Bank of America Corp. Chief Risk Officer Bruce Thompson received$11.4 million in compensation in 2010, the most awarded to anexecutive at the bank, and this year he was promoted to chieffinancial officer. His stature isn't an anomaly

Citigroup Inc., American International Group Inc. and UBS AG areamong other companies raising the profile of risk executives. Thederivatives meltdown that sparked the 2008 Lehman Brothers HoldingsInc. collapse and an 18-month recession catapulted the role fromobscurity to contention for future chief executive officers.

“The person sitting in the risk chair now is reporting to theCEO so the caliber has to be higher,” said Neil Hindle, who runsthe CRO search practice at Egon Zehnder International in New York.“There has been a real increase in power over the last twoyears.”

That's evident in the compensation, which can reach $10 millionat large financial institutions now, compared with $500,000 asrecently as 2001, Hindle said. Five years ago, a CRO typicallyreported no higher than the CFO, he said.

Citigroup Chief Risk Officer Brian Leach said it's expectedhe'll have a seat at the table when Chief Executive Officer VikramPandit makes key decisions. A decade ago, a bank risk executiveoften wasn't in the room, he said.

Risk Mindset
“It has to be embedded nowfrom the top to the bottom of the company,” said Leach, who helpedwith the rescue of hedge fund Long-Term Capital Management LP in1998 when he was at Morgan Stanley. “The CEO has to have a riskmindset and really be able to live that foundational element ofrisk management.”

Leach, like Thompson at Bank of America, and Barry Zubrow atJPMorgan Chase & Co., reports to the CEO. That was not the caseat banks including Lehman Brothers and Bear Stearns Cos. that hadthe most serious problems in the economic crisis, Hindle said.Private equity and hedge funds are also seeking risk executives,Hindle said.

Pandit and Leach left Morgan Stanley in 2005 to form hedge fundcompany Old Lane LP, which Citigroup bought two years later. WhenPandit was tapped to run Citigroup in December 2007, he broughtLeach into the risk job because of their previous experiencedealing with risk assessment, Leach said.

Old Habits
In the 1970s, risk for bankswas limited because most trades were on behalf of customers, Leachsaid. In the ensuing 40 years, financial institutions bore more ofthe exposure to losses directly in trades. The addition ofderivatives made it harder to understand the full risks — and theunexpected risks were what ultimately overwhelmed old habits, hesaid.

Companies have had plenty of warning about unexpected risk,Leach said, pointing to his experiences with Long-Term CapitalManagement. The hedge fund, whose partners included Nobel laureatesMyron Scholes and Robert Merton, lost $4 billion in 1998 after adebt default by Russia and had to be rescued by a group of 14securities firms and banks.

After Lehman Brothers, Long-Term Capital seems “quaint,” Leachsaid.

“The value of the job has gone up because people have seen howbadly things can go if you aren't paying attention,” said KevinBlakely, chief risk officer at Huntington Bancshares Inc. inColumbus, Ohio, and former CEO of the Risk Management Association.“There is no shortage of companies that will pay for a good riskofficer now.”

Direct Access
They typically have directaccess to the board of directors' risk committee and ensure thatall areas of the company have considered the risks of theirbusiness activity, said Blakely, 60, who has worked in the CROfield for more than two decades. He was also a regulator with theU.S. Comptroller of the Currency.

Another change is the CRO's role in working with the board todefine what the appropriate risk is for the company and for eachbusiness unit so that operating executives have to takeresponsibility for avoiding risk that doesn't fit the companyrules, he said.

Thompson was appointed to the Bank of America risk job inJanuary 2010 as CEO Brian Moynihan put together a new leadershipteam. The team is working to recover from mortgage losses inheritedin the 2008 purchase of Countrywide Financial Corp. and restore theCharlotte, North Carolina-based bank into a “growth company.”Thompson wasn't available to comment.

He was one of three executives at the nation's largest bankwhose 2010 compensation exceeded Moynihan's $1.94 million,according to a company regulatory filing. Sallie Krawcheck,president of global wealth and investment management and NeilCotty, chief accounting officer, also received more than Moynihan,the filing showed. Moynihan's $950,000 base salary was the highestamong all the executives where pay was disclosed, exceedingThompson by $150,000 for the year.

Rising Profile
Bank of America selectedTerry Laughlin, the company's top manager for sour loans andforeclosures, to take over as chief risk officer late in the thirdquarter, according to an internal memo obtained July 8 by BloombergNews.

Membership in the Global Association of Risk Professionals roseto 175,000 this year from 55,000 in 2006, the group said. Atsmaller financial companies, pay ranging from $3 million to $8million is more common, said Tim Holt, who helps recruit riskofficers for Heidrick & Struggles in New York.

Some experience as a risk officer or in a similar job isincreasingly required for CEO candidates at financial companies,said Tom Flannery, managing director for the Pittsburgh office ofexecutive search company Boyden.

“The risk chief used to be like the human resources leader. Youhad to have one, but generally speaking, the risk guy was nevergoing to be CEO of the company,” Flannery said. “That'schanged.”

Like a Fad
A client, which Flannerywouldn't identify, set up a succession plan so that when the CEOretires and is replaced, the next candidate in line will serve arotation in the chief risk officer job as part of training for theCEO job, he said.

“Business, by its very nature, is risky” and the focus on riskmanagers feels “kind of like a fad” as companies want to showinvestors they are working to avoid the pitfalls that led to therecession, said Jay Lorsch, a corporate governance professor atHarvard Business School in Boston.

Directors need to ensure they are taking responsibility forsetting a real strategy for the executives, he said.

“It's clear that risk has everybody's attention,” said ElaineEisenman, dean of executive and enterprise education at BabsonCollege in Wellesley, Massachusetts, and a director at shoeretailer DSW Inc. and corporate bartering company ActiveInternational.

She worked with the CFO and treasurer at one of the companieswhere she is a director to use a so-called dashboard to communicatethe risk related to decisions to the board, ranging from green tored, Eisenman said.

“The meltdown of the market was the first time many peoplereally started to wake up,” said Eisenman, who helps educateexecutives at Babson in management issues. “What the focus on riskis doing is sensitizing people to issues they weren't payingattention to. This is how a board gets blindsided.”

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