Category Archives: Risk Management

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The Risky ‘Business of Art’ Explored at Observer Event

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From left: Massimo Sterpi, Elena Zavelev, Anne Bracegirdle, Devin Finzer, Curt Bilby / Photo: Keith Sherman & Associates

NEW YORK—On May 21, the Observer’s inaugural “Business of Art Observed” event brought experts in art, insurance, risk management, tech and finance to the Roosevelt Hotel to discuss established and emerging risks facing the $50 billion art industry.

The “Insurance and Risk Management” session wasted no time exploring creative risk and claims management approaches to the various forms of potential damage to artwork. From transit to security to geopolitical risk, panelists agreed fine art coverage is not a paint-by-numbers process, and said the “framing of a claim” can facilitate a payment.

“Insurance companies get a bad reputation,” said Mary Pontillo, senior vice president and national fine art practice leader at DeWitt Stern. “But the higher-end, really good-quality insurance companies are looking for ways to pay claims. I think that’s where there are a lot of misconceptions.”

For example, she mentioned advising a client whose work was being kept on a yacht. While certain maritime and environmental risks such as humidity were not covered by the policy, she was able to demonstrate that ocean spray had been the source of the damage and successfully get the claim covered.

The session discussed modernizing risk management in the art market and how the industry should apply forensic due diligence to transactions and ensure they view all business activities through a lens of strategic risk. And with transparency cited as a continuous challenge, Dennis Wade, a senior partner at Wade Clark Mulcahy, LLP, who has handled international fine art matters, pointed out the importance of reputation risk when drafting a policy.

“Many policies also contain an exclusion for the dishonesty of the person to whom you deliver or entrust the goods,” Wade said. “So if you consign a work to a corrupt gallerist, there may be an exclusion in your policy and you may not be covered at all.”

The emergence of blockchain technology dominated discussion at another session, “Art Market 2.0: Using Art & Technology to Drive the Industry Forward.” According to panelists, authentication and secure transactions have risen to the top of their risk registers. New Art Academy Founder Elena Zavelev said blockchain’s ability to put individual faces on digital artwork has mostly solved the prior risk of unauthorized duplications, forgeries, and fraud. Zavelev and her co-panelists said blockchain may facilitate a long-term change in the way art is created, sold, curated and insured by improving the ability to track a work’s provenance.

Christie’s AVP Anne Bracegirdle said the masterstroke for streamlining the authentication process is to create a digital, industry-wide registry. Tokenizing original works, she said, would simplify the experience of buying, selling and trading. “If each piece had its own digital identity that would stay the same, no matter where it went, it would instantly provide secure provenance and prices,” Bracegirdle said. “There are companies like Consensus and Microsoft working to create distributed identity networks. The security within that could be applied to scale blockchain—regardless of which blockchain you’re interacting with. Digital identities would provide clients with access to all their consignments and their purchases in one consolidated space, which currently doesn’t exist.”

The evolution of art was also a hot topic during this session since what’s considered a “finished piece” is no longer just a physical canvas. Digital, virtual and even crypto-art may be in their relative infancy but these are gaining global popularity and could significantly influence the industry, said Devin Finzer, co-founder and CEO of OpenSea, a peer-to-peer marketplace for crypto collectibles, gaming items, and digital art.   

“[Owning digital products] has always been confined to a specific ecosystem, like event tickets to a ticketing site,” Finzer said. “Blockchain offers a new type of ownership for these digital assets and it’s exciting for digital art because you can own it in a variety of [digital forms]. Right now, we see the enthusiasm is from tech enthusiasts, but I think over time these ideas around digital ownership will cross over to a mainstream crowd who appreciate the art more than the technology.”

The Case for Strategic Risk Management

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At last week’s RIMS 2019 in Boston, a group of risk professionals got together for the panel session “NextGen ERM: Strategic Risk Management” to discuss the advantages of strategic risk management (SRM) and the challenges to successfully integrating it into organizations.

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The panel examined several major organizations that have taken shortcuts with training or even rushed to out-duel a competitor, failing to consider the long-term impact on strategy, reputation and market-share. Blockbuster, Kodak and Sears failed to innovate, and these once-thriving name brands are now prime examples of SRM’s benefits.

“Blackberry is one such company, but there are countless examples of organizations that have overlooked the long-term strategic impact of their actions,” said Marian Cope, owner of CopeRisk LLC.

Despite recent corporate missteps tied to failures in long-term strategic analysis, as recently discussed in Risk Management, risk professionals still face resistance to their SRM initiatives. “Demonstrating the value of SRM has to be a priority for risk professionals if they hope to gain buy-in from leadership,” said Rick Roberts, director of risk management and employee benefits at Ensign-Bickford Industries and a former RIMS president.

One of the value propositions of SRM—and an easy one for leadership to support—is the focus on taking advantage of risks that can accelerate the achievement of strategic objectives. “Artificial intelligence is an example of a disruptive technology that is impacting many industries. But, if your organization is aware of it, understands its usefulness and has developed a plan for it, it can give you a competitive edge,” said Marian Cope, owner of CopeRisk LLC.

But the case for an SRM initiative should not just be made with cautionary tales of organizations that did not use SRM. “Don’t just share failures, it’s also important to share SRM successes,” said Ellen Dunkin, senior vice president, general counsel and chief risk officer at Amalgamated Life Insurance Co. “Even Amazon and their business model that gives consumers almost instant access to their purchases has adjusted its strategy and started to open brick-and-mortar shops.”

According to the panel, the risk professional should ideally be involved in strategic planning from the get-go. “Some organizations have a chief risk officer that participates in the preparation as well as the strategic planning and decision-making discussions. Unfortunately, that’s not the norm,” Cope said.

The panel identified the next-best option for risk professionals, which is to work from the strategic objectives established by the organization. From there, they need to analyze the business model, identify, assess, and prioritize the risks that can derail or accelerate achieving the strategic objectives, facilitate the development of appropriate risk responses, and then align such objectives, risks, and risk responses with operations.

An effective SRM program will incorporate plans for a risk strategy, communications strategy, implementation, and training with the goal of integrating strategic risk management into decision-making processes. “The risk professional is going to require support from others in the organization too.

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They’re going to need risk champions to vouch for them, as well as a final presentation that includes achievable and measurable deliverables that demonstrate the value of the process,” Roberts said.

SRM can be a stand-alone program or a component of ERM. Regardless, the panel noted that SRM is vital to the long-term success of organizations as alignment of strategy and operations results in the identification of opportunities to accelerate achievement of strategic objectives and prevents operational blunders that will trigger strategic risks (e.g., substantial reputational harm). Accordingly, SRM as a stand-alone program allows risk professionals to add more value while streamlining the process.

“SRM is the next generation of ERM and identifies external and strategic risks as opposed to the more granular view for ERM. It allows the team to bring the top 10 key risks to leadership, with a focus on the top two to three as opposed to overwhelming them with the full risk register that could include 100,” said Ellen Shew Holland, higher education practice leader for Hanover Stone Partners LLC and president of Strategic Risk Frameworks LLC.

Ultimately, the group agreed, SRM will help fully integrate risk management programs into an organization’s business model and the value should be evident in each positive step the business takes toward achieving its strategic objectives.

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Solving the Talent Crisis in the Risk Profession

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BOSTON—In a time when skills become obsolete much quicker than in previous eras and the professional landscape is rapidly evolving, businesses need to be more agile and adaptive. Companies with these characteristics tend to meet their clients’ expectations more effectively, have higher employee engagement, and see more success generally. They can accomplish this by bringing on and nurturing younger or newer talent.

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While more schools are offering risk-related academic programs, however, the industry is still not attracting enough young people to its ranks.

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How can companies attract new talent to the risk management industry and keep them from leaving?

“I hear people saying all the time, ‘I wish next-generation people would stay,’” said Monica Merrifield, vice president of risk intelligence at YMCA of Greater Toronto. At today’s RIMS 2019 session “Solving the Talent Crisis in the Risk Profession,” Merrifield and fellow panelists Joseph Milan, principal at JA Milan and Associates LLC, Grace Crickette, vice president of administrative affairs at the University of Wisconsin-Whitewater, and Andrew Bent, risk director at Sage Group plc., discussed why young people aren’t joining the risk management field, and what companies can do to bring them into the industry and keep them there.

Crickette described the next generation as purpose-driven and passionate, expecting a company to have a bigger vision and to be clear about the employee’s role in that vision. They work best in high-collaboration and low-hierarchy environments, and expect a variety of work, as well as meaningful interactions with leadership. They are interested in creating a pathway to growth more than advancement—not necessarily a ladder, Crickette said, but “a lattice.” In part, companies and hiring managers can attract these young professionals by examining their own operations and internal culture to ensure that they address these concerns and are open to new perspectives and contributions. When companies emphasize the values of diversity (both of ideas and people), humility, and learning from mistakes, this will make them more appealing for the next generation of talent, Merrifield said.

Merrifield and Crickette also stressed the importance of cultivating new talent, and how young professionals can grow by seeking out mentors and sponsors who will create opportunities for them, even if those opportunities are not at their current company.

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“Don’t wait for a sponsor, ask for a sponsor,” Crickette said. Multiple panelists also encouraged young professionals to pursue education and accreditation for advancement and growth in a risk management career, Crickette urging young people to take more tests and get professional designations to set themselves apart and learn more, and Milan describing the benefits of the RIMS-CRMP certification. Milan also advised young professionals to be courageous enough to share new ideas in their workplaces, and Merrifield said that they should focus on soft skills, which are less likely to be automated in the future.

When people lament that they wish millennials would stay, Bent said he responds by pointing to studies showing that millennials are actually more loyal when their employers present them with a “why”—a deeper purpose for their work and a reason to stay. He said that companies should examine what they are actually doing to attract and retain younger talent, keeping in mind that millennials and younger generations are better at moving on when they see that a new opportunity elsewhere is better.

Crickette added that the industry needs to show young people that there is more to the risk management business than just insurance, and explain how diverse the field is. Bent and Milan both also said that the risk profession is mostly associated with bad things happening, and that risk management professionals could help change that perception by showing how risk management can create opportunities, showing up in their communities during both good times and bad.

It is possible to get young people to join and stay in the risk management profession, these experts stressed, but companies must do the work to adapt to the employees they want, creating opportunities for young risk management professionals to engage and grow.

Q&A: 2019 Risk Manager of the Year Luke Figora

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Luke Figora, senior associate vice president and chief risk and compliance officer at Northwestern University, was named the RIMS 2019 Risk Manager of the Year today.

With annual revenues of approximately .

5 billion (reported in 2018) and nearly $700 million in sponsored research annually, Northwestern is among the country’s leading research universities. Figora has risen quickly through the ranks at Northwestern, where his enterprise risk management (ERM) framework has elevated its risk culture across three campuses—two in Illinois and one in Qatar.

Figora spoke with Risk Management Monitor about his experience as one of the youngest stakeholders among Northwestern’s leadership, his process of customizing an ERM matrix and his reaction to the recent college admissions scandal.

Risk Management Monitor: You and your department created an ERM matrix in the past year that united Northwestern’s compliance owners and that may even set a precedent in higher education. What went into its creation?

Luke Figora: We spent a lot of time defining risk appetite statements and tried to make our program a little more outcome-based and actually show how we’re moving the needle on uncertain key risks for Northwestern. And we avoided spending too much time aligning perfectly to one of the ERM frameworks like COSO or ISO. So I think if someone looked at our program from the outside, it might not check all the boxes from a typical model perspective, but it’s driving action here at Northwestern and it seems to be the right level for engagement with our stakeholders.

I think one of the biggest challenges for ERM at Northwestern—and maybe this is true across the industry—is that we don’t necessarily have one strategy right now. We have some pillars and values that Northwestern follows, but we’re ultimately a very decentralized institution that has a number of schools, and a number of units in each one of those have slightly different objectives and goals.

RMM: It seems that there is a degree of transparency, but not full transparency.

LF: Right. For example, athletics and the School of Medicine have very different risk profiles and neither one of them should know the other’s risks or operations. And it would be hard for someone in athletics to speak about the risks of animal research within the School of Medicine. I think that’s where our risk office plays a role in right-sizing the expectations and taking the feedback from all the units, but trying to do some triage through that.

RMM: Many of your colleagues are several years your senior—how has that impacted your work?

LF: I am probably the youngest person on the leadership team across the institution, but it has probably been beneficial. I have tried to bring different ideas and update the ways in which we think about risk. I’m not jaded by the insurance industry, and I think people are receptive because of that.

RMM: Since arriving at Northwestern nearly five years ago, you moved up the ranks relatively quickly, although you’ve maintained that was not your goal. How would you advise young risk professionals as they get their feet wet?  

LF: I think all of us at early stages in our careers can’t wait to be a manager and want that vertical growth and the chance to lead a team, but the bigger driving factor for me has been horizontal growth and expanding the portfolio. After that, I believe the other opportunities will come. That is a belief I try to hammer home in my work and when I make industry presentations.

RMM: The college admissions system is a hot topic due to the major scandal that broke in March. How might that have affected where the admissions process is on Northwestern’s risk register?

LF: Last year at this time, fraud in the admissions cycle wouldn’t have been one of our top 10 enterprise risks. But when things like this break, there is a tendency to go into reaction mode and examine whether we have similar issues. I always try to keep people level-headed and remind them that just because this hit doesn’t mean it moves to number one on our crisis management list for the year. It is worth doing a deep dive into the question or topic that’s in the news, but whenever scandals hit, I think we’ve tried to approach them with a rational view.

RMM: It sounds like the knee-jerk reaction is to go into crisis communication mode, even though it’s not your crisis.

LF: We know we’re going to get questions from our trustees, so there’s an initial all-hands-on-deck mentality. You have to make sure you have talking points that outline how we’ve thought about it because we know we’re going to get questions from the media. We do focus on crisis communications, but it becomes more about knowing if we have the right controls that could protect the institution from something like this happening to us.  

Figora was also the special guest on this week’s RIMScast, which you can download here.