From ESA – Strategies & Activities
Thesis Spotlights – Controlling risks or continuously preventing the worst? Risk management in large financial organisations
Anne van der Graaf, PhD student, France
Email: anne.vandergraaf [at] sciencespo.fr
Institution: MaxPo, Sciences Po, Paris, France
Time: Start of PhD in October 2013, defence in 2018
Supervisor: Pierre Francois (CNRS, CSO, Sciences Po)
The financial crisis of 2007 and 2008 showed the direct impact financial actors can have on our societies, especially when things go wrong. Behind the crisis were financial actors who accepted, or misunderstood, the risks the different transactions brought with them. Large financial organisations stood in the middle of all of this. At the same time, the way they construct and use financial market risks has been left outside the academic realm. Based on an ethnography, including a participant observation in banking and one in insurance, this thesis helps understand the workings of risk management in these large financial organisations.
Financial theory but also economic sociology take the idea for granted that risks are a rational expectation of future changes. With that, economic theory and the EU's financial regulation have branded risks as profit taking's boundary. The ethnographic data shows otherwise. Financial organisations have namely created a division of labour based on this distinction between risk and profit. Just as other division of labour, it holds an unequal distribution of resources. Risk managers do not have the legitimacy nor the information or material resources to influence the profit takers. Therefore, they look at another aspect of risk, negative events. They try to prevent negative consequences for the organisation from financial markets.
Taking the factors into account this thesis brings together the social studies of finance with the studies of organisations. The former has studied intensely the knowledge practices and the material aspects of financial markets. However, it has left behind the interactions within and between organisations. On the other hand, the studies of organisations have lacked a focus on the local interactions behind organisational representations. By going into the creation and usage of risk assessments, I show how the knowledge about the organisation is created.
The thesis shows how financial organisations survive. They do not do so because of a risk control of possible and existing investments. They can survive because risk managers fend of powerful actors that might harm the organisation. Regulatory bodies could bring trouble but so could shareholders, external accountants or fellow financial organisations. The risk managers create a form of knowledge that they believe outsiders accept. They try to remain within professional and sectoral standards. However, that frame is relatively flexible, especially under pressure. The final representation towards the resourceful outsiders has priority.