Since the Financial Crisis it is the Control Functions within Financial Services organisations that have been the most active hirers. Driven by regulators, the Risk and Compliance functions have expanded significantly and also been through a process of upgrading talent. For those in these functions, who have made the grade in this challenging new world, they have seen both their status in their organisations and their pay rise – in some cases double. Hedley May is a leading executive search firm with a specialist focus on Governance, Regulatory and Control functions of major corporations. Its consultants discuss how the status of the Control Functions within Financial Services has risen in recent years...

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A position of status

For those in these functions, who have made the grade in this challenging new world, they have seen both their status, in their organisations, and their pay rise – in some cases double.

The Chief Risk Officer in 2010, newly shaped by the Walker Report, was a scarcely understood role. Now the scope of the role is well-defined and more importantly in most institutions the incumbent is a widely-respected and sometimes feared executive. That said, the role varies according to the organisation with some CROs leading teams in their thousands while others just have a handful of people supporting them. What they generally have in common is that the role reports into the CEO and interfaces regularly with the board and regulators.

Then there is compliance; most organisations have changed their Chief Compliance Officer (“CCO”) in the past five years, Morgan Stanley and Goldman Sachs being two notable exceptions, while some have changed their compliance officer multiple times in that period – Citi, Barclays and JP Morgan. Whilst the CRO has become a newly-defined role, the CCO has become the most at risk individual in the market – just think of HSBC’s Chief Compliance Officer, David Bagley, resigning in front of the Senate back in 2012. The average tenure of a compliance officer of a major financial institution is currently just three years. The personal risk these individuals carry very definitely merits the increase in pay.

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Filling in the gaps

Newly defined roles and those where the incumbents are being unceremoniously dumped has put a huge amount of demand into the market for talent. The skillset of a CRO is as complex as it gets – fiercely intelligent, credible to the board and regulators, curious about the world, great communicator, robust, the humility to allow others to shine.... the list goes on. The new risk function has not yet had the time to develop this new cadre of individual and so there is a need for creativity from the headhunter.

For the role of CCO the challenge has often been about identifying individuals who combine sufficient understanding of the regulations with the ability to lead a large function and also the ability to drive through change in their institution. Few candidates exist and it is notable that many of the recent set of appointments have come from outside of the compliance function – Barclays appointed Mike Roemer who was the Chief Internal Auditor, HSBC appointed Ruth Horgan who was an audit partner with KPMG and Lloyds Banking Group appointed Matthew Elderfield from the Central Bank of Ireland.

For the search firm being able to search across regulators, consultancies, central banks and internationally is critical.

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Internal vs External

Surprising though it may sound, the first question we ask our clients in relation to compliance and risk appointments is “what about your internal talent?” In a fiercely competitive external market, sometimes the internal options can represent the best solution. However, the best talent may not be sitting in the compliance or risk function – it may be in a neighbouring function. JP Morgan’s new Global Head of Corporate and Investment Banking Compliance was in the legal function and we have already referred to Mike Roemer at Barclays who was in Internal Audit. For the Risk function, the front-office can be a very rich source of talent.

In 75% of our searches we interview internal candidates alongside external candidates. Many come through very strongly but, if the internal candidates fall-down in any one area it is usually in their inability to bring the viewpoint of external stakeholders into their decision making. At the most senior levels the judgements that CROs and CCOs are required to make are rarely solely a one-dimensional technical answer. Instead, it is about balancing the perspective of boards, regulators, and customers and, ultimately, being able to apply the Daily Mail headline test or opine on “how will this look in front of the Treasury Select Committee?”

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Non-Financial Services Companies also have upgraded their control functions

Whilst the control functions in financial services organisations have been particularly active, there has been plenty of hiring activity across all sectors. Across the FTSE 100 in the last two years there have been 35 new appointments into the role of CFO. It is a staggering figure. As with financial services, compliance and risk appointments have been on the increase to meet increased regulatory scrutiny and governance requirements. Meanwhile internal audit has been a very active function with many organisations seeking to upgrade talent – last year there were 16 appointments across FTSE 100.

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The future of control functions - from investment to delivering value

The 2008 financial crisis gave corporate functions of all organisations a greater mandate to exert control – to carry out this refreshed mandated they have needed to upgrade talent and, in financial services businesses, this has resulted in a significant expansion of the compliance and risk functions.

Seven years on the intensive investment phase is coming to an end. The best functional leaders now need to think about how they can make their upgraded and expanded teams deliver more value to their organisations. For this they will need to have the following three skills:

  • Cross-organisational mindset – corporate failures, or mishaps, rarely happen because one function alone fails. They usually cut-across the bows of a number of functions. Functional leaders need to be able to think across the whole organisation and risk, compliance, finance, legal and HR functions need to work together in a way that identifies and mitigates emerging risks, whilst removing duplication.
  • Embrace technology – controlling large organisations across multiple geographies is a challenge and one that has been very costly for the banks in particular but there is also a long-list of corporates from BP to News International that have found the last few years very challenging. Technology has the potential to allow companies to have greater control over their organisations, and therefore grow sustainably.
  • Be a great leader – today’s complex and fast-paced business world puts severe strain on functional leaders and requires support from high-performing teams. Hiring great people is a good start but to get real value you have to retain them. The best leaders are the ones who have the best talent – it quickly becomes a virtuous circle.
About Hedley May

Hedley May delivers exceptional talent and strategic consultancy to the world’s leading organizations on the critical functional roles that underpin the success of high-performing businesses and their executive teams. We operate globally from our offices in London and New York and are acknowledged experts across Compliance, Risk, Finance, Audit, Human Resources, Reward, Legal, Governance, Marketing, Communications, Operations and Cybersecurity. By specializing exclusively on these critical functional roles we bring a level of market knowledge, clarity of purpose and intensity to each of our clients projects that increases the value of our advice, the quality of candidates we access and ultimately our success rate. Hedley May enjoys an exceptional reputation for Diversity and Inclusion and our one-firm collaborative culture ensures every client always benefits from Hedley May’s collective experience wherever they are in the world.

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