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How Experts Gain Influence

How Experts Gain Influence

by Anette Mikes, Matthew Hall, and Yuval Millo

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In 2006 the risk management chiefs of two British financial institutions—we’ll call them Saxon Bank and Anglo Bank—were in similar situations. Each reported directly to the CEO and had, in theory, the same influence in their organizations. But by 2011 Saxon’s risk management group, unified around a common purpose, was deeply engaged in critical work throughout the bank, while Anglo’s, divided into two specialized and loosely connected groups, had little visibility outside specific areas of expertise.

Our close study of these two banks offers lessons for other functional experts in search of influence, from management consultants and internal auditors to HR and marketing executives. We have identified four competencies—trailblazing, toolmaking, teamwork, and translation—that help functional leaders or groups in any organization compete for top management’s limited time and attention, and ultimately increase their impact.Saxon and Anglo weren’t twins: Saxon focused on consumer lending in a geographically concentrated, mature, and competitive market and was therefore seen as risk-averse. Operating functions, including a relatively large risk management group, were centralized. Anglo focused on riskier corporate lending in geographically dispersed emerging markets. Its risk function consisted of two groups: corporate risk management, dedicated to companywide risk monitoring and regulatory compliance, and country-level (“local”) risk management embedded in the business units, which advised on big deals and lending strategy. Despite those differences, we think the influence-building strategy Saxon’s chief risk officer (CRO) and her team pursued—that is, their embrace of all four competencies—could also have worked for Anglo’s risk managers, had the two groups been able to combine their strengths.

Trailblazing

—finding new opportunities to use expertise

Individuals and functions high in this competency cast a wide net in order to identify and frame issues that top management is not adequately addressing. This gives them a great advantage in the internal competition for key decision makers’ attention.

In some firms, the job of risk management is to police the business for compliance; in others, it helps the organization identify uncertainties and convert them into manageable risks. At Saxon, however, the CRO went further. In her initial years at the bank, she made a habit of spending one day a week talking to staff deep in the organization, and her team members followed suit. They felt that they had to understand the bank’s strategy and the businesses’ operations because, as one senior risk officer explained, “you can’t talk about the risks in the business without actually telling the story of what the business is doing.” In this way, Saxon’s risk management group identified several internal and external issues that corporate needed to consider.

Saxon’s CRO also demanded—and was granted—a seat at the weekly executive committee meetings and the monthly board meetings, which gave her visibility and a regular opportunity to assert a risk management perspective in the discussion of important decisions. Moreover, she had direct access to nonexecutive directors, who used her expertise as ammunition with which to challenge top management. As one nonexecutive director commented, “You want to have a really feisty CRO who just tells you the truth—one who calls a spade a spade.” All those things significantly expanded the group’s mandate.

At Anglo, the local risk managers had close relationships with business unit managers; a good understanding of specific products, industries, and countries; and the authority to shape the lending portfolio’s size and composition. They scanned the environment and talked to business generators regularly so as to catch wind of developments that could affect their portfolio risk. But because their mandate was concerned more with revenue growth and credit risk control than with operational efficiency, their scanning activity was necessarily narrower than that of their counterparts at Saxon. Moreover, Anglo’s corporate risk team was on the lookout for regulatory issues and techniques to ensure compliance with capital adequacy standards—not for new ways to advance risk management throughout the firm.

Toolmaking

—developing and deploying tools that embody and spread expertise

Identifying important business issues is only the first step. Developing tools that help corporate-level executives analyze and interpret those issues is another matter. The visibility of Saxon’s CRO in high-level governance forums required her to present her perspective in a distinctive yet accessible language. To do this, she and her group came up with tools such as a quarterly risk report, which was presented to the board.

Toolmaking was often the group’s opportunistic response to a perceived issue that warranted further discussion. For example, noticing that the quarterly risk report was prompting forward-looking questions from the board, the group decided to introduce formal future-oriented reporting practices, which in turn led to more new tools: scenario planning templates and early-warning indicators.

Anglo’s corporate risk team developed many companywide risk tools for regulatory compliance. The managers, recruited from other banks famed for model-based, heavily quantitative risk management, were concerned about the lack of a common “risk language” and the consequent difficulty of aggregating the bank’s risks at the group level. Nonetheless, they pushed for the development of advanced tools, such as economic capital models, even though regulators allowed (and Anglo had previously adopted) less technically challenging and more user-friendly compliance approaches.

Meanwhile, Anglo’s local risk managers distanced themselves from this effort. They had their own valuable tools and heuristics for judging the risk of deals and portfolios in their domains, but these were carefully guarded, not disseminated throughout the company.

Teamwork

—using personal interaction to take in others’ expertise and convince people of the relevance of your own

Functions that engage heavily in toolmaking need to enroll supporters and users. One approach is to co-opt people into collaborating on the creation or improvement of the tools, seeking out their feedback and incorporating it into the design. Saxon’s risk management group, for example, gave divisional managers early versions of the scenario planning templates. The managers could then discuss them with their senior staff, provide feedback, and see their own influence on the final templates. The risk management group also sought out allies and collaborators in other functions. For example, the scenario planning templates were deliberately attached to a planning tool already used by corporate finance, making it much easier to persuade busy managers to adopt them. The early-warning system benefited from cooperation with the chief economist’s team and with the business lines.

Anglo’s corporate risk management group did not collaborate with the general managers on its economic capital tools. Rather, it positioned them as a regulatory requirement of the Basel II capital accords and claimed that they were superior to existing capital measurement practices used in planning and performance management. But the business managers were convinced neither of the new tools’ necessity nor of their superiority. As one senior risk manager commented, “The businesses are coming back and saying, ‘Guys, wake up! That’s not the way we run the bank.’”

Anglo’s senior local risk managers were better at teamwork. They understood the sales organization and were motivated to act in partnership with it; their bonuses depended both on revenue growth and loss minimization. They also had decision authority on deals, which gave them a double handle over the sales organization: They could stop enthusiastic salespeople from taking on overly risky investments and guide them toward desired ones. This approach was predicated on the local risk managers’ business judgment and the trust between them and the salespeople. But while these one-to-one relationships were effective deal by deal, they did nothing to extend risk management’s influence throughout the organization.

Translation

—personally helping decision makers understand complex content

To remain influential, experts need to help others use their tools and interpret the results. Although the quarterly report Saxon’s risk management group produced contained output from complex risk models, the CRO and her officers took great care to keep it free of technical jargon. For example, the first three or four pages were dedicated to a self-evident “traffic light” representation of risks. They also worked alongside board members and business managers as they considered the tools and their outputs. Feedback was unanimously positive. The result was increasing visibility for the risk function in important organizational debates and decision making. Notably, in response to the deteriorating economic conditions in 2007, the CRO presented the group’s scenarios to the executive risk committee, which ended up using them, and the CRO’s interpretation of them, to frame the uncertainties the bank faced.

Anglo’s local risk managers, as we’ve noted, could communicate well with business unit managers individually. However, they transferred only the knowledge their tools generated, not the tools themselves. The bank’s corporate risk managers did try to promulgate tools but used technical jargon instead of translating concepts into the “language of the businesses.” When the group tried to promote economic capital forecasting to provide a common language for aggregating risks at the group level, general managers—who typically used income-statement rather than balance-sheet forecasts to frame their decision making—shunned the idea.

Patterns of Influence

In combining all four competencies, Saxon’s risk managers were what we call engaged toolmakers (see the sidebar “Influential Experts”). This helped them gain influence throughout the organization over the five-year period we studied (which happened to coincide with a global financial crisis, making it even more important for the risk function to have a strong voice). They consistently scanned the company and the external environment for opportunities to make a difference and then developed the tools—such as the quarterly risk report, the scenario templates, and the early-warning system—to formalize and spread their expertise. While keeping control of the overall design and implementation of these tools, the CRO and her officers incorporated business managers’ insights and made sure everyone could understand the findings. As a result, the group began to help frame important debates about critical issues, from the performance evaluation of divisional heads to Saxon’s response to the credit crisis.

Influential Experts

We found that individuals who combine all four competencies—engaged toolmakers—are best equipped to gain organization-wide influence, but other types of experts, who exhibit only some of the competencies, can still be influential, depending on the structure, strategy, and management style of their companies.

Compliance Champions (strength: toolmaking) play an important regulatory role but do not shape their organizations’ agendas or actions. Their tools reflect mainly their own expertise and are therefore not regarded as central to the day-to-day running of the business. Anglo’s corporate risk managers are an example.

Business Partners (strengths: trailblazing, teamwork, translation) gain the ear of decision makers by producing usable analysis and interpretation. But influence of this type is limited because it depends on the managers’ personal involvement with senior executives. Anglo’s local risk managers are an example.

Technical Champions (strengths: trailblazing, toolmaking) make their tools so easily understandable and relevant that they themselves are not needed to make sense of the information. Consultants generally fall into this category. This common type of expert does not appear in our two banks.

Engaged Toolmakers (strengths: trailblazing, toolmaking, teamwork, translation) develop tools that embody and disseminate their expertise throughout the firm but ensure that they remain necessary for interpreting, communicating, and acting on the information. Saxon’s risk managers are an example.

In contrast, Anglo’s corporate risk management group was seen as necessary for regulatory compliance but not relevant to running the business; the tools it developed did not gain traction. Local risk managers were admired for their knowledge of how the operating units really functioned and had strong connections with local leaders, but their organizational influence was limited to those personal interactions. (The exhibit “Combine All Four Competencies for the Biggest Impact” shows how the three groups can be differentiated along the four competencies.)

Combine All Four Competencies for the Biggest Impact

This diagram shows the degree to which risk managers at two financial institutions demonstrate the four competencies we have identified as crucial for helping experts gain visibility and influence. Saxon Bank’s were high in all four, and so they had a strong voice in the bank’s decision making. Anglo Bank’s were divided into two groups—corporate and local—each of which was high or medium in only some of the competencies. As a result, those managers had limited organizational influence.

Ultimately, of course, you can’t build or wield influence without support from top management, and experts’ roles and the nature of their influence must fit the organization’s strategy and structural needs. In some situations, for example, the cultivation of just two competencies might be enough. For experts who interact with business managers by means of spreadsheets, reports, and databases, toolmaking and translation will make their work a natural and welcome part of organizational debate and action. Those who aspire to interact with business managers in a partnership role, without disseminating their tools widely, can use teamwork and translation to remain relevant and effective. A selective approach to the competencies can help experts raise their profile. Nonetheless, we believe that those who are strong in all four are likely to be the most influential.

Anette Mikes is an assistant professor in the accounting and management unit at Harvard Business School. Matthew Hall is a reader in accounting at the London School of Economics. Yuval Millo is a professor of social studies of finance and management accounting at the University of Leicester, in the United Kingdom.

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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