Risk Management

Clearwater breaks our corporate risk management client services into four major practices: 1) Strategic risk, 2) Operational Risk, 3) Financial Risk, and 4) Compliance Risk. Each are not only important but are distinct from each other. However, at times aspects of the solutions are interrelated between two or more practices. We work with our clients targeting their specific risk management needs thus compartmentalizing our engagement agenda by each practice, and when an overlap between categories is unavoidable we, with client approval, target only those overlapping areas.

Typically, clients have a certain “risk appetite,” that is risks that they are willing to take vs. the risks that they are not willing to take. It could be a credit risk, a compliance risk, an embezzlement risk, a workplace hazard risk, or a fundamental economic risk, and so on. To one company one risk is a major concern, though the same risk to another company is a minor annoyance, sometimes these differences are by industry, or by customer base, or by the pollutants the company produces, or whether the company in labor intensive vs. capital intensive, prone to workplace safety violations or not, union or non-union, has centralized control vs. decentralized control, etc.

Clearwater understands that a prioritization of risks, or “risk-ranking,” is often advisable in these instances. Through our analysis of corporate risks within all four practices we can assist clients in assessing an accurate profile of their risk tolerance, based on numerous external and internal factors. We can also advise that ignoring certain risks could have devastating consequences. Not only are we up-to-date on all the current compliance, regulatory as well as economic issues we also have two decades of institutional knowledge that only advising in restructuring and turnaround situations can provide. However, just like CSC Capital’s restructuring program Clearwater’s preferred approach is holistic in nature. We firmly believe that in order to ensure clients of an iron-clad corporate risk management program all four practices should be analyzed for need, then designed and implemented accordingly.

To ensure success we further believe in establishing the ownership of particular risks by management personnel, and that this ownership is delineated on position descriptions as well evaluated. Managers should know the costs vs. the benefits of each risk program, and their incentive plans should incorporate the advantages of compliance along with the disadvantages of fines, fees, or worse. Of course, risk management is a top down corporate initiative, thus it is the responsibly of ownership and the board room to embrace the corporate-wide implementation of a risk management program. However, the internal design and implementation of risk procedures due to underfunded budgets and/or the desire of profits, or high stock values could unwisely compete for the resources of a properly maintained risk management program. Further, a Chief Risk Officer or an internal risk auditor could be mere window-dressing unless they are given the tools and the enforcement mechanisms to regulate compliance throughout the entire company. This is why we normally like to see the Chief Executive Officer perform the collateral responsibilities and duties of Chief Risk Officer specifically in the area of strategic risk management where everything including a company’s name and reputation could be on the line. For example, if it was not for the brilliant internal and external handling of the two Tylenol poisonings in early and mid 1980’s by CEO James Burke of the giant drug manufacturer Johnson & Johnson, this pillar of American commerce might have not survived the tragic events. Clearwater’s effective and efficient holistic approach to risk management ensures a corporate-wide commitment through all levels, divisions and geographic locations of our client’s company.

Strategic Risk Practice

Strategic risks are typically external and affect the most important of senior management decisions, and thus are generally not on the risk assessment radar. Strategic risks include economic, industry or sector uncertainty or downturn, customer demand and retention shortfall due to product mix and other factors such as industry pricing pressure from competitors, a lack in futuristic and sustaining research and development, especially in today’s internet age, negative stock market volatility, political, non-regulatory legal issues, mergers, acquisitions and company-wide restructuring and turnaround programs, changes in or the make-up of investors or ownership, going from private to public or vice versa, cyber security, and natural disasters. Strategic risks also include those unforeseen “catastrophic risks which can threaten a business’s existence or even undermine an entire industry or industries, such as in the fall of 2008 when the financial crisis toppled the construction market industry and building materials industry worse than even during the Great Depression.

Clearwater’s strategic risk practice believes that the impact of strategic risks can be expressed as an acceptable or non-acceptable variation or non-attainment of strategic objectives and plans. The difference could be small or large, but the gap between the strategic objectives and the possible results defines the size and significance of the risks. In CSC Capital’s December 2001 article “Building for the Future,” in Do-It-Yourself Retailing magazine the firm not only defines the upcoming strategic risks for the building material retailers industry in specific terms but provides strategic risk solutions for an industry that would in ten years be a mere shadow of itself. In the section of the article entitled “The Vision for the Future,” the firm wrote in part:

“Now that we see cracks in the walls protecting the traditional building material construction supply industry, what will the future bring? Most consumer-durable industries have undergone a substantial distribution and service evolution resulting from changes in economics, competition or technologies [and from these]…we can see three relatively common, distinct stages …The first stage is marked by major improvement in value delivered, mostly reductions in cost…The second stage is marked by companies becoming more focused on achieving economies of scale of specific customer segments…The final stage brings dramatic new paradigms for the entire value chain…Undoubtedly, internet technology will enable more effective and efficient direct contact between retailers and their customers, as both become more comfortable with this new type of POS…These transformations will not be easy, and many of today’s players will fight them aggressively.”

In the following section of the article entitled “Forming a Strategic Response,” the firm outlined its strategic advice based upon the risks and the vision:

“What, then, should a building material do? …The future winners in the building material industry likely will be the ones that drive third stage evolution. Accordingly, we recommend the following strategic responses consistent with the three [above] stages…1) Aggressively and systematically pursue functional, as well as profit center improvement, such as operational cost savings and high margins of the existing product lines. 2) Develop a vision of a desired end-game sales strategy and begin making progress toward that vision, taking care to achieve consistency between the long term vision and short-term functional improvement agendas. 3) Build the means to create and capture much more of the ‘down-stream’ value associated with building materials – and, in so doing, strive to innovate ‘game-changing’ approaches to the business.”

In the catastrophic events that followed beginning in the fall of 2006 for the building materials industry, these words in 2001 were terribly foreboding. However, to CSC Capital, the application of new solutions based upon proven techniques in other durable goods industries during past industry corrections was critical for survival. Assessing and managing strategic risks in the situation highlighted above was basically telling established retailers that they “must shake off old habits and practices and then visualize and implement revolutionary ways to sell building materials.” Very few understood the severity or even the likelihood of the up-coming financial crisis to be visiting their businesses personally. And for businesses without a risk strategy, even for those owners who did foresee major market corrections, by 2008 it was too late to create one.

Typically the contemplation over strategic risks is more thinking-intensive than with the other more internal risks. More factors, more variables, more unknowns, complicate analysis. Also in most cases strategic risk assessment suggest an expensive and/or disruptive event or process that many key management personnel have difficulties in accepting as realistic. More importantly, strategic risk solutions and their implementation is unlikely to attract large management support due to the fact that they often change the organizational status quo. It is precisely for these reasons that implementing strategic risk solutions is so important.

To simplify the understanding and management of strategic risks, Clearwater’s approach focuses on four holistic steps. First defining corporate strategy. Our rationale is that the key elements of strategy will help identify which risks are associated with the successful competition of that strategy. For example, if a company does not intend to purse market globalization, it will therefore less likely have to be concerned with the strategic risks associated with penetrating global markets. Though this may sound rhetorical, strategic risks are lessened by strategic intent and actions. Second, we believe that the business operating environment should define how broad the strategic risks actually are. Risk solutions are only needed to navigate through real business exposures. For example, if your trucking or distribution business is regional, out of region regulations are not immediate strategic risks. Though a company should always be vigilant upon national regulatory trends that may someday encroach on your area. Third, strategic risk tests should be conducted that define and limit the potential impact of risk. Risk scenario analysis with input from all management levels and organizational divisions helps ensure the initial containment and suppression of strategic risk. Like implementing corporate risk “fire walls” the propose is to contain a strategic risk from spreading out-of-control throughout a company. Finally, Clearwater quantifies and values the monetary and intangible costs associated with each strategic risk by creating metrics designed to define and prioritize risk management activities. Is this strategic risk worth undertaking? If so why? And if things go wrong what could be the monetary and corporate damages? However, if the strategic risk pays off what could be the calculated monetary and intangible benefits?

Though this final set of questions is sometimes a complex task, the successful completion of Clearwater’s four step approach ensures that the most comprehensive analysis of strategic risk in the industry is provided to our clients. After analysis, pertinent strategic risk management and if possible prevention solutions are designed and implemented company-wide. If the analysis was an intellectual “work-out,” the heavy lifting starts with implementation. This is where CSC Capital’s restructuring-based approach to corporate solutions provides the traction to ensure positive implementation results. This synergistic alliance with CSC Capital allows Clearwater to design, develop and implement state-of-the-art top down strategic risk solutions. This is where the theory and practice of strategic thinking separates between us and our risk advisory competitors and where our practical solutions seem more like common sense, as applied to strategic planning. It has been the firm’s experience over the past twenty years that strategy risk professionals in general use very esoteric and complicated terms, often with assumptions more grounded in theoretical fiction than in numerical fact. In polar opposite Clearwater bases its strategic risk solutions on recreating future financial realities to manage or prevent strategic losses. We then build the organizational and accountability framework around those forecasted financial projections to ensure enhanced probabilities of success.

Our premise is that all strategic risk solutions are grounded in a clear and concise way of management action or re-action, an organizational behavior already prepared to manage risk and better yet an organization already structured financially and organizational to prevent the risk from happening in the first place. In the article mentioned above CSC Capital targets exactly what building material retailers should do to avoid the up-coming financial crisis. This section entitled “Functional Improvements,” was very straight forward. In short, the article suggested these improvements must be made: 1) reduce inventories by pooling levels in regional centers, 2) leverage purchasing power by capitalizing on procurement economies of scale, 3) utilize best management practices to sell products, in other words pro-actively manage your sales force, 4) align manpower requirements with profit and cost center activities by payroll to sales ratios, thus keeping labor expenses within optimum levels with volumes, 5) increase customer satisfaction through executing the sale through delivery basics better than your competitors, thus decreasing price sensitivity of products including commodities, and 6) which is a corollary to number 5, collect your receivables. Indeed nothing fancy or pretentious about the above functional improvements, however imagine implementing them even to avoid a financial crisis that could threaten your business survival. Clearwater’s strategic risk practice was conceived to provide clients with the utmost in risk management and prevention solutions.

Operational Risk Practice

Operational risks are almost always internally based and are typically managed by second-tier department heads or division vice presidents. However, operational risks are often on the “front burner” of most risk assessment agendas, as these internally driven risks may affect an organization’s ability to deliver on its strategic objectives. In this way the solutions for operational risks are often similar or the same as the solutions for strategic risks, though in the former they are reactive solutions and in the latter proactive solutions. Needless to say, top management often engages more analysis and discussions of operational risks than even strategic risks. Operational risks most always result from inadequate or failed internal processes or from mismanagement or personnel mistakes or from an internal system’s failure. Operational risks include labor cost overruns and lack of expense controls, ineffective operating controls and poor capacity management, supply chain problems and inadequate logistical support, plant and facilities health and safety matters, employee issues including non-financial crimes such as theft and misuse of corporate equipment or property, internally based bribery and corruption, and the volatility of commodity pricing as a cyclical pattern. However, to repeat in many cases operational risks result in a failure to adequately plan for and implement strategic risk solutions.

Clearwater’s approach to operational risk analysis is again holistic in nature. Internal operating problems rarely exist in a departmental vacuum or “bubble,” and the risks associated with one department’s internal problems can normally be felt throughout an entire organization. This is often the same with companies with several geographic centers, connected by distribution and traffic, inventory and purchasing, accounting and administration, sales and marketing and information technology activities. This holistic framework as applied to operational risk assessment as well as implementation includes validating and correcting the reliability and effectiveness of all business operations, including the design and implementation of risk management decision-making and accountability, producing greater efficiencies in capital investments relating to facilities, equipment and infrastructure, including all information technology systems, and providing organizational and structural integrity to ensure operational cost-effectiveness and efficiency, including personnel safety.

The synergistic applications from CSC Capital restructuring services especially come into play when measuring capital risk. Here the capital requirements and risks associated with each capital cost within each profit and cost center from each location are measured against a needs assessment. Unlike a typical capital risk assessment, the divisions, locations, etc. are first evaluated as stand-alone entities, and then secondly they are analyzed as a result of combining operations and taking advantage of capital economies of scale. At Clearwater capital is broadly defined as facilities, real estate, equipment, systems, inventory, human and finance capital. It was our experience that overburdening costs of capital with the resulting high expense payments and debt service combined with sliding volumes was the leading cause of financial collapse of non-financial companies from 2008 through today. And while enormous decreases in revenues clearly contributed to some company’s death spiral, a much larger percent of corporate failure was due to a massive and unnecessary build-up of capital in the years prior to 2008. In some of our experiences highly expensive and leveraged real estate and development projects, most outside the core competencies as well as the industry of the distressed corporation was the “final blow.” These recent lessons have equipped Clearwater with essential and vital operational risk tools, applications and preventive procedures.

In fact it was the near collapse of the U.S. financial system in the fall of 2008 that provided the underlying impetus for the birth of Clearwater. CSC Capital witnessed the inability of risk management firms to accurately assess operational risks but most importantly the lack of resources and experience to implement lasting risk management solutions. Dealing with the crisis instead of providing the cure, seemed to be the standard practice. The identification and measurement of operational risks and the implementation of operational risk solutions is a real and live concern and need for businesses today. Clearwater’s restructuring-based operational risk management solutions have been tested for two decades against all sorts of challenges. However, to tailor restructuring to risk management, we have focused on eight critical areas:

  1. General operational and quality risk assessment. A general diagnostic operational risk survey identifies, assesses, mitigates and monitors operational, capital and quality risks to enable proactive risk management solutions to be implemented with as little organizational disruption as possible. This is the company-wide assessment of all processes, systems, procedures, personnel, and capital requirements.
  2. Operational risk analysis across all company boarders. This analysis aggregates risk information obtained in the above diagnostic survey across multiple departments, facilities, processes, and standard operating procedures. Our holistic approach inspects all departments, locations and process interdependencies for waste and for opportunities in achieving greater economies of scale. We also prioritize the implementation schedule for all procedural, process and personnel changes, as well as suggested asset sales, changes in large capital resources and divestitures.
  3. Management of Change. Development ofarisk manager flow chart, that may or may not be, similar to the company’s current organizational chart. This is intended to streamline risk managers work-flow and procedures in the performance of risk management activities, in order to improve safety levels, production and research and development quality, and regulatory and environmental compliance factors. The implementation of this area might involve certain changes in operational risk managers.
  4. Accountability and incident management. Establishes management accountability and ownership for operational risk solutions. Monitors management performance and tracks as well as reports on incident-related matters involving all areas of risk management responsibilities. A performance-based evaluation system is created as well as an incentive plan that rewards on risk management performance.
  5. Operational risk analytics and management action plans. Assigns top management with the responsibility to monitor and track the performance of operational risk managers through the application of leading metrics as key performance indicators to assist in risk management integrity. Selected top management counsels risk managers through action plans on corrective measures to ensure completion of responsibilities and/or compliance issues.
  6. Crisis Management. Creates standard operating procedures and checklists for crisis situations that includes all reporting mechanisms for risk managers to provide directives up and down the chain of command. Establishes a top management command and control center where all management directives as well as information regarding the crisis is regulated and communicated to both internal and external sources.
  7. Implementation. A comprehensive company-wide implementation of the above six areas is conducted with the support of all top management and operational risk managers. All company personnel must also be involved with this implementation process. During this implementation process a series of risk management meetings will be held with all personnel made up of select teams to institutionalize the operational risk management agenda throughout all levels, departments and locations of the corporation. All asset sales, divestitures, and changes in capital requirements are conducted at this time, as well as the appointment of a risk management committee made up of operational risk managers and chaired by a newly appointed Chief Risk Officer that reports directly to the Chief Executive Officer.

Financial Risk Practice

Financial risks are typically well controlled and are generally routine consisting of the oldest types of risk management and prevention, such as internal and external audits. Whether regulatory or mandated by a lender, financial audits have for decades played a key element of stakeholder communications, performance measurements, credit worthiness, and investor tolerance particularly towards market and credit risk. Considerable attention by top management is usually given to financial risks.

Internal financial risks include high debt exposure and high interest rates, high corporate tax rates, loosely managed credit and collections processes and procedures, asset losses, debt restructuring, refinancing and recapitalization in distressed situations, poor financial management and internal accounting problems, rising insurance costs, negative goodwill and amortization, and unreliable or unstable financial risk ratios, such as a high debt-to-capital ratio. Additionally structural and procedural problems can often lead to financial risks; the decentralization of the accounting department by locations, the merging of purchasing authority and accounts payable into the hands of one or a few individuals, the decentralization of stock and special order purchasing and pricing in too many hands, and the unwise authorization of one individual to sign corporate checks over a pre-determined amount, can account for considerable losses if not restructured or changed.

Interest today in financial risks are at an all time high. Market swings with little grounding to corporate profits, massive credit and loan defaults, accounting fraud, falsifying data in company reports, imprudent investment speculations, both domestic and overseas, insecurity and confusion in taxing regulations, uncertainty in rising health care costs, unprecedented levels of government debt and bailouts, has not only lead to serious financial losses, but has psychologically damaged the private sector’s tolerance for financial risks. This can be seen from more restrictive government banking regulations and stricter financial institutions lending policies, to more conservative corporate and consumer spending habits, despite the fact that interest rates are at all time lows.

To hedge against this current instability of financial risk, Clearwater again approaches financial risk management solutions in a holistic fashion, because in our view it is difficult to completely separate the risks associated with strategy, operations and finance. Especially with financial risks understanding the entire risk landscape of the company is critical, because financial risks have a “cause and effect” that transcends the finance and accounting department. In essence, finance and accounting numbers are the “scoreboard” upon which top management views the performance of the rest of the company. Stated differently it is impossible to measure and manage one financial risk at a time; rather it is understanding the aggregate that counts. Clearwater financial risk advisors first analyze, conduct financial modeling programs showing all the organization interrelationships and communicate the effects of combined corporate risks. Our expertise is in measuring individual financial risk exposures and aggregating these risks across management levels, departments, locations, taking into account correlations and diversification effects. We then design, develop and implement the organizational and financial solutions to manage, mitigate and hopefully prevent the future occurrence of the company’s financial risks.

Clearwater clients benefit by having an improved quantification of the financial risks they take; a precise assessment of the positive impact of implemented organizational and financial solutions, the ability to produce management designed as well as accurate budgets and thoughtful financial forecasting thus enabling all management team members to be held strictly accountable to financial metrics and ratios. The responsibility of the on-going benefits of this financial risk management program we vest in the Chief Financial Officer, who along with the Chief Risk Officer for operational risk management and the Chief Executive Officer for strategic risk management form three legs of our four legged iron-clad corporate risk management program.

Clearwater’s financial risk management solutions include:

  1. Market risk management
  2. Credit risk management
  3. Asset and liability risk management
  4. Profit and margin management
  5. Internal credit, collections and bad debt management
  6. Budgetary training and management execution in financial metrics
  7. Financial capital and risk adjusted performance management frameworks
  8. Integrated financial performance management techniques
  9. Treasury securities and currency risk
  10. Organizational structure methods to facilitate the reduction of financial risks
  11. Procedures and policies to facilitate the reduction of financial risks
  12. Comprehensive financial ratio analysis and line-by-line expense to sales ratio analysis
  13. Controlling financial risk and implementing all financial risk management tools
  14. Behavioral finance risk reduction through incentives, specifically approved by client

Clearwater’s overall objective is to create a culture of financial risk awareness within corporations, from entry level to board level, and from both inside and outside the traditional financial and accounting boundaries. From the forklift operator who understands the cost-effectiveness importance of adhering to safety procedures and lift efficiency as opposed to the forklift operator crashing the vehicle against the sides of the warehouse damaging the blades, to the regional salesperson who understands the importance of high margins and volumes as opposed to high volumes and low margins, the end result is the difference between higher or lower financial yields as well as risks, and so too operational risks. In its most basic sense, management and employees can both understand the advantages of less corporate financial risk over more financial risk. For example, less corporate financial risk means more job security and potentially higher pay with career promotions. More corporate financial risk produces the opposite employee feelings which results in lower employee morale and productivity – and in the end – higher financial risks.

Therefore, financial risk management is as much behavioral and qualitative as financial and quantitative. And here lies some of the success or failure of preventing financial risks from occurring in the future. There have been many studies that suggest that qualitative approaches to financial risk assessment are more instructive than quantitative methods. This is largely because people make financial decisions not robots or computers, and people tend to make financial decisions based on emotion and self-interest rather on logic and numbers. Drawing on the combined fields of finance and behavioral science, Clearwater’s behavioral finance toolbox helps our clients understand how companies can lessen their financial risk exposure on a day-to-day basis. We accomplish this through creating a corporate culture that provides all management and employees with a shared appreciation of the importance of corporate revenues, cash flows and profit. In other words, we can provide the opportunity for all personnel the ability to feel the pride of ownership as well as act accordingly.

As a separate financial risk management solution that is specifically client approved, we design and implement company-wide incentive packages based upon bottom-line profit by each responsibility center, absorbing not only overhead but factors for excessive inventories and aging receivables. These quarterly bonuses are calculated upon individual, group, or business performance, and may differ widely throughout a corporation based upon the contribution margins of individuals and the separate entities. Since the costs of all capital needs and expenses are factored in, all personnel become engaged about the importance of efficiency and cost-effectiveness. And likewise since the separated revenue streams determine the “top-line” of the incentive plans, employees understand the importance of sales and customer service. Behaviorally employees begin to divide necessary expenses in order to conduct their jobs vs. unnecessary expenses. In essence, they view the corporation differently and overtime begin to think and act as an owner. The net result is that all employees become empowered about managing financial risks; from lowering safety violations and workplace injuries to preventing the misuse of corporate assets as well as stopping overtime abuse.

Applying such lessons from behavioral finance to financial risk management is Clearwater’s ultimate weapon in the institutionalization of a corporate culture opposed to wasteful spending, neglect of customers and employees, abuse and misuse of corporate assets, and fraud and deceptive activities. In essence, our objective is to enable management and employees to make real-time risk based decisions based on current, accurate and complete information, thus building risk awareness into the daily business activities of each function, business unit and individual. As true today as when Benjamin Franklin said it: “An ounce of prevention is worth a pound of cure.” This certainly applies to financial risk management.

Compliance Risk Practice

Compliance is not a one-time event. However many compliance initiatives start as projects to meet a deadline for a specific regulation. This is not cost-effective nor prudent. Compliance risk management sustains compliance with systematic and repeatable processes, thus it is on-going. Today since the risks of non-compliance can be devastating it is necessary for companies to have a compliance risk management program that identifies, monitors and effectively controls compliance risks across the entire business. The recent financial crisis revealed that compliance processes cannot be successful if they are fragmented, thus Clearwater’s compliance risk practice approach is again holistic in nature. Regulatory agencies are focusing on more extensive examinations often reviewing the breadth and depth of risk assessment processes, the involvement of management, the framework of weighing risks, operational transparency, and how results are measured and calculated. Whether a company is large or small, it is essential to have implemented the right compliance program that can withstand regulatory scrutiny.

Generally a compliance risk is any corporate activity that does not conform to relevant laws and regulations. From newly enacted banking and financial fraud regulations, such as the Dodd-Frank Act to decades-old employee payroll and discrimination laws for overtime and right-to-work; from new EPA environmental and OSHA employee safety regulations to hazardous clean-up and consumer protection laws, regulatory compliance describes the overall legal objective that companies aspire to achieve. However, due to increasing number of federal, state as well as international regulations and the increasing need for financial and/or operational transparency, there is today a necessity for adopting the use of a consolidated and coordinated compliance risk management plan that is understood throughout a company. A Chief Compliance Officer for a small property management company is a nice luxury but if the receptionist unknowingly discriminates against a disabled prospect tenant because of newly enacted “therapy” dog laws even for no-pet rentals, a law suit could become a catastrophic financial cost for the business.

Traditionally, home-grown standard procedures and systems have been used by mid-size companies to manage various compliance processes and regulations, and this activity being assigned to the internal audit department or outsourced to a local attorney. Moreover, business owners – due to indifference or lack of information – have tended to ignore compliance risks until they became actual problems. This reactive approach might have worked in the past, but as regulations have increased, this traditional environment has not been able to keep pace with an organizations’ risk and compliance profile. This has in-turn escalated the risks of non-compliance, especially for mid-size and smaller companies. And as recent events has shown for the world’s largest and most admired corporations, even they did not possess the right processes, tools and structures in place to manage compliance risk effectively.

Clearwater treats compliance as a risk category like strategy, operations and finance, because non-compliance is a risk in itself. As such, we provide a common framework and an integrated and holistic approach to manage all compliance requirements faced by a business. Our solutions enables our clients to manage cross-industry mandates and regulations such as from SOX, OSHA, EH&S, and FCPA, as well as industry focused industry regulations such as from the FDA, FERC, FAA, HACCP, AML, Basel II and Solvency II, and Data Retention laws. To Clearwater compliance is more than a regulatory “band-aid” but rather an on-going preventive advisory function.

The key to compliance risk management is training. A company must embed compliance “intelligence” into all personnel; everything they do and every decision they make. Like driving a car management and employees must know the “rules of the road” regarding regulatory compliance, including risk avoidance as well as risk-taking. Green means go, red means stop, and yellow means proceed with caution, is a simple analogy. This training should explicitly identify and mitigate potential compliance risks; integrating risk management into day-to-day business processes and educating employees about the compliance risks associated with their specific jobs. Further the process should establish performance measures that reward employees for effectively managing risks as well as holding them accountable for their actions. However, the rewards should not be monetary, as discussed above with financial risk management solutions, but rather intangible such as in educational benefits, faster promotions, etc. In mid-size companies large enough the person in charge of the corporate-wide compliance training program should be the Chief Compliance Officer, who is ultimately accountable for the compliance risk management and training program. The Chief Compliance Officer, along with the Chief Financial Officer, the Chief Risk Officer, and Chief Executive Officer, completes the overall iron-clad accountability structure of Clearwater’s corporate risk management program.

Clearwater’s comprehensive approach to risk management requires a full range of experience. With the backing of CSC Capital, Clearwater offers knowledge and experience that no other advisory to the middle market can match. We advise clients in the broad issues of corporate risk management, while offering specialized assistance in strategic risk, operational risk, financial risk, and compliance risk. Whether the challenge is to design and build an effective risk management approach for the entire corporation or to identify and mitigate specific risks in strategy, operations, finance or regulatory compliance, Clearwater has the knowledge and experience to get the job done.