Mastering Strategic Risk

A Framework for Leading and Transforming Organizations

Joel E. McPhee, Jr.

• Publisher: Wiley
• Year: 2014
• Print ISBN: 9781118757291
• eBook ISBN: 9781118772867
• Edition: 2
• Topic: Business
• Subtopic: Investments & Securities
• Index: Business

The modern business climate demands a new risk management strategy

Mastering Strategic Risk: A Framework for Leading and Transforming Organizations is a comprehensive guide to redesigning organizational systems to better manage the risks and complexities of the modern world. Based on the notion of "Create, Facilitate, and Support, " the book provides a roadmap to ensuring optimum performance in even the most challenging circumstances. Whether applied to a system or an entire organization, the ideas presented can help unlock a business's potential and ensure a sustainable advantage.

Modern business leaders face unprecedented challenges, and risk management has become a strategic priority. Traditional management frameworks are outdated, and cannot be re-tooled to effectively account for the demands and complexities of the 21 st century. Instead of adjusting old, ineffective models, businesses are better served by implementing an entirely new model custom-built to lead organizations through today's business environment. Mastering Strategic Risk describes this brand new framework, and provides the tools and background leaders need to remain effective in this new age. Topics include:

• The three forces behind customer behavior, competitive advantage, and a culture of discipline
• New major change agents that drive complexity and intensity
• Tools that help identify and mitigate the biggest risks to operations
• A new HR model to drive peak performance and galvanize employees

The book contains well-known real-world examples from Wachovia, Toyota, World-Com, and Citrix, that illustrate key concepts within the new framework and demonstrate the core elements of modern risk management. For the savvy leader looking to push an organization to the next level, Mastering Strategic Risk: A Framework for Leading and Transforming Organizations provides a brand new model for effective management.

Chapter 1
The Round World, the Square Pegs: Redesigning Organizations to Manage the Risks of a Different World

The markets are raging! They roar tumultuously toward an uncertain end. Meanwhile, the fates of billions hang in the balance, as we look to the future with fear and trepidation. The truth is that we’ve created a monster, as a beleaguered and mismanaged corporate agenda continues to wreak havoc on cities, sovereign governments, and communities everywhere. There is no doubt that the turbulence we are experiencing was brought on by our very own miscreations; however, the question remains: How do we move confidently toward the future while ensuring we do not repeat the mistakes of the past?

Righting the Ship: Managing the Complexities of a New Age

While we forge steadily toward a future of unlimited possibilities, at the center of these turbulent yet fascinating times sits the corporation. The commercial corporation has been in existence since the seventeenth century, yet, despite its storied history, still struggles to effectively govern its varied activities. Furthermore, the corporation of the twenty-first century is like none other, for it has become a critical aspect of almost every facet of life on our planet.

It is truly the most powerful and ubiquitous force in an unrelenting, high-stakes global marketplace. Think of the many ways corporations play a pivotal role in our society, mainstream culture, and economic lives. Think of the role they play in your very own community.

To make matters worse, government has often needed to step in to provide much-needed oversight of corporate activities. There was the savings-and-loan (S&L) crisis of the 1990s, Sarbanes-Oxley, and now recently enacted Dodd-Frank legislation that was put in place on the heels of the 2008 credit meltdown. While often government intervention is necessary in order to protect the system, it is often reactive and done in order to avert a crisis. Although we must be responsive to a national crisis, shouldn’t we find it indefensible that we’ve grown accustomed to addressing systemic issues from a reactive, knee-jerk posture?

As our beloved guardians at the gate work tirelessly to piece together overnight solutions to address systemic issues, is this reactionary posture the right approach? Moreover, the public outcry for swift and decisive action during a crisis often contradicts and outweighs the need to exercise prudence and good judgment. Government has a formidable role in providing oversight of commercial activities; however, we are at a point in this country where the regulatory agenda has become overly burdensome.

During the past few decades, we’ve experienced a crescendo in the volume and intensity of regulatory oversight. As we move hastily into the twenty-first century we will experience even greater regulatory oversight. From Sarbanes-Oxley to the Basel Accords, from Gramm-Leach-Bliley to Dodd-Frank, the regulatory agenda continues with no end in sight. Think of the tremendous costs these requirements have added to corporate bottom lines.

To make matters worse, these costs are ultimately borne by you and me, the end user and consumer. These efforts, though well intended, will eventually cause the system to buckle under the intense burden of regulatory adherence.

Consider the world in which we now live and how, during the past decade, we’ve experienced such significant change. We live in unique and unparalleled times. Think of how just recently the credit markets were in a tailspin, ushering in an unrelenting and debilitating recession. Of how the auto and financial services industries were on life support, and how the saber rattling between nations, tribes, and people even today continues at fever pitch. When we consider the state of the environment, along with deteriorating health and social conditions across the planet, we attempt mightily to manage the risks and complexities of an ever-changing world.

We also sit at the most critical juncture in Earth’s history: On one hand lies a future of unparalleled promise; on the other, a world filled with tremendous uncertainty. However, the truth is that we can no longer count on the old ways of managing our most critical systems; we must look to new models by which to govern a new age.

In addition to these formidable challenges, corporations continue to struggle to keep pace with an ever-changing world. As change continues at an unprecedented pace, the marketplace will continue to become even more dynamic and volatile. Coupled with this is how quickly we’ve moved into a truly global marketplace. As the Internet and technology have removed geographical boundaries and business has become ubiquitous, many corporations now serve and manage a global footprint. This reality is placing additional strain on corporate agendas and resources as the governance of activities has become more complex, integrated, and dispersed.

The time has come for organizations to change. Companies must change the manner in which they govern internal activities, for the cost is too high for society to bear. Regardless of how ubiquitous and powerful the corporation has become, it has failed to regulate itself. It’s time for corporations to take control of their destinies by transforming within. This change must occur from inside their hallowed walls, rather than being mandated from the external forces of government regulation and political influence. Yes, the time has come for stronger self-regulation. It’s time to rethink business!

The Untold Story of Wachovia’s Demise: The Rise and Fall of an Industry Giant

It was Friday, September 26, 2008, around 11:00 in the evening. It was a clear and cool autumn evening. As I made my way home after entertaining a few out-of-town business guests, my mind began to drift slowly, far away into the distance. I was in a fog! The events of earlier that day created a dark cloud of despair, and a deep sense of anxiety loomed over my head. To make matters worse, a state trooper had just pulled behind me and turned on his lights. After finally realizing what was occurring, I slowly pulled over to the side of the highway and anxiously waited. What could I have possibly done wrong? Why was I being pulled over? The tension and anxiety began to build!

After what seemed like an eternity, I was startled by a pointed tap on the glass. As I rolled down my window, I was greeted by the trooper. With a surprised look on his face, the trooper asked, “Are you okay, sir?” I replied, “Yes, I am.” He then asked, “Are you sure?” In a frustrated and irritated tone, I answered, “Yes, I am, I’m sure, why? What did I do?”

“Well, I’ve been following you for a few miles and you have been swerving repeatedly to the right, as if you were about to drive off of the highway. I’m going to have to give you a few field sobriety tests,” the trooper said. I ended up passing the tests; however, what dawned on me that very moment was how emotionally immersed I had become with the events of the day—so much so that I became overrun with an overwhelming sense of apprehension and fear.

It was that fateful day when the proverbial writing had been written on the wall, as the day’s events signaled the coming demise of Wachovia. That Friday was a crazy day, as I had become deluged with myriad phone calls, conversations, and e-mails concerning the fate of Wachovia. These conversations were with former colleagues, employees, and others who were associated with the bank. Many of them still played significant roles at the bank. We were all anxious.

Those of us who were no longer at Wachovia had similar concerns. We all owned company stock and stock options, and were concerned about our pension. Those who remained were concerned about whether they would have to pack up their boxes in the next few days and be required to leave. We were all worried about whether Wachovia would survive through the weekend as conditions regarding the bank’s financial status were rapidly deteriorating.

This was the Friday right on the heels of the federal government’s intervening to save Washington Mutual by seizing it and arranging the sale of most of its operations to JPMorgan Chase. As news of this transaction spread and as the market was in a tailspin due to instability as a result of the credit crisis, questions began to arise about Wachovia’s stability and liquidity. And remember, Lehman Brothers had just failed a few weeks earlier. On that Friday, Wachovia’s stock was in a free fall.

Rumors that day began to emerge regarding a silent run on Wachovia’s deposits. We would later discover that these rumors were well founded, as many of Wachovia’s commercial customers began to draw down their balances to below the $100,000 limit that the Federal Deposit Insurance Corporation (FDIC) insured. Approximately $5 billion in deposits was lost that day. There were also rumors that Wachovia was in the midst of talks with Citigroup and Wells Fargo.

The concerns were so serious that many wondered if Wachovia would make it through the weekend. These concerns prompted FDIC Chair Sheila Bair to declare that Wachovia was “systemically important to the health of the economy and therefore could not be allowed to fail.” This was no routine announcement, for it was the first time that the FDIC had made this determination since the 1991 passage of a law that allowed the FDIC to handle large bank failures on very little notice. To confirm the state of emergency concerning Wachovia, on the evening of September 28, Blair called Wachovia’s then-CEO, Brian Steele, and informed him that the FDIC would be auctioning off Wachovia’s assets.

Eventually, Wachovia would be purchased by Wells Fargo, with most of its banking operations intact. Although Wachovia technically survived through Wells Fargo’s purchase, its overnight failure evidenced one of the most significant events in banking history.

A Legacy to Be Proud Of

“Come to the mountain called First Union, or if you prefer, the mountain will come to you”! These were the words that bellowed from a deep and enchanting voice in First Union’s newly released commercial. The commercial was especially created to position the bank’s powerful new brand. It was a branding approach that would serve as a key plank of First Union’s strategy to becoming a national player.

CEO Ed Crutchfield desired to quickly build his branch banking network into a power national franchise. And it was his carefully positioned branding effort, coupled with an aggressive acquisition spree, that would serve as the launching pad in its new chapter.

It was the fall of 1998, and I first saw the commercial as a new recruit during the first hour of my orientation into the Finance division. The leaders managing the orientation were proud of the new ad and, more important, First Union’s new strategic direction. The entire company was excited, as it was on the heels of two significant acquisitions, both signaling that the best was yet to come. You could feel the energy in the air while interacting with employees in different pockets of the organization. There was no doubt our future was bright!

Three years later First Union would purchase Wachovia, and the once fledgling interstate banking operation would blossom into a financial services powerhouse!

At its height, Wachovia was one of the largest financial services institutions in the United States, amassing a banking empire that stretched from New York to California. Its banking franchise extended to every major market from Miami to New York and continued throughout the Midwest, South, and all the way to the Pacific Coast. In addition to its extensive network of branch banking operations, Wachovia was well positioned in each major market it served.

Its banking footprint served coveted metropolitan markets such as Philadelphia; Washington, D.C.; New York; New Jersey; Atlanta; and South Florida, to name a few. Wachovia did not merely maintain a presence in these markets but it dominated these major metropolitan centers, often ranking as the number one or two bank.

Wachovia was also a great place to work, and my colleagues and I enjoyed working for such a fine organization. During those glory years, Wachovia had garnered top industry accolades and awards for being a great place to work. There were formidable challenges that we overcame during those years, but Wachovia was on a tear, as we were in the midst of tremendous growth and success. Throughout its storied history, Wachovia had become known as a merger-and-acquisition juggernaut, as over time this strategy served as the cornerstone for its growth. From the early First Union days, its renowned CEO, Ed Crutchfield—or Fast Eddie, as Wall Street would call him—went on an acquisition spree and snatched up more than 70 deals in a span of 10 years. He was a force to be reckoned with as his spirited will served as the driving force behind First Union’s success. Within that period, he took Charlotte, North Carolina’s, third-largest bank and transformed it into the nation’s sixth largest bank, amassing close to $260 billion in assets in 1998.

It was through the efforts of Ed Crutchfield and Bank of America’s legendary leader Hugh McColl that Charlotte, North Carolina, developed into a global banking center. After the landmark 1985 Supreme Court ruling upholding regional interstate banking, their visionary and aggressive efforts served as the catalyst for Charlotte’s emergence onto the national banking scene.

Prior to retirement, Crutchfield selected Ken Thompson to become his handpicked successor. Thompson, as First Union’s newly crowned CEO, would follow in his mentor’s footsteps, orchestrating some of the largest deals in banking ...

Table of contents

• Cover
• Series
• Titlepage
• Copyright
• Dedication
• Preface
• Acknowledgments
• Introduction: Mastering the Complexities of a New Age
• Chapter 1: The Round World, the Square Pegs: Redesigning Organizations to Manage the Risks of a Different World
• Chapter 2: The Three Elements: Creating, Facilitating, and Supporting Your Competitive Advantage
• Chapter 3: The Three Forces: Mastering Strategic Risk with Repetition, Balance, and Movement
• Chapter 4: Transforming the Corporate Agenda: Applying the New Learning to Master Strategic Risk
• Chapter 5: Risky Business: Why the Environment Should Matter to You
• Chapter 6: Governance, the Cornerstone of Risk: The True Role of Accountability in Organizational Systems
• Chapter 7: The Game Changer: Stewardship—Taming the Land Grabbers, Passive Aggressors, and the Mighty Ogre
• Chapter 8: The Risks of Human Capital: Unleashing the Conceivers, Deal Makers, and Sustainers
• Chapter 9: Waking Sleeping Giants: The Importance of Empowering Employees
• Chapter 10: The Shining Moment: Unlocking the Potential and Promise of the Twenty-First Century
• About the Author
• About the Companion Web Site
• Index
• End User License Agreement