The risks of creating the wrong impression
In the film Margin Call, a recently dismissed banker, Eric Dale, talks about one of his accomplishments as an engineer before he went into banking. He explains that he’d helped to build a bridge from Dills Bottom in Ohio to Moundsville in West Virginia, the bottom line of which was that, collectively, motorists would have to drive 487,872,000 kilometers less every year.
When a student asked me during the National Econometrics Day what a risk manager contributes to society, I was unable to formulate the value that a risk manager can add as clearly and in such tangible terms as Eric Dale’s engineering example. However, by first defining what a risk manager does, and then explaining its importance to society, I was nevertheless able to answer the question to this student’s satisfaction. But it helped, of course, that the student had some prior knowledge, and already knew, for example, what the credit crisis entailed and how it came about. Having to explain what the added value of a risk manager is to someone who does not have any prior knowledge of the financial sector would be much more of a challenge. And just how important is it that the answer to this question is correctly communicated to our society?
Whereas it was once quite difficult to reach the masses, social media now makes it much easier. But this quick and relatively easy way of communicating brings challenges all of its own – consider the algorithms used by Facebook to generate information that reinforces people’s own prejudices. Then, add to this the ‘fake news’ articles doing the rounds, which are also accompanied by certain risks. In other words, while we now have the ability to use technology to communicate a factually correct message and put factual knowledge at the disposal of everyone, we also run the risk of polarizing the situation by creating different groups – echo chambers – who can choose to believe their own ‘facts’. At the macro level this leads to a highly fragmented political landscape.
To avoid misrepresentation and ensure that the link to society is not lost, it’s important to explain to everyone what risk managers do and why it’s so important. And make no mistake about it, if this message is not effectively communicated, the link to society will indeed fall by the wayside. To give an example, suppose that someone is unaware of the function of the EU and is not convinced of its added value. In a subsequent referendum that person would be unlikely to vote in favor of staying in the EU.
Given the fragmentation in the political landscape that’s evident across the whole of Europe, we can conclude that not only risk managers, but also other professional groups, have failed to effectively communicate the function and added value of their profession to society. There is a lack of common factual knowledge that prevents this fragmentation, so the link to society has been lost. This could have been prevented by a combination of more initiative being shown by the professional groups to communicate their message and more interest being shown by society to be receptive to that message.
When it comes to risk, we should be setting the right example by creating initiatives that strive to make society better informed about what risk management is and why it is so important. However, in communicating this message, some serious challenges will need careful thought. If more professional groups were to follow this example, it would bring us a step closer to a situation in which there is more common factual knowledge – and therefore a less fragmented political landscape.