Anette Mikes, Harvard:
Moving From Bean Counter to Game Changer
May 12, 2011
in the middle layers of many organizations resides a strata of highly
skilled experts, from HR managers to risk evaluators, whose collective
wisdom and experience could prove invaluable in informing strategic
decisions at the highest levels.
Anette Mikes is an assistant
professor in the Accounting & Management Unit at Harvard Business
If only they could be heard. Often these individuals remain buried in
hierarchy, impacting only their isolated areas of influence.
In the working paper
From Box-Tickers to Frame-Makers: Transformations
in the Roles of Functional Experts , Harvard Business School
professor Anette Mikes and Matthew Hall and Yuval Millo from the London
School of Economics look at how these employees can use their own skills
to become so-called frame-makers, part of their organizations' strategic
From Box-Tickers to Frame-Makers: Transformations
in the Roles of Functional Experts PDF
While their research focused on risk management professionals at two
large British banks, "it's a bigger story," Mikes says over tea recently
in her immaculate office.
"We believe it's not just risk managers who fight these issues but also
human resources managers, accountants, finance professionals, internal
auditors, marketing, you name them, they're all competing for visibility
at the top management level."
Mikes began her research in 2005 in England, where she earned her PhD
from the London School of Economics. (Hall and Millo are both employed
there.) Within five years, she had interviewed 60 risk management
officers, senior risk officers, managers, and executives in the two
banks. For privacy's sake, they were referred to as Anglo Bank, which
tackled almost 40 deals in the $1 billion range between 2004 and 2006,
making it a force in corporate finance, and Saxon Bank, which was a
risk-averse, moderate-growth bank with over 70,000 employees. Both banks
focused on corporate and consumer lending.
The researchers chose to study risk-management experts because their
role has risen in importance with demands for improved corporate
governance and the need for better forecasting and modeling. After the
financial crisis of 2008-2009, the call for better risk management
escalated. A Deloitte survey in 2010 of 131 financial institutions
worldwide found that 79 percent had enterprise risk management programs
in place or in progress, an increase of 20 percent from just two years
earlier. And 86 percent had a chief risk officer who reported to the
board or to the CEO or both, up from 73 percent in 2008.
Mikes and her colleagues first examined the banks' "risk management
tool-makers." Often viewed as risk "compliance champions," these
functional experts don't influence decisions directly. At first sight,
they spend their days behind the scenes developing tools: practices,
routines, and technologies. Some of these tools have the potential to
become part of the bank's decision-making processes, others do not. Then
the team looked at ways that the tool-makers could expand their
influence. They used the Anglo and Saxon Banks to show the different
routes that experts followed in each organization to gain influence.
Success at Saxon
The paper highlights the rise of a
feisty, ambitious chief risk director at Saxon, analyzing the steps she
took to gain influence after she joined the bank in 2003. Evolving from
"box-ticker" to tool-maker and finally to frame-maker took her almost a
decade of strategizing, networking, and developing tools.
Here's how the chief risk director did it: First, she asked for more
power. She demanded—and received—an unprecedented degree of formal
authority, becoming a member of the bank's Group Executive Committee,
where strategic decisions were discussed and made.
Then she moved to expand her risk management process throughout the
bank. She handed out 10,000 booklets that presented the department's
view and expertise in areas including market risk, credit risk, and
operational risk. All the materials used standard language to describe
risk, encouraging a unified organizational view.
The chief risk director also implemented new practices including
scenario planning and a forward-looking Early Warning System that
conveyed the bank's "risk view." Management started using these tools to
frame important debates, such as the evaluation of divisional heads'
performance at quarterly business reviews. The system also helped the
bank plan through the uncertainty of the credit crisis.
"In Saxon Bank we realized that the risk management function was getting
involved in more and more firm-wide debates that were really important
for management," Mikes says. "At the same time, risk managers guarded
carefully their leadership and initiative to develop these tools
further; so that these techniques could not be used without them."
Anglo Bank's approach stood in stark
contrast. Its risk management department included two groups of risk
experts: a new guard and an old guard, with conflicting worldviews.
The new guard—the box-tickers—fulfilled a purpose and were respected for
their compliance skills. But this group lacked influence with top
management. With its own logic and terminology, management viewed the
new guard's methods as incompatible with the way the bank was run and
difficult to attach to the bank's existing business processes, Mikes
Anglo's old guard, or "ad hoc advisors," were functional experts valued
for their experience, analysis and intuition. They had the trust of top
management and the business people. But because their expertise was
based on individual experience and tacit knowledge that they could not
translate into tools, their influence didn't extend beyond their own
remit into firm-wide budgeting or strategizing for other business areas.
So this risk function was incapable of promoting risk managers toward
the organizational role of frame-maker.
Mikes says the expansion of Saxon's risk management influence surprised
her—she had expected Anglo's risk managers to emerge as "the heroes of
"I saw these larger-than-life personalities making deal-making and
deal-breaking decisions—billion-dollar megadeals," she says. "There's a
lot of power involved in that. At Saxon Bank I initially thought risk
management was more low key. In fact, when we looked at it more closely,
the risk management team was busy developing tools … diligently toiling
away and gaining enterprise-wide influence at multiple levels."
who, with HBS professor Robert S. Kaplan, launched the Executive
Education program Risk Management for Corporate Leaders in 2010, says
she's still following up with both banks and plans to turn the research
into teaching case studies.
She's also looking at how risk management works in industries such as
electrical and nuclear power, at space agencies, and at companies that
run huge, complicated high-risk operations.
In discussing the March earthquake/tsunami disaster in Japan (a "Black
Swan" event, as risk managers call any surprise event that has a major
impact and is rationalized by hindsight), Mikes sees a crucial future
role for risk managers who do complex scenario planning that can be
applied to both corporate strategy and disaster planning.
"I would advocate that risk managers should, and in some cases do, take
responsibility for those kinds of questions," she says. "It's just very,
very hard … [to know] what to do about the types of risks that you
cannot control. But you can still have an answer in terms of trying to
build organizational resilience."