Several commodity trading / processing organizations think that their Chief Risk Officer (CRO) or Chief Financial Officer (CFO) or CEO has the sole responsibility of managing and reducing risk for the entire organization. In fact, surveys have shown that many Asia-Pacific based organizations think of CEO as primarily responsible for managing risks while European and North American organizations have this perspective for their CROs.
The perceptions couldn’t be further away from the truth…which is, that everyone in a commodity trading / processing organization is a Risk Manager. It doesn’t matter if the company is a palm-oil seller or soymeal buyer or copper miner or aluminum producer. Risk management is too strategic and integrated a function to be left to just one division of the company.
The procurement / purchase managers manage the risk of procuring at higher prices which would affect their margins, traders manage the risk of taking too huge a position that’ll be tough to liquidate under adverse market conditions and running too long with a loss making position, marketing / sales managers manage the risk of designing structured products / contracts that can give them a competitive edge in getting a customer while protecting their margin targets, business heads / Profit center heads manage the risk of their teams not taking unduly high risk in their respective activities, supply chain and logistics manages risk of freight and vessel availability, while treasury manages the risk arising from currency and the CEO / Board manages risks of investments in alternative (presumably better) commodities / lines of businesses to ensure maximum & sustainable return to the shareholders.
The organizations who still believe that only Risk Management division / CRO / CEO / CFO is supposed to manage their risk and somehow “magically” create consistently growing margins / bottom-line, will eventually realize that Everyone… every single manager in the organization is a risk manager.
Has your organization yet joined the growing club of those who believe that Market and Credit Risks have to be integrated across the organization rather than being managed from silo divisions?
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