sounds like an Italian cheese or a geological era, but it’s not. It’s
closest to a newborn child. PRMIA is the Professional Risk Managers’ International
Association, the newest organization for practitioners of the risk trade.
A group of over 20 active Regional Directors and members of the Global
Association of Risk Managers (GARP), unhappy with the leadership and direction
of that organization and unable to make changes internally (see RMR
March 2002), formed the new group in late 2001. It has grown substantially
in the past two years. At the same time, perhaps because the departure
of many of its members served as a catalyst, GARP itself has instituted
a revival. So today we have two competitive associations representing
financial risk managers around the world. Do we need two? I’ve already
expressed my doubt but, as long as they agree to cooperate (both are nonprofits),
there is no reason why they should not continue their parallel tracks.
I am a member of and learn from both.
PRMIA (for full information, see its well-designed website www.prmia.org)
now counts 6,500 plus members and 38 chapters, representing 2,400 institutions
in 95 countries. Membership continues to be free. Current financing of
its website and organization depends on examination fees, conference income
and commercial sponsorships, the latter currently at 45% and to drop to
25% in 2004. Its financial statements are posted annually on the PRMIA
website. All its leaders are member volunteers.
PRMIA offers both a certification program and regular international meetings.
Its PRM (Professional Risk Manager) designation requires passing a difficult
yet challenging examination. It now has 265 PRMs globally. See its website
for full information, a minitest and its reading list, plus a thorough
list of useful papers and publications. Its conferences cover the gamut
of financial risk management: treasury risk, credit and portfolio risk,
country risk analysis, corporate RM roundtable, performance evaluation
of hedge funds, Asian Banker Summit, EU derivatives, legal risk, operational
risk, geopolitical risk and an Enterprise Risk Symposium. They will take
place during the next six months in such locations as Washington, Chicago,
New York, New Jersey, London, Hong Kong, Madrid, Paris, Singapore and
To check on PRMIA’s progress, I attended its 2003 Risk Summit, in Boston
on June 9. A similar event was held earlier this year in Europe. First,
I like the idea of an intense one-day event. It opened at 0850 and concluded
at 1830, with a luncheon speaker. That’s efficient use of valuable time!
Second, it was (almost) free of commercialism. The Summit had but one
sponsor. This is a stark contrast to most other risk management events
where everything seems to be for sale! I received in June a flyer
from another organization promoting a November conference for which it
offered, at substantial prices, the chance to plant a name on such things
as tote bags, cabarets, meals, coffee breaks, a golf tournament, a welcoming
bag and even a “turndown service.” That last item challenges my prurient
imagination! It was pleasant to have only the PRMIA label on this event.
The focus was on information and content, not on sales pitches.
And third, the content of this day was consistently high. Its three featured
speakers addressed critical issues with candor and intelligence, and its
numerous panels avoided the common flaw of too lengthy “statements” and
too little discussion. The dialogue and floor questions were probing and
often at odds with speakers’ opinions. The lead speaker was R. Glenn Hubbard,
the former Chairman of the Council of Economic Advisors for the Executive
Branch of the US Government. Hubbard discussed four “key policy risks”
for the US: the timing of the recovery in business investment, the volatility
in oil prices, the potential for a trade fall-out (a spillover from the
Iraq war), and reform failures (so far) in Germany and Japan. He called
two other issues “red herring risks:” the over-concern about currency
valuation and the rising US budget deficit. He suggested that the latter
is still well within an acceptable percentage of GDP, although the deficits
in entitlement programs are problems. Hubbard sees “enormous
resiliency in the US private sector,” leading to his belief that “the
outlook for long-term growth in the US is very good.” He cautioned, however,
that while “risks are basic features of a dynamic economy,” the recent
erosion of trust in the private sector could lead to “demonizing risk”
unnecessarily. Regulation should avoid protectionism of every sort and
emphasize “transparency” and disclosure rather than excessive rules and
regulations. He called for continued support of the “business judgment”
rule, under which managers should be immune from lawsuit and governmental
interference when an honest business decision fails to produce its expected
The other featured speakers were Eliot Spitzer, the Attorney General
of the State of New York, and Richard Sandor, the Chairman and CEO of
the new Chicago Climate Exchange. Spitzer focused on federalism and governance.
While the US has undergone a period of devolution of centralized federal
power to state and local governments, a devolution that he acknowledged
he and his fellow AGs in the states have eagerly used to their advantage,
he believes that some of these powers should be returned to Washington.
The issue of governance has, he argued, “touched every sector of our society.”
He argued that it began with Richard Nixon’s attempt to create an “imperial
presidency.” It then spread into the private sector in the 1990s, resulting
in the most recent sordid examples of runaway executives and complacent
boards. He suggested that one means of redressing the balance might be
to grant greater power to institutional investors, permitting them more
voice and power in corporate boardrooms. Dr. Sandor updated the status
of the new Chicago Climate Exchange, his global venture in trading carbon
pollution credits. I heard him speak on the same subject at conferences
in February 2000 and 2002 in New York (see RMR March 2000 and
March 2002). This voluntary greenhouse-gas trading program holds significant
promise for long-term reductions in emissions with limited governmental
involvement. For more information, go to www.chicagoclimateexchange.com.
It’s an exciting idea and one to watch closely in the next few years.
I attended four panel discussion on such subjects as “Using Risk Management
to Improve Competitive Advantage,” “Contrasting the Risk Profile and Appetite
of Different Business,” “Thriving in the Current Regulatory Environment,”
“Keeping Up with the Evolving Role of Credit Risk Management,” and “ Reputational
Risk: How Can Ethics and Corporate Culture Help?” Each featured an active
and vocal moderator who kept comments brief and encouraged floor questions.
One panelist argued that his role was to “help others take better risks,”
a sign that this group is not mired in the mudhole of downside risk. One
questioner asked if the panelists had seen, over the past few years, a
distinct migration of credit risk from banks to insurance companies. They
confirmed this shift, suggesting that these two industries assess credit
risk benefits and harms in different ways! The regulatory group discussed
in depth the current Basel II proposals, still under review. They agreed
that, while the new accord increases regulatory complexity, this is inevitable
because of the globalization of business and the increasing sophistication
of econometric modeling.
Altogether the PRMIA Risk Summit 2003 was an intellectually challenging
day. I’ll add one last comment. Of the 38 speakers, only eight represented
vendors. This ratio of 21% is the lowest I’ve seen at any risk management
conference in the past decade! Here, at last, is a group of practitioners
who speak for themselves!
Altogether the PRMIA Risk Summit 2003 was an intellectually challenging
day. I’ll add
one last comment. Of the 38 speakers, only eight represented vendors.
This ratio of
21% is the lowest I’ve seen at any risk management conference
in the past decade! Here,
at last, is a group of practitioners who speak for themselves!
Thomas C. Wilson, “Overcoming the Hurdle: Integrating
the Shareholder/Debtholder-Perspectives,” paper presented
at the 2003 PRMIA Risk Summit