by Helen Cunningham
Robert Druskin joined DTCC in April 2011 as the company’s first executive chairman. A year on, @DTCC checked in with him to talk about his priorities and how DTCC is managing the challenges and opportunities in the industry’s changing environment.
In this first of a two-part article, Druskin discusses topics including risk, regulatory relations and capital management at DTCC.
Where do you find yourself focusing your attention, now that you’ve been at DTCC for a year?
I regularly spend time with the three areas that report directly to me: Risk, Internal Audit and Compliance.
I’ve been working closely with Noel Donohoe, our Chief Risk Officer, and the people in our Risk organization to develop a strategic plan and ensure the company is up to speed on all the risk issues that are so important to the industry and regulators. I focus on corporate issues, like governance, our organizational structure and our capital needs. I have a particular interest in people, so I spend a lot time with Human Resources, looking at issues like compensation, succession planning, internal mobility and our programs for building the company’s talent pool.
I work with our regulators to be sure we understand each other – that the lines of communication are open, that there are no misconceptions and, most importantly, that problems don’t fester. If an issue arises, we want to get it on the table right away so we can deal with it.
I also spend a lot of time with Don and Mike, strategizing about what the company should look like today as well as in the future – and what we need to do to get there.
How has the Risk Management organization evolved over the past year?
Our Risk area is undergoing dramatic change, and we expect to see a lot of positive developments continuing this year.
In 2011, we consolidated all the company’s risk areas – Enterprise, Operational and Systemic – under Noel, who joined the company last August. An area as complicated and critical as risk requires a comprehensive framework, so Noel’s team is developing DTCC’s first multi-year strategic plan for risk, which we hope to have approved at the April Board meeting. The plan has a large technology component and will involve several years of investment – with deliverables along the way. We hope to begin executing the plan this year.
I think our Risk organization is getting close to the top of the mountain. We have a strong team, a long-term vision and a Board that has been very supportive.
Could you describe how DTCC works with its regulators?
There’s no magic to it. Working with regulators requires good communication – the same as you would have with any important constituency.
It’s a matter of education and trans-parency on both sides. We need to make sure we really understand what they expect from us. At the same time, we have to help them understand what we’re doing. And that’s not just, “Here’s what we decided,” but “Here are three or four things we could have done; this is what we’re doing, and here’s why.” The regulators have a reasonable expectation that we clearly articulate not only what we’re doing but why we’re doing it. That’s very important.
A straightforward and open relationship helps ensure that our goals and object-ives align with theirs.
How does the company make strategic decisions?
We have an unbelievable number of choices that require significant attention and thought. For example, our decisions to build out trade repositories and the legal entity identifier facility were forward-looking and will allow us to accomplish important goals for the industry, the financial system and our regulators.
The choices we make are aimed at utilizing the company’s competitive advantages. We are enormously skilled at handling large amounts of data. We’re very good at building systems that can handle multiple transactions in a secure, efficient way. We have links to many of the major financial institutions and intermediary systems around the world. We’re a trusted third party, so confidentiality and the ability to safeguard confidential data are attributes we can utilize. When we are deciding whether to take on the risk and responsibility of building complicated new systems, entering new areas or enhancing existing capabilities, we think carefully about whether to join forces with other companies. This could include acquisitions, strategic partnerships or other arrangements that leverage mutual capabilities. If and how we do that, and with whom, are important considerations.
Prioritization is another big challenge. An important part of the job of senior management is to decide which areas of the company get the resources needed to grow.
Speaking of resources, could you talk about capital management at DTCC?
Pending regulatory changes are going to impose a new set of capital requirements on us, and we have to be prepared to operate in that environment. So we are developing a comprehensive capital plan based on a lot of solid analytical work, with valuable input from our Board, which recently formed a special subcommittee to help us think through some of the more complicated issues. In addition to the regulatory factors, there’s the simple matter that all companies need to understand where they’re putting capital, where they’re getting returns and where they’re not. Capital is not an infinite resource. It has to be sourced intelligently, and it has to be utilized to maximize returns to us and to the industry.
At DTCC, we have multiple goals to accomplish, but we can never lose sight of the fact that we are an industry utility and have to do things that make sense for the industry. At the same time, we have to run our business like any well-managed company, and solid capital management is part of that process.
What are some of the major challenges DTCC faces?
The industry environment itself is a challenge for both DTCC and its participants. Our revenues are under pressure as volumes contract across the industry, so our focus on costs has to be sharper than ever. At the same time, we have to free up money to invest because, unlike much of the industry, we’re growing. Even as we streamline and reengineer some parts of the company, we are adding people in other areas so that, overall, we are in a net growth position. And striking the right balance between controlling expenses and investing appropriately is critical.
As I mentioned earlier, we’re also operating in an evolving regulatory world, and the expectations of regulators are higher than ever – and coming out of the crisis of 2008-09, that’s understandable. The bar is particularly high for DTCC because we’re so critical to the world’s financial infrastructure.
So the challenge is to remain cost-conscious and to manage our expanding risk and regulatory responsibilities, while also finding the capital to invest in our businesses and other parts of the company that require funding – not all of which are revenue-producing.
Competition is another challenge. As we move into new businesses beyond our core clearance and settlement roles, like data management, we’re going to encounter more competitors that are for-profit companies with strong commercial interests. We have to be prepared to compete in that arena.
How would you sum up your first year on the job?
It’s been even more interesting than I expected. Every day we grapple with complicated issues, and I love complexity. And our people are outstanding – and that, for me, is the most important ingredient of all. @