I was visiting recently with a good friend who had been promoted to risk manager of his superregional bank.
This banker had managed lines of business for the entire bank. Then he'd been made top officer of statewide operations of several of its subsidiaries.
His promotion to the risk management job showed me how important this area has become.
Of course, risk management goes beyond making sure that loans won't come home to haunt the bank. It goes beyond ensuring that procedures cover all contingencies that might affect the bottom line. It also involves setting standards for derivative purchases and reacting to interest rate changes.
But my friend pointed out that it goes further still. "Risk management," he said, "also means keeping our bank's name out of the press and television news programs - unless we want it to be there."
Negative publicity about a bank policy or something an employee does can hurt long-run profitability for more than a nonperforming loan. This could well be the most important part of risk management for any company.
A number of years back, when I met IBM's controller, he seemed to hold the same opinion.
IBM was then the world's dominant provider of computers, and the controller took an appropriately grand view of his mission.
"I'm not IBM's comptroller," he told me, "I'm God's comptroller.
"Any decision I have to make that pits IBM's goals against those of the government must be made in favor of the government," he explained. If IBM did otherwise, he publicity "could harm us far more than any individual accounting or valuation decision could."
In the banking business, too, the media pounce with glee on bad news.
The chief executive of major bank in the South was accused of using bank funds for political purposes. The story was front-page news day after day in the bank's territory.
The CEO suffered physical as well as psychological damage from the constant beatings he took in the press and on the air.
But when he was completely vindicated in a court trial, the local newspaper put the story back in the sports pages. Apparently, that was not considered newsworthy.
Superregional and community banks need systemwide policies toward the media - policies as strict and straightforward as those on lending and investment decision-making.
The first rule should undoubtedly be that no one speak for the bank unless authorized to do so - no matter what the issue.
No one ever got into trouble for saying "no comment" or "please contact the public relations officer."
Risk management also means positive polices, set in stone, that can help avoid bad situations in the first place.
It's just looking for trouble not to have a clear-cut policy on discrimination and sexual harassment. That's like having no policy on the role of collateral or cash-flow expectations in lending.
Risk management must also involve making sure that the person delegated to handle reporters knows how to put the bank in best possible light.
This does not mean whitewashing an issue - that just makes reporters more anxious to create a story. It means presenting both sides honestly.
Many community bank CEOs tell officers and board members: Before you take any action, ask yourself if it would it bother you to see it written up on the front page of tomorrow's paper. If it would, don't do it.
Risk management includes setting policies that encourage all employees follow that principle every minute of every day.
Mr. Nadler is a contributing editor of the American Banker and professor of finance at the Rutgers University Graduate School of Management.
