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MF Global Scandal Shows Chief Risk Officer's Importance

Chief risk officers may be able to help avoid the kinds of errors that plagued MF Global.

Companies seeking to improve their corporate governance and avoid the kind of strategy missteps and errors that lead to MF Global's demise should give more power to their chief risk officers and compliance officers, Michael Peregrine writes in a column for The New York Times.

Peregrine, a partner with law firm McDermott Will & Emery, argues that organizations need to start paying more attention to what their CROs say, since that person's findings could alert corporate boards to problems before they snowball into full-blown crises.

He points to the situation at MF Global, where former CRO Michael Roseman often voiced concerns about Jon Corzine's investment strategies and finally left after several clashes with the chief executive officer.

"One of the lasting legacies of the Sarbanes-Oxley era is not to mess with the risk officer or compliance officer," Peregrine says. "The position is a linchpin in organizational efforts to comply with applicable law."

As Tim Beyers and Matt Koppenheffer write for the Motley Fool, Roseman's replacement, Michael Stockman, had a spotted history, with his time at UBS having a few "disastrous years" that eventually contributed to the firm's struggles after the financial crisis. His performance at MF Global indicates he didn't learn from the last crisis, the authors comment.


Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

There are two or more issues involved. Onc clear issues is the exceptional and disproportionate risk taken on Euro soverign securities and the poor process followed. Associate is the financial devices employed - the "repo to maturity" - prominently. The finance/accounting personnel must understand the economics [ALL repors are debt]regardless of the permitted marginal accounting. Hyper-aggressive accounting often accompanies wildyl seculative business strategies. Finally the finance industry's "permitted" level of borrowing from "segregated" customer accounts is a bad idea even if a legal one. The bad business bet was supported by hight borrowing masked by hyper-aggressive accounting, and further enabled by very high risk financial "borrowing" of customer funds. Basic busines stress is a major temptation to both aggressive accounting and risky cash management as appears to have occured here.