Capital One legal expert discusses risk management within businesses

Emily Drinks April 30, 2014 0

Steve Gannon, deputy general counsel of Capital One, spoke on risk management in businesses at Elizabethtown College on Wednesday, April 30.

Gannon oversees Capital One’s legal department, which includes the corporate transactions, regulatory, banking, litigation, employment, securities and governance groups. He said that the legal department exists within the company in order to deal with risk. “There is risk everywhere, and it comes at you from everywhere,” Gannon said. Things like lawsuits and errors in mathematics and calculations can greatly impact a company’s financial profits.

Capital One has many policies in place to regulate risk. However, “at the end of the day, it has to be done right,” Gannon said. A company can have enough policies to prevent any type of risk, but the policies ultimately have to be properly implemented in order to succeed.

As part of the legal department, Gannon’s job is primarily to respond to the lawsuits. He said that Capital One is sued about 20,000 times a year. He also said that these suits need to be dealt with as efficiently as possible, especially if the company is at fault. First, the legal department has to figure out what to fight, and then it determines how to go to battle. However, these lawsuits result from risk, which the company seeks to prevent. “It’s not a good day for us when we’re fighting a lawsuit,” Gannon said.

The legal department has many aids to ensure that it is handling risk.  One of these is the compliance group, which sets controls in place for Capital One and tests the controls. “One of the things Capital One is known for is that we’re the lender,” Gannon said.  Compliance traces almost every step of where money goes and how products are designed. The company also formulates tests and algorithms that analyze a client’s behavioral pattern to ensure that the company will be reimbursed by the client. The controls ensure that the tests are effective and accurate; therefore, the company tests the controls, while compliance tweaks the controls around the tests.

The media also plays a role in the company. Although Gannon said that Capital One does its best to avoid too much media coverage, the large and growing corporation does attract the media’s attention. “We try to adopt a reasonably low profile,” Gannon said. “In our view, we’re still very much a growing company.”  He added that Capital One has only been open 19 years.  Security also plays a large role in company growth. “When you’re growing a big company, you need a lot of supporters,” Gannon said. Billings contain lots of company information as well as names of key people. Gannon said that their primary concern is protecting people’s security. However, the company has to maintain a balance between security and transparency with associates and clients.

Communication is key for maintaining transparency and must be handled properly. Gannon said that Capital One has a team of lawyers set up to advise the company’s four major parts that draw in a large sum of money every financial quarter: the credit card business, financial services business, retails banks and commercial banks. “You can give the best advice in the world, but if you can’t explain it, that advice is just going to sit on the shelf,” Gannon said. Communication with investors, especially regarding financial statements, is also important. Gannon said that the company needs to arrange the statements to communicate that Capital One is both financially successful and run well.

Culture, which is an evolving set of beliefs, attitudes and values within a company, also plays a large role in the company’s success. Gannon quoted the book “Why Can’t Elephants Dance” by Louis V. Gerstner Jr., expressing that “Culture is not only an important thing, it’s the only thing.” He said that Capital One creates culture through values it asks employees to meet. The values the company created involves hiring the best people and fostering teamwork and respect for other. The company also established respect for its customers and its own integrity. The mission statement of the company is to “change banking for good.” Gannon explained that the mission statement revolves around making banking simpler and bringing humanity back to banking. “In many ways, Capital One begins and ends with these values,” Gannon said.

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