
worried about that they tie up in red
worried about that they tie up in red tape and in fact what you want to look
tape and in fact what you want to look
tape and in fact what you want to look at are the really big risks and if you
at are the really big risks and if you
at are the really big risks and if you can build that into your culture you can
can build that into your culture you can
can build that into your culture you can have a much more robust capacity to
have a much more robust capacity to
have a much more robust capacity to understand the vulnerabilities that
understand the vulnerabilities that
understand the vulnerabilities that you’re otherwise going to run into
you’re otherwise going to run into
you’re otherwise going to run into without appreciating them so one of the
without appreciating them so one of the
without appreciating them so one of the failed companies and the financial
failed companies and the financial
failed companies and the financial crisis the chief credit officer went to
crisis the chief credit officer went to
crisis the chief credit officer went to his executive vice president and said we
his executive vice president and said we
his executive vice president and said we got problems we’re not pricing for the
got problems we’re not pricing for the
got problems we’re not pricing for the mortgages were buying and the executive
mortgages were buying and the executive
mortgages were buying and the executive vice president said how come you’re the
vice president said how come you’re the
vice president said how come you’re the only person in the company who believes
only person in the company who believes
only person in the company who believes in your models well that was really
in your models well that was really
in your models well that was really stupid by the way the chief credit
stupid by the way the chief credit
stupid by the way the chief credit officer is still there and the executive
officer is still there and the executive
officer is still there and the executive vice president is long gone but in the
vice president is long gone but in the
vice president is long gone but in the case of goldman sachs when we
case of goldman sachs when we
case of goldman sachs when we interviewed the head of the mortgage
interviewed the head of the mortgage
interviewed the head of the mortgage desk we said why did you report the bad
desk we said why did you report the bad
desk we said why did you report the bad news to the top and he said part of my
news to the top and he said part of my
news to the top and he said part of my job is to make sure that the people at
job is to make sure that the people at
job is to make sure that the people at the top of the organization know what
the top of the organization know what
the top of the organization know what they need to know to make good decisions
they need to know to make good decisions
they need to know to make good decisions and that was a successful company so
and that was a successful company so
and that was a successful company so what you need to make enterprise risk
what you need to make enterprise risk
what you need to make enterprise risk management work is first of all support
management work is first of all support
management work is first of all support from the top
from the top
from the top I’ve just been inserted into a
I’ve just been inserted into a
I’ve just been inserted into a government agency actually about six
government agency actually about six
government agency actually about six months ago was supportive and under
months ago was supportive and under
months ago was supportive and under secretary
secretary
secretary and she had us gather all of the senior
and she had us gather all of the senior
and she had us gather all of the senior executives and talked to them talk about
executives and talked to them talk about
executives and talked to them talk about the big risks and what you’ve got to do
the big risks and what you’ve got to do
the big risks and what you’ve got to do is overcome the tendency of barons to
is overcome the tendency of barons to
is overcome the tendency of barons to say there are no risks I run a good
say there are no risks I run a good
say there are no risks I run a good department and instead to understand
department and instead to understand
department and instead to understand everybody’s got risks we’re not blaming
everybody’s got risks we’re not blaming
everybody’s got risks we’re not blaming you what we want to do is solve problems
you what we want to do is solve problems
you what we want to do is solve problems and if we can hear about these risks
and if we can hear about these risks
and if we can hear about these risks early we can deal with them before
early we can deal with them before
early we can deal with them before rather than after something bad happens
rather than after something bad happens
rather than after something bad happens in the earlier you hear about it the
in the earlier you hear about it the
in the earlier you hear about it the easier it is to deal with an emerging
easier it is to deal with an emerging
easier it is to deal with an emerging risk and what we did over time was
risk and what we did over time was
risk and what we did over time was infuse the culture of the organization
infuse the culture of the organization
infuse the culture of the organization so people understood we’re not playing
so people understood we’re not playing
so people understood we’re not playing gotcha what we’re trying to do is help
gotcha what we’re trying to do is help
gotcha what we’re trying to do is help you solve problems that otherwise may be
you solve problems that otherwise may be
you solve problems that otherwise may be too big for you and by the way we’re all
too big for you and by the way we’re all
too big for you and by the way we’re all in this together in today’s complex
in this together in today’s complex
in this together in today’s complex world with the kind of reputational risk
world with the kind of reputational risk
world with the kind of reputational risk that beset Sall organizations were all
that beset Sall organizations were all
that beset Sall organizations were all in this together
in this together
in this together and we had better work on it together so
and we had better work on it together so
and we had better work on it together so that’s Enterprise Risk Management and I
that’s Enterprise Risk Management and I
that’s Enterprise Risk Management and I really hope you look into it because it
really hope you look into it because it
really hope you look into it because it is a really powerful management tool I’d
is a really powerful management tool I’d
is a really powerful management tool I’d like to finish with one of the actually
like to finish with one of the actually
like to finish with one of the actually the best quote from the whole Financial
the best quote from the whole Financial
the best quote from the whole Financial Crisis Inquiry Commission study and
Crisis Inquiry Commission study and
Crisis Inquiry Commission study and that’s from a guy named John Reed who
that’s from a guy named John Reed who
that’s from a guy named John Reed who was head of Citigroup back in 2000 and
was head of Citigroup back in 2000 and
was head of Citigroup back in 2000 and was eased out at that point before
was eased out at that point before
was eased out at that point before Citigroup got into all of its trouble
Citigroup got into all of its trouble
Citigroup got into all of its trouble and he asked the question why does a car
and he asked the question why does a car
and he asked the question why does a car have brakes a car has brakes so it can
have brakes a car has brakes so it can
have brakes a car has brakes so it can go fast if you didn’t have brakes
go fast if you didn’t have brakes
go fast if you didn’t have brakes you’d creep around at two miles an hour
you’d creep around at two miles an hour
you’d creep around at two miles an hour if you’ve got brakes you understand what
if you’ve got brakes you understand what
if you’ve got brakes you understand what the problems are and you can really go
the problems are and you can really go
the problems are and you can really go forward at 65 miles an hour and the
forward at 65 miles an hour and the
forward at 65 miles an hour and the whole point of enterprise risk
whole point of enterprise risk
whole point of enterprise risk management is not to create another
management is not to create another
management is not to create another layer of bureaucracy but rather to have
layer of bureaucracy but rather to have
layer of bureaucracy but rather to have your chief risk officer facilitate the
your chief risk officer facilitate the
your chief risk officer facilitate the conversations and then the discussions
conversations and then the discussions
conversations and then the discussions about priorities
about priorities
about priorities one of the really big risks we’ve got a
one of the really big risks we’ve got a
one of the really big risks we’ve got a grapple with it’s a very powerful
grapple with it’s a very powerful
grapple with it’s a very powerful management tool and I hope you all have
management tool and I hope you all have
management tool and I hope you all have a chance to take a look thank you
a chance to take a look thank you
a chance to take a look thank you [Applause]
”
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