All growth is derived from risk

Adherents of Keynesianism might be pleased that at least one observation by the British economist is ‘having a moment’ on both sides of the Atlantic.

Yes, a range of market players and their media cheerleaders are welcoming (in the US) or encouraging (in the UK) a revival of ‘animal spirits’. John Maynard Keynes coined the term in the 1930s to describe how emotions can drive investment decisions – especially in times of rapid innovation, economic stress or uncertainty.

Its new-found popularity comes against a backdrop of conversations around reengineering the regulatory scaffolding built around UK financial services since the 2008 Global Financial Crisis as the government pursues growth.

This, then, might be a worrying time for the Chief Risk Officers (CROs) who acquired new status and responsibilities after the collapse or state rescue of assorted financial institutions nearly two decades ago.

However, in interviews with me and my colleagues at Bayes Business School, City St George’s University of London, more than 30 CROs at some of the Square Mile’s biggest financial firms revealed that they are thriving in expanded roles.

Rather than being the stereotyped compliance-focused enforcers who always say ‘no’, many CROs are key strategic partners in the boardroom. Of this new breed of CROs, the most effective are those who collaborate at board level – even if their role can require independence of thought.

Our interviews suggest that the 2008 crisis and the introduction of the Senior Managers and Certification Regime in 2016 were milestones in that evolution.

The mood music around regulating for growth generated by the current UK government is obviously of interest to them – not least as the post-2008 regulatory scaffolding was a key catalyst for the rise of the CRO as an independent entity.

However, it was striking that the CROs we engaged with were both very keen to talk, and to emphasise that they need C-suite colleagues to counter the still widespread misperception that “the CRO is there to say no”.

The enthusiasm to contribute to the research suggests that – despite the seniority of their role – many felt they hadn’t been given a platform to be heard in the City’s corridors of power. Maybe this is a function of their relatively recent status as guests in the boardroom.

Given such a platform, many explained that 17 years on from the 2008 crisis they are acutely aware that regulation can hamstring them and their senior colleagues in trying to innovate and create value.

Many are working at board level to grow their organisation by managing upside and downside risk. Large parts of the ‘compliance mandate’ have been hived off to other teams – something that some of our contributors see as the next evolution in the CRO’s formal role. This development can be compared to that of the modern CFO, whose historic ties to the accounting profession have loosened.

And while it is legitimate to highlight there is ‘a new breed’ of CROs, it is important to avoid generalisation. Those we spoke to said they knew people in similar roles who are comforted by the framework of regulation around them. Those CROs, however, are seen as swimming against the tide of a growing profession eager to think innovatively on behalf of their businesses in the pursuit of sustainable growth.

With those caveats, the striking message that emerged repeatedly was the sheer range of skills needed to undertake the role – given this new focus on helping drive growth and innovation. These included:

• Harnessing new technology to ensure competitiveness
• Managing the corporate consequences of shifting geo-political sands
• Ensuring risk aligns with long-term strategic decision making.

So, where does this leave us? The Lord Mayor of London, Alderman Alastair King, suggested this research topic as part of the ‘Growth Unleashed’ agenda he champions.

The report that brings the findings together, Optimising Growth: The Evolving Role of the Chief Risk Officer, recommends financial services firms should ensure their CRO is deeply integrated with business strategies.

They should also cultivate CROs with broad skill sets – including leadership, technical expertise and business acumen – and support them to develop those skills.

And they should foster collaborative relationships within the boardroom and across business units to drive innovation. If the emergence of Deepseek AI last month  has taught us anything, it’s that no company is too big to be out manoeuvred, no matter how strong their political ties or ‘animal spirit’ may be.

Tweaking the famous words of Peter Drucker to reflect the current corporate melting pot of technology, competition, regulation and geopolitics, we should recognise that all growth is derived from risk.

However, with ‘growth’ the word de jour of so many market players and politicians, there is also responsibility to ensure financial history does not repeat itself. That is a balancing act many stakeholders are responsible for, not just the CRO.