Good Risk Governance Pays

Good Risk Governance Pays

Investment Best Practices | Risk Management | Valuation

New Website On Its Way

Posted in Governance, Investment Management, Susan Mangiero

site under construction icon vector illustration design

It’s been awhile since this blogger has put fingers to keyboard in creating and publishing a new post. Looks can be deceiving as things are busy behind the scenes. A new blog is being assembled that will aggregate this investment governance blog with Pension Risk Matters. Stay tuned for more information about the new website and thank you for your continued readership interest.

New Book by Dr. Susan Mangiero – Smiles On Every Page

Posted in Fun, Susan Mangiero


Hot off the press, The Big Squeeze (Happy Day Press, 2017) by Dr. Susan Mangiero is the result of many months of research about positivity. Inspired by the enduring appeal of teddy bears for grown-ups of all ages, The Big Squeeze is a sweet and uplifting gift book focused on the undeniable truth that kindness to ourselves, and others, matters. Combining enchanting photos with motivational messages, The Big Squeeze invites readers to ACCEPT that everyone has ups and downs, CELEBRATE triumphs, HEAL the hurts, LOVE one another, SHARE the good times and bad and TRY new adventures when it feels right. Every page is designed to generate smiles and to offer a relaxing break from everyday stress. The Big Squeeze is a great gift for anniversaries, baby showers, birthdays, engagements, holidays, promotions, weddings and any time a hug is welcome.

Thank You for Blog of the Week Recognition

Posted in Disclosure and Transparency, Susan Mangiero

Golden best choice award medal with red ribbon

I was recently informed by Fiduciary News editor Chris Carosa that my blog post entitled “Effective Retirement Plan Communications” (January 8, 2017) was selected “Blog of the Week” for the second week of January. Thank you to Chris and his loyal readers. I really appreciate the recognition. It’s always terrific to get feedback about what topics are of interest to financial industry professionals.

Using Photos to Attract Blog Readers

Posted in Business Development

Sunrise on the mountain Adam's Peak ( also Sri Pada ). Sri Lanka. Beautiful landscape.

In a recently reposted essay, Joel Friedlander of book design fame extols the virtues of utilizing snappy photographs to grab readers’ interest. I heartily concur.

In my eleven years of blogging at Pension Risk Matters, followed by Good Risk Governance Pays and now I Paint With Words, I have included an image in nearly every write-up. A visual can sometimes be more evocative of an idea or feeling than words alone. A selection can enhance the central message even when it’s not directly related to the subject at hand. To reinforce my commentary about building trust, I embedded an illustration of a giraffe atop an elephant with the latter walking across a tightrope. The image is colorful, whimsical and, from what website visitors tell me, different enough to merit a second look.

When someone reads a book, they often draw from their experience or don their imagination hat. The same thing is true for authors. I’ve never been to Adam’s Peak in Sri Lanka but the captivating streaks of orange and purple at sunrise shown here make it easy to weave a tale about adventure or finding one’s self at the end of a windy mountain path.

I’m reminded of a movie scene from “Shadows in the Sun” by Brad Mirman. Harvey Keitel plays a famed genius who is on hiatus since his wife died. He is visited by a younger writer who wants him to create anew. It’s late afternoon and the protégé mutters “The sun dropped” as they look out over the Italian hills. His mentor counters with aplomb. “The sun set slowly, igniting the sky in fiery shades of red and orange. In the distance, dark clouds rolled over the horizon, riding the summer winds. Soon, day would give way to night, and with it would come the silence that washed over everything.” In this passage, there is a beautiful coming together of what the artist sees with his eyes and feels with his heart.

As any writer knows, being able to tell a good story is everything. If an image helps, we’re all better off. As I’m writing my first screenplay, I track in my mind’s eye how I think each scene should appear. It’s a solid technique that works for many. Why buck the trend?

Trading Ahead Of Investment Policies and Procedures

Posted in Compliance, Fiduciary Liability, Governance, Investment Management, Non-Profits, Risk Management, Trading

Herd of giraffes in the background blue sky.

In response to a recent request by a reporter, I examined some public documents relating to what appears to be unauthorized trading. As is the situation when only some information is available, it’s hard to tell whether said trades can be characterized as rogue, mistaken or deemed to fall within a broader, albeit ill-communicated, mandate. Should this matter proceed further, obviously the forensic investigator would need access to complete records.

Generally speaking, investment fiduciaries are wise to examine their guidelines against activity records for purposes of identifying any trades that fall outside of allowable limits or are prohibited. More ideally, an institutional investor would have built in safeguards to detect unsanctioned transactions ahead of time, before they take place. Otherwise, an institution (and its beneficiaries) could end up paying fees and incurring losses as part of reversing unauthorized buys or sells.

Absent an Investment Policy Statement (“IPS”) or other type of guiding document, how does someone accurately detect bootleg activity? One could infer intentions based on facts and circumstances although conventional wisdom favors having an IPS. However, the reality is that many institutional investors are not required to craft this kind of roadmap. In some cases, they rely on general instructions that materialize after hopefully careful deliberations among investment fiduciaries and their advisors.

For “seat of the pants” investors, uncovering out of bounds activity is going to be tough if there are no stated boundaries that define appropriate strategies, products and trade size. Moreover, it will be difficult to gauge performance on a risk-adjusted basis if there are no pre-defined dictates as to what the investor needs to achieve and its related constraints.

Given the litigious nature of today’s environment for institutional investment fiduciaries, it seems like a no-brainer to establish an IPS (or something similar), review it as often as needed and abide by its instructions until, and if, modifications are needed. Like the giraffes shown here, investment decision-makers should look over the “financial” trees and figure out how to navigate a fitting path forward. Otherwise, they’re stuck in one place or could end up lost.

Fake News, Plagiarism and Business Ethics

Posted in Disclosure and Transparency, Ethics, Investment Management, Non-Profits, Risk Management, Trading

Small Fish With Ambitions Of A Big Shark - Business Concept

If you are a consumer of factual information, your head is probably spinning from the fast-paced discussions about what constitutes real news versus fake news. Not being a journalist, I’ll leave questions about a reporter’s obligations to the media industry’s standard-setters. That said, I can and do vote with my dollars. If I sense that an article or broadcast reflects shoddy research, I turn the channel, cancel my subscription or both. According to “Americans’ Trust in Mass Media Sinks to New Low,” Gallup analysts say that only 3 out of 10 people “have a great deal or fair amount of trust in the media.” It does not take a rocket scientist to surmise that executives must be wringing their hands as they fight to keep a fickle audience.

Like many, I apply the same stay or flee litmus test to authors who are known to plagiarize. My book editor tells me that part of the problem has to do with the reality that ghost writers, when used, may be relying on their client to ensure that attribution is properly in place. When I authored my first book, I spent a small fortune in money and time to secure permissions from about three hundred sources. She and I agree it’s sloppy to poach. Even more pernicious is that readers and original content creators are cheated and of course there is the moral issue. Reputation is a precious thing. Once it’s tarnished, it takes a tremendous amount of work to cure suspicions of future foul play.

Business leaders are wise to worry about a consumer’s ability to shop elsewhere when it is believed that a bad act occurred. Recent research from market intelligence company Mintel is telling:

  • “… 56 percent of US consumers stop buying from companies they believe are unethical”;
  • “…over one third (35 percent) of consumers stop buying from brands they perceive as unethical even if there is no substitute available …”; and
  • “… 27 percent stop purchasing even if they think the competitor offers lower quality.”

While lots of companies seek to differentiate themselves on the basis of good ethics, there is no guarantee they will attract new clients and retain existing ones. There are reasons for this disconnect. Applied to the investment management industry, some asset owners have said they are unwilling to pay extra for safeguards. They believe that risk mitigation should already be part of the service an asset manager, bank or consultant offers. In other situations, institutional buyers don’t acknowledge the value of a best practice versus an okay practice. For example, a money management firm that is fast to terminate employees who violate personal trading codes may not necessarily win business over a firm that tracks personal trading violations but gives employees a second chance.

I maintain that an organization should always strive to manage risk as best it can and then take a bow by communicating its carefulness to clients. Beyond that, leaders who understand the link between ethics and shareholder wealth (or some other value metric) should want to see their competitors play nice. Even if a business is doing everything right in terms of integrity, compliance and risk oversight, its future growth could be limited by what its peers do or don’t do. As one of my favorite poets John Donne observed, “No man is an island” and so it is with companies, non-profits and governments in terms of overall trust in that sector.

Employers Worry About Skills Gap That Impacts Bottom Line

Posted in Career Development, Risk Management

Higher education machine

Benjamin Franklin declared that “An investment in knowledge pays the best interest.” Martin Luther King, Jr. offered “The function of education is to teach one to think intensively and to think critically.”

While I wholeheartedly concur with these sentiments, I question whether it makes sense for an individual to pursue a college or university degree if the result is a heavy debt load and a transcript that does little to help the graduate find a job. This assumes that high school seniors are prepared. Regrettably, many are not. A review of the Nation’s Report Card is truly shocking. In 2015, only 37 percent of grade 12 students performed at or above a proficient level of reading. Seventy-five percent of grade 12 students were not proficient in mathematics. Whether you are a parent, taxpayer and/or hiring manager, you should be demanding to know how $620+ billion is being spent on public elementary and secondary schools. It is no less tragic for the young people who are ill-equipped to fend for themselves.

According to the Association of Colleges & Universities website, surveys show that employers “give students very low grades on nearly all of the 17 learning outcomes explored.” Companies require prospective employees to demonstrate the ability to communicate clearly, work in teams, think critically about an issue, behave ethically and “apply knowledge in real-world settings.” For those planning to rely on generous grades from professors, think again. Companies are getting wise to the notion that “everyone gets a trophy” and discounting the usefulness of grades.

Poor hiring decisions are risky for any employer. Someone without adequate skills could make a costly mistake that destroys enterprise value or, worse yet, leads to bodily harm or a fatality. Organizations already spend huge amounts on training. The 2015 Training Industry Report cites $70.6 billion as the amount spent by U.S. based companies and educational groups that year, up 14.2 percent from 2014. Is it fair to ask shareholders to pick up the bill to teach individuals the three R’s (reading, writing and arithmetic) and other fundamentals they should have acquired in high school or college?

I am a big believer in lifetime learning. I understand the advantages of combining academics with experiential opportunities. I also know, as do many others, that we can do better when it comes to preparing the younger generation to live as independent adults. Closing the skills gap should be a priority for everyone. We all pay for deficiencies in one way or another.

Goal Setting With the Help of An Accountability Buddy

Posted in Career Development

Boys in images traveler and pilot play in his room

A few weeks ago, one of my friends, Robert Begley, asked me if I wanted to be his accountability buddy in 2017. As we discovered while catching up during a holiday party, we share a goal in wanting to expand our respective engagements as thought leaders, albeit in different fields. He specializes in history and heroism, from a philosophical perspective. (Robert is the founder of the New York Heroes Society and talks eloquently about Alexander Hamilton and other esteemed innovators.) My research, speaking and writing is about investment risk governance and financial client service.

I had never heard of this concept before but it strikes me that this will be a good way to bounce ideas off someone on a regular basis. As it turns out, the approach is a big deal in motivation circles. In “Why an Accountability Buddy Is Your Secret Weapon for Faster Growth” (Entrepreneur,  August 29, 2013), contributor Stephanie Vozza offers the following tips:

  • Pick someone outside of your industry to offer “fresh” insights;
  • Work with someone who will give candid feedback and be prepared to return the favor, even when it’s “uncomfortable” to give advice;
  • Identify objectives and communication preferences regarding frequency, venue (phone, Skype, email, in-person) and whether one or more goals will be discussed; and
  • Decide what happens if “commitments go uncompleted.”

When applying these criteria to my situation, I am in relatively good stead. My accountability buddy has a background in trading technology but his primary industry concentration these days is sufficiently different that he can advance interesting and independent opinions. I know him to be forthright and bold when it comes to giving someone the unvarnished truth (at least his version of it). We have discussed objectives and will add to our ground rules when we have our first weekly call in January. Where I think we need more effort is in the area of consequences and what we want from each other in terms of reinforcing the need to stay on track or come up with an alternative plan.

I am excited to get started on this new adventure with my accountability buddy. Like me, he is dedicated to quality and understands that self-growth occurs when we challenge ourselves. I already have homework to watch “Resolution Revolution” by Alex Epstein about productivity improvement methods.

As the new year looms large, think about getting your own accountability buddy to help navigate the next quest. Have fun and good luck!

The Risk Of Taking Low Maintenance Customers For Granted

Posted in Customer Service, Risk Management

technology, ethnicity and people concept - international group of men and women in queue line with smartphone over white

Treating customers poorly makes little sense, assuming a company considers them profitable and wants them to stay. The logic is straightforward. A diversified steady (or better yet growing) source of sales revenue enhances enterprise value and lowers business risk. Yet many organizations still struggle with all things customer service from (1) determining what buyers should receive for their money (2) calculating metrics that signal problems before they mushroom and (3) knowing how to turn grumps into happy campers. A Forrester Research analysis done a few years ago reveals that only four out of ten respondents rank “improving the customer experience” as a priority. Insurers with Owen-Dunn make clear that the costs of protecting a business go up unless the insured party can demonstrate that it interacts with customers in an ethical, transparent matter. In a social media world, complaints travel in seconds and “if the experience is bad, a whopping 95 percent will tell others about the bad experience.” This translates into the potential for lowered revenue at a fast clip.

In his Customer Think piece about developing an entity-wide culture to treat customers like royalty, Ian Golding offers actionable tips that include the following:

  • Converse and hold meetings about what customers want and need;
  • Communicate the importance of positive interactions with buyers;
  • Hire people who can specifically develop and retain customers by carrying out the seller’s mission to treat buyers properly;
  • Update internal performance reviews to gauge whether employees are “focused on customer centricity” and then reward or penalize them accordingly; and
  • Establish a structure that enables employees to provide stellar customer service.

Based on recent visits to my local barista, I’d like to add another item to the list – Acknowledge the importance of your low maintenance customers. They may not be buying higher-priced caffeinated beverages but they frequently add a muffin or bagel to their order for a double espresso or cup of coffee and are less likely to complain about a missing ingredient. Unfortunately, the buyers of basic drinks seem to get short shrift, receiving their orders lukewarm and only after those who were behind them in line are handed a triple whipped cream, caramel something or other. What seems to be happening is that the barista goes off to create the fancy concoction and forgets about the simpler request until reminded. On a personal level, if that’s my only problem, life is good and my outcome is trivial. However, if there are tens of thousands of buyers like me who ultimately reject companies that favor high-maintenance customers, their shareholders will suffer. Who wants to wait in long lines and pay a premium price for bad service? There is likewise the reality that customers with complex needs could be prohibitively expensive to serve or could be introducing excessive and uncompensated risks that no seller should want. For every drink that takes two or three minutes to create, how much revenue is lost because two shot espresso drinkers are going elsewhere?

I’ve observed some of the same client disparities in the financial services industry as well. When I was in banking, there were colleagues who attached a certain cachet to complex transactions. If the buyer was a company that operated in a glamorous or sophisticated industry, so much the better in terms of prestige. Nuts and bolts companies with modest needs for a “plain” interest rate swap or hedged financing were typically not considered “exciting” by the mavens of Wall Street. At the same time, it was these standard, no frill trades that grew the risk transfer marketplace to tens of trillions of dollars. I remember dining with a corporate client – a senior executive from Florida – who bristled at being talked down to by “big city” bankers who were not shy about their supposed superior knowledge of high finance. His revenge was a large fortune he had made for himself and his investors by concentrating on the “average” deals that others scorned.

Putting the perils of commercial snobbery aside (for those who indulge), my take as a risk management expert is that a business should have policies and procedures in place that reflect the importance of delivering good customer service for all unless a business has decided strategically to focus on a particular niche as defined by demographics, industry or size. Even then, a vendor should politely apprise potential buyers why they don’t fit the seller’s requirements.

Smart company executives understand the essence of robust customer service. They know that competitors would be delighted to grow their bottom line by exploiting the indifference of businesses that are unable to make a customer feel special. For my part, I vote with my dollars and encourage individual and organizational consumers everywhere to do the same.

Commodity Risk Management

Posted in Commodities, Risk Management

top view of variety chocolate pralines

For chocolate lovers everywhere, rejoice. October 28 was National Chocolate Day. Halloween follows a few days later, offering another chance to indulge in candies that melt in your mouth. I have been a fan of pretty much everything chocolate since I was a little girl. I remember being deliriously happy about getting “right off the processing belt” samples when I took a tour of Hershey Foods Corporation’s main factory before they closed the plant to visitors. (The company’s website suggests a visit to Hershey’s Chocolate World when you are next in Pennsylvania.)

While estimates vary, the global chocolate market is relatively large at about $100 billion, grew at just over five percent last year and includes lots of other competitors such as Mars, Inc., Nestlé SA, Mondelēz International and the Ferrero Group. For many of these firms, understanding consumer demand and commodity price behavior is integral to managing risk.

Take cocoa for example. According to “Future of the chocolate industry looks sticky,” CNBC reporters Katy Barnato and Luke Graham cite supplier risk since “more than 70 percent of cocoa” comes from only four West African countries. Even though cocoa prices are predicted to “fall back a little from currently high levels” (which should be good for unhedged candy makers), world production has dropped. If supply continues to contract, prices could go up again. The International Cocoa Organization forecasts a one year decrease of 248 thousand tons.

Hedging is certainly possible although there is never a free lunch. Besides the opportunity risk of locking in a price at trade inception, a candy manufacturer needs to determine what hedging instrument makes sense, the size of a hedge, how often to adjust and cash requirements. In early 2015, the Chicago Mercantile Exchange published guidance about its two newly launched cocoa futures contracts to be cleared in London. Since one is denominated in Euros and the other is denominated in U.S. dollars, there could be currency risk that likewise has to be taken into account.

Other risks that come to mind include making sure that facilities are clean, properly training workers about safety and insuring that inputs are fresh and come from a reliable vendor. Remember the funny I Love Lucy video where Lucy and Ethel could not keep up with the speed of the chocolate candy conveyor belt? Hoping to avoid being fired because they can’t wrap chocolates fast enough, they gobble the candies, stuff them in their hats and drop them inside their clothes so their boss thinks all is good. It’s too bad for the company owner who is losing precious inventory – and money – as a result of their jolly foibles.

Managing risks should be prioritized by any company, government or non-profit organization. Maybe we should have a National Risk Management Day to celebrate this important discipline? Effective risk management benefits shareholders, taxpayers and other constituencies of an enterprise.