Regulatory Risk

Leading on Compliance

Corporate risk managers are well positioned to take the lead on compliance responsibilities.
By: | November 3, 2014 • 7 min read

There has been a long-standing debate about where compliance responsibilities should fall in an organization, but with the spread of enterprise risk management (ERM) in particular, corporate risk managers are increasingly being seen as the natural owners of compliance.

“I like to use an umbrella as the analogy for ERM,” said Grace Crickette, senior vice president, chief risk and compliance officer for Emeryville, Calif.-based AAA Northern California, Nevada and Utah. “Compliance comes under it because non-compliance is a risk event.”

Grace Crickette, senior vice president, chief risk and compliance officer for Emeryville, Calif.-based AAA Northern California, Nevada and Utah

Grace Crickette, senior vice president, chief risk and compliance officer, AAA Northern California, Nevada and Utah

“The focus of compliance is on governance whereas ERM looks at risk holistically as the ability of the organization to identify, manage, monitor and mitigate corporate risks,” Crickette added.

In the compliance realm, risk management can help all departments that have some compliance responsibilities on a particular regulation to coordinate with each other.

“One of the advantages risk management has over individual departments in an organization is that they have a bird’s eye view of the complete organizational structure and who is responsible for what,” said Elizabeth Carmichael, director of compliance and risk management at Five Colleges Inc. at Mount Holyoke College in South Hadley, Mass. “This approach can ensure that everyone is brought into the compliance conversation who should be there.”

David Theron Smith, divisional vice president, risk management for Charlotte, N.C.-based Family Dollar Stores Inc. sees two key types of compliance in an organization.

The first is regulatory compliance, which is, no bones about it, compliance that you’ve got to do or you’re in violation of some statute.


Then there is what he calls corporate compliance, which is not necessarily dictated by statutes but by processes or procedures in support of corporate strategic initiatives.

“Corporate compliance speaks more to making sure we are executing a strategic risk management initiative in the organization or a strategic process within a department in support of the mission,” said Smith. “Perhaps you could call this ‘corporate brand compliance.’ ”

In a mature, sophisticated organization, risk management is understood to be very strategic rather than compliance or audit driven, Smith added.

At Pleasanton, Calif.-based supermarket chain Safeway Inc., Vice President of Risk Management William Zachry sees himself and his team as “enablers” of the company’s compliance network.

“We’re working very closely with them but they have to own it,” he said. “My team’s job is to make sure we provide compliance with enough data and information so they’re able to have the right level of resources to focus in on the compliance requirements.”

Zachry said he doesn’t want to go through the field “whacking the people who are bad, I want to make sure we enable the people who are supposed to be doing it correctly to get it done properly.”

When risk management is functioning properly to solve compliance problems, one of its great advantages is its ability to quickly and smoothly form multi-program task forces to identify and mitigate compliance risks.

A Bridge Between Departments

At Rochester, N.Y.-based Paychex Inc., one of the first companies to put the compliance function under the risk function, one of the values of ERM gathering together individuals from various departments is that they share best practices, almost in peer group fashion.

“So let’s say you’ve got a credit manager, or a collections manager, or a compliance manager or an operating risk manager and if they’re working together as a team on a problem — many times, even though they come from a different risk family, the solution to go after that risk is similar,” said Frank Fiorille, senior director of risk management for the company, which provides payroll, HR and benefits outsourcing solutions.

Elizabeth Carmichael, director of compliance and risk management, Five Colleges Inc.

Elizabeth Carmichael, director of compliance and risk management, Five Colleges Inc.

Five Colleges’ Carmichael added that the risk management department can serve as a bridge between divisions and departments to insure that all of the compliance requirements are appropriately addressed within the institution.

“Where third-party [non-governmental or audit] complaints or claims arise from compliance failures, particularly those that involve students or visitors to the campus, one cause can be communication failures between divisions and departments,” she said.

Fiorille said that an enterprise risk management discipline that includes compliance considerations “forces you to take all these risks in a funnel per se and then they go through a pipeline and then you’re categorizing them all and you’re rating them based on impact and probability and velocity and all this other stuff so it then spits out a risk heat map, so you can see which are the big ones you want to go after versus the little ones that pose very low risk.”

Although Paychex is not as heavily regulated as a bank, its products and risk challenges are similar to a financial institution, he said.

“So it seemed logical to bring together groups that are looking at the regulatory risks to team up with folks looking at credit risk and operating risk and reputational risk and the other kinds of things we manage on a day-to-day basis,” Fiorille said.


Risk management has an advantage over compliance in two important ways: access to top management and access to money, said Glenn Klinksiek, knowledge center content manager for the Bloomington, Ind.-based University Risk Management and Insurance Association (URMIA) and former assistant vice president for risk management and audit at the University of Chicago.

“I think risk management might be better situated organizationally to advocate for more dollars to get better compliance.” — Glenn Klinksiek, knowledge center content manager, University Risk Management and Insurance Association

“Often, risk management departments have access to senior management and that’s where oftentimes improvements need to be pushed from the top down, so that’s an advantage risk management departments have,” Klinksiek said.

Also, risk management departments are more often than not involved in the financial function of an organization.

“And compliance often means increased expense for whatever fixes are necessary and so sometimes in looking at ordinary department budgets there might not be an appreciation for what the importance of the increased expense is,” Klinksiek said.

“I think risk management might be better situated organizationally to advocate for more dollars to get better compliance,” he added.

Carmichael stressed the value of an ERM-type approach in establishing clear lines of communication within an organization.

“Clear communications across the board is one of the most important things that risk management can do, to make sure that different departments are talking to each other,” she said.

Smith noted that the success of ERM depends on ERM’s broad acceptance by all business silos within the organization and the recognition of the value ERM brings to each business unit, to the corporation’s bottom line and the corporate brand.

But too many organizations still view ERM as a compliance-based, audit-based function, he noted. “It becomes a ‘check the box’ exercise, something to get through, to make internal audit and the board of directors happy rather than driving a daily way of management and business execution,” he said.

Smith added that he believed the heart of a successful ERM initiative is grounded in a collaborative relationship between risk management and internal audit, with risk management taking the leadership role because it has the overall risk management experience, resources, understanding of the financial impact of decision-making and strategic risk program development.

Managing risk on an interdepartmental basis is an important part of the job, Fiorille said.

“Risks are continuing to evolve and change and rarely, if ever, fit squarely into one discipline, so it’s critical to ensure your risk apparatus can adjust and adapt as needed,” he noted.

If you’ve got one group responsible for looking at regulatory risk and another that’s managing all the other risks working collaboratively, from a flow and synergy standpoint it just makes sense, he said.


ERM is particularly helpful because it can be applied to help a risk manager effectively manage compliance and regulatory risk on a frequent basis, which is essential given the pace of regulatory and technology change, Fiorille said.

“Compliance risks sometimes can go to the top of the list so you can shift resources or put some focus on that risk versus some of the other risks,” he noted.

Steve Yahn was a freelance writer based in New York. He had more than 40 years of financial reporting and editing experience. Comments can be directed to [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]