A Return to Form: In the Wake of the Global Financial Crisis: Tradition Is the New Innovation and Credit Risk Management Is Ready for Its Close-Up

By Barron, Jacob | Business Credit, June 2009 | Go to article overview

A Return to Form: In the Wake of the Global Financial Crisis: Tradition Is the New Innovation and Credit Risk Management Is Ready for Its Close-Up


Barron, Jacob, Business Credit


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If all the financial world is a stage, then it could be argued that credit controls the curtains. As a profession, credit and risk management has operated in the wings, charged with protecting a company's assets and judging who sees what of their goods and services, along with how much and under what terms. This simple fact has put the credit professional in a position to be maligned or even parodied by other staff (hence, salespeople who refer to the company's credit department as "sales prevention"), but the harsh reality of the global financial crisis has shifted the position of risk management to one of prominence in many companies, lending a deserved bit of gravitas to the warnings of credit managers and pushing them ever closer to the CFO at board meetings. "A couple years ago you'd have the CFO on one end and the financial team on the other side and then further down, a credit manager," said Jeff Jankowiak, partner at International Risk Consultants, Inc. "I cannot tell you the amount of credit executives sitting next to the CFO now."

This shift in position has also been accompanied by a shift in the nature of risk itself, both in the amount and intensity and in the philosophies adopted for managing it. Theories and schools of thought have always varied from person to person when it comes to hedging a company's risk, but in many instances, the most innovative companies are the ones that can stick tightly to the fundamentals while still managing to make things work.

Risk at Large

Competing theories abound regarding whether or not the world's current recession marks a monumental change in the way the global economy destroys and corrects itself or just the occurrence of a notably different, but still predictable, recession. On the side of the former ideology is John Caslione, founder, president and CEO of GCS Business Capital LLC and co-author of Chaotics: The Business of Managing and Marketing in the Age of Turbulence, released last month. "We have had somewhere between seven and eight recessions since the second World War and this one's different for a number of reasons," said Caslione, citing global economic interconnectivity as just one reason this recession is different from any other. "In every single recession since the war, it was the U.S. economy that pulled, and in that updraft, everybody else came with us," he said. "No more. Now national economies are intimately linked, interconnected and interdependent. During good times we're all riding high, but when the bad times hit and we have this interlocking fragility, we are all weighted down." Additionally, the concentration of wealth around the globe, as well as the inclusion of repressive governments in the world's list of elite economies, also denotes a marked change in the current downturn, one that is expected to continue and could present serious problems for companies looking to do profitable business overseas. "The greatest concentration of wealth these days tends to be with countries that are autocratic" he said. "I think that'll add to some of our turbulence."

Caslione argues that these differences have collided to create a uniquely modern recession that is fundamentally different from previous downturns, the ramifications of which could be felt for years to come. In what Caslione called the "new normality," future risks and recessions will become harder to predict and rather than periods of boom and bust, these two things will be intermittent, the effects of management mistakes will be magnified and more fluid risk mitigation strategies will become necessary.

One risk listed by Caslione is that, in this new economic era, risk will shift to places that have traditionally been considered risk free or at least somewhat reliable. "The incumbents are in the most vulnerable positions because we've built business models around the status quo," said Caslione, who offered a list of mistakes companies make in turbulent times. …

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