Risk mgmt important in a recession, CFOs should continue investing: Mukesh Butani

Finance and risk leaders should think like entrepreneurs and continue investing sensibly even in a recession, emphasised Mukesh Butani, Founder of BMR Legal and a member of the Risk Task Force led by former SEBI Chairman M Damodaran. The task force, set up in collaboration between the Global Risk Management Institute and the Federation of Indian Chambers of Commerce & Industry (FICCI), has come out with a Model Risk Code (MRC) for corporates. Butani discussed the Code with ETCFO. Edited excerpts:

Q: What is the rationale behind bringing in the Model Risk Code and what is its significance right now?

Mukesh Butani: This is the thought leadership initiative of the educational institution that imparts training and grooms risk management professionals (GRMI). Before we embarked on this initiative, we realised that in today's environment, either the notion of risk management is not adequately appreciated by Boards and management or there is a gap as far as training of risks professionals is concerned or the risk as a subject is driven more by regulation rather than a way of life.

So, in this backdrop, we thought to bring together a group of professionals, either regulators or accounting or finance professionals or business or industry leaders, and put together a Code more as guidance for organizations to follow such that they can lay down a strong foundation to set up an ecosystem for risk management.

Q: How can organisations and finance leaders embrace the Code?

Mukesh Butani: This Code is agnostic to the size of the organisation. It is driven by governance practice and not regulation. One could be an entrepreneur and may want to initiate strict risk management procedures, or one could do an M&A transaction and look this Code as an opportunity, or one could be in a business that is prone to high risks and use this Code. The Model Risk Code cuts across the spectrum and the size of businesses, and advises Boards and management to embrace the ecosystem of risk management.

Q: Does this Code address the issue of layoffs happening today?

Mukesh Butani: It emphasises the importance of risk management for corporates. If one sees, layoffs are largely happening in the IT industry or new-age businesses like e-commerce. The questions which the Code impose on the HR organisations in these businesses will be that when they were in a growth phase, did they plan the manpower well, or did they go on over-recruiting people? Or after recruiting the people did these businesses spend enough time honing their talent or not? Inherent risks which could prevent such sort of situations would be specific to the industry or the business.

Q: What is the next stage for the Model Risk Code?

Mukesh Butani: We are going to socialise this Model Risk Code with the government and the regulators. One of the reasons for us to have FICCI as a partner was to socialise this Code among large businesses. We do intend to carry forward the initiative to keep on updating the Code. At the end of the day proof of the pudding is in eating. So, when this Code is practised by organisations, it may require us to change the course in certain aspects so we will improvise in the times ahead.

Q: How important is risk management in times of recession, and what would be your advice to finance and risk leaders?

Mukesh Butani: When economies get hit due to a slowdown, and margins come under pressure because of an increase in costs, there is a tendency to not invest or hold back investments. In a classic business organisation that is supposed to be embracing entrepreneurial business practices, the whole notion of not investing could be a misnomer.

Finance leaders should stay alert to opportunities for investment even in a slowdown situation and that is where risk management plays a very important role. In a slowdown situation, they could encounter opportunities to acquire businesses or customers at lesser costs, or encounter opportunities to drive talent better.

My advice, therefore, to finance and risk leaders would be that even in times of slowdown, don't take away the opportunities to still think like an entrepreneur and don't be overcautious, invest and invest sensibly.