Risk Management – an educational perspective
Michael Vincent
Director
Australasian Risk Management Unit
Department of Accounting and Finance
Faculty of Business and Economics
Monash University
The management of risk is the emerging management philosophy of tomorrow’s successful company. We are slowly eliminating the concept linking risk management and insurance. Industry has been restructuring for over a decade and the emphasis has been on increasing efficiency and productivity whilst downsizing in terms of employee numbers.
A point has now been reached where all the benefits of restructuring are at risk unless the traditional management structure can embrace the new management paradigm of risk management. The concept of project management overlaid with the principles of risk management enable an entity to manage effectively with a minimum of resources. Failure to embrace the new paradigm will see companies shrivel and die because the restructuring has left no room for growth when opportunities allow.
A discussion with a colleague, Kevin Tant, produced the following outline for successful recognition of the concept of risk management as a new management discipline. A lot of readers will see the obvious stated here, luckily you are the converted. Risk management is the ability to identify, measure and finance the risks facing an entity in an effective way to ensure corporate growth and survival.
What do we mean by risk management?
Risk is a dynamic concept that requires identification and understanding. It requires not just a professional and analytical approach, but also imagination and innovation.
Boards of Directors and risk managers should consider: -
• Is risk good or bad?
• How do we identify risk?
• Should we avoid risk?
• Should we transfer risk?
• Should we retain risk? or
• Should we manage risk in the most efficient manner?
Risk must be identified, understood, managed and controlled.
Risk will certainly not identify itself!
There is no economic benefit to be derived from waiting until risk strikes.
Risk, as far as many financial managers are concerned, is the cost of insurance and no more. Finance and treasury managers have traditionally focused on the cash flows and cost of managing risk; it can either be managed in terms of financial risks (interest rate, risk, foreign exchange risk, liquidity risk, price risk, and credit risk) or in terms of operational risks via the insurance process.
The traditional insurance approach is no longer valid as the only alternative to managing and financing risk. Finance directors and corporate treasurers are becoming increasingly aware that they must become involved in the “big picture” in terms of risk management.
Professional development in the treasury area is focusing their attention not just in terms of cost of managing financial risks, but also the need to focus on the increasing cash flows of managing other risks.
If management can control risks and their cost in a more efficient manner then the organisation will suffer fewer (potential) losses which will increase the benefits or profits to be gained from operations.
The early part of the 21st century has so far evidenced a difficult business environment. Corporations have experienced difficulties in maintaining profitability in a recessive environment and traditional management practices have been under review in an endeavour to introduce more efficient ways of managing the underlying business. This environment has impacted heavily upon the financial area where efficiencies in cost control have been sought. Past philosophies such as:
• insure everything,
• react rather than proact,
• don’t worry about the cost because we have adequate financial resources,
• Ignorance
cannot be tolerated any longer.
There is now acceptance that the corporation must manage both opportunity and risk in a planned way.
Risk Defined
There is no single definition of risk. It is traditionally defined as the uncertainty concerning the occurrence of loss.
Risk can be categorised as:
Objective Risk; the relative variation of actual loss from expected loss. It can be statistically measured. In insurance terms, objective loss declines as the number of exposures increases due to the law of large numbers.
The law of large numbers states that as the number of exposure units increases, the more closely will the actual loss experience approach the probable loss experience.
Subjective Risk; the uncertainty based on a person’s mental condition or state of mind.
High subjective risk tends to result in conservative and prudent conduct whereas low subjective risk may result in less conservative conduct.
The chance of loss is considered to be the probability that an event will occur. It can be categorised as: -
Objective Probability; the long run relative frequency of an event occurring based on an infinite number of observations and no change in underlying conditions.
Subjective Probability; an individual’s estimate of the chance of loss.
Peril and hazard should not be confused with the concept of risk discussed earlier.
Peril is defined as the cause of loss whereas a hazard is a condition that creates or increases the chance of loss. There are three types of hazard: -
Physical hazard; a physical condition that increases the chance of loss.
Moral hazard: dishonesty or character defects in an individual that increases the chance of loss. It is usually the result of dishonesty.
Morale hazard; the carelessness or indifference to a loss because of the existence of insurance.
There are three major categories of risk: -
1. Pure and Speculative Risks.
Pure risk is a situation where there is only the possibility of loss or no loss. There is usually no opportunity to profit from the loss. These risks include personal risks, property risks and liability risks.
Speculative risk is a situation where either a profit or loss is possible. It includes commercial and financial risks such as new product development, interest rate risk, foreign exchange risk, investment in the share market, etc. Superannuation risk also includes gambling.
The law of large numbers can be applied more to pure risk than speculative risk.
2. Static and Dynamic Risks.
Static risks occur because of irregular actions by nature or individuals.
Dynamic risk is associated with a changing economy.
Most static risks are pure risks whereas all dynamic risks are speculative where both profit and loss are possible.
3. Fundamental and Particular Risks.
Fundamental risk, such as inflation relates to the entire economy or a large number of persons or groups within the community.
Particular risk affects generally individuals and not the entire community or country.
We have now looked at the various aspects of risk and put forward a series of definitions to focus the mind on the facets that can be termed risk. Is risk good or bad and how as managers we need to answer that question on a case-by-case and event-by-event basis.
Risk Management Defined.
The introduction of risk management as a professional discipline means that a more concise definition of the process is required.
Risk management is a discipline that enables people and organisations to cope with the possibility that future events may cause some harm.
It is the identification, analysis and economic control of those risks that threaten the balance sheet (assets and liabilities) or earning capacity of the organisation.
Identification of risk is the most important process. All risks that threaten the organisation must be identified.
Managing risk must have a significant impact on maximising profitability by protecting and enhancing an organisation’s bottom line!
Methods of Managing Risk
Five methods are used to manage risk: -
1. Avoidance. This method can result in opportunity loss.
2. Retention. Risk retention can be both active and passive.
Active risk retention is a conscious decision to retain risk, such as self-insurance. Managed appropriately it can save money for the organisation.
Active risk retention may also be the result of inadequate availability of commercial insurance or the high prohibitive cost of insurance premiums.
Passive risk retention is the retention of risk due to ignorance, indifference or laziness.
It often has the potential for destroying the organisation.
Retention can be a useful technique for handling risk in a modern corporate risk management program. It is generally used for high frequency, low severity risks where potential losses are relatively small.
3. Non-insurance Transfers. This technique results in risk being transferred to a party other than an insurance company. It includes transfer of risk by contracts, hedging price risks and incorporation of a business firm.
4. Loss Control. Loss control consists of activities undertaken by the organisation to control the frequency and severity of losses. It has the objective of loss prevention and loss reduction.
5. Insurance. This has traditionally been seen as the most practical method of handling risk. It includes risk transference, the pooling technique and the law of large numbers in its application. Cost of insurance can be excessive and many multinational corporations are continually seeking new methods of cost reduction in the risk financing process.
Who Should Manage Risk?
When we consider the management and control of organisations, especially multinational corporations, the first reaction tends to be one of centralisation, i.e. the corporation will be able to manage more effectively from a centralised head office, especially in terms of costs. This may be true from some perspectives, especially in some aspects of treasury such as cash management, but it cannot be true from a corporation’s total risk position.
The optimum place for risk (not risk financing) to be managed is at the point that the exposure to risk occurs. Most risks faced by a corporation are best managed in a decentralised way within a centralised policy coordinated by a professional risk manager.
The risk manager should be a coordinator of the various tasks associated with the identification, analysis and economic control of those risks, which threaten the assets, or earning capacity of the organisation.
The risk manager should provide loss prevention methods, techniques and resources to the line manager to enable the associated risk to be controlled and managed.
We cannot all be experts in every area of the technical and financial aspects of a business.
Risk should be managed as a whole using a number of managers as a team.
Risk Financing
Risk Financing is concerned with the most efficient way of covering the financial cost of managing risk. It tends to be result of previous decisions made in the risk management process including: -
1. Risk Assessment What can go wrong?
2. Risk Control What can we do about it?
3. Risk Financing How do we pay for it?
Although line managers are able to control and manage risks at the “coal face”, risk financing is best managed in a centralised manner by the risk manager.
Line managers do not necessarily have the information to know if:
• The exposure to risk will actually lead to loss rather than benefit. Not having a loss should also be considered a benefit.
• When the exposure to risk result in loss.
• How large the loss will be.
The organisation’s interest can best be protected by centralising the risk financing process so that cost efficient risk financing can be undertaken.
The risk manager should have the primary role in establishing loss-financing techniques by smoothing out the cost of loss financing over a period of time. This will no doubt exceed the normal (annual) planning horizons of line managers and will produce efficiency through the financial strength of the organisation.
Traditional participants in risk financing include the insured, the insurer, the reinsurer and intermediaries.
Risk financing must take into account a number of forms: -
1. Insurance; covering hazard risk funding such as property, crime, liability, life, etc. The limitation of this approach is that it is too focused on insurance products.
2. Public Policy; covering macro risk assessment such as environmental issues. This process tends to be too concerned with assessments and there is a lack of pragmatic financing solutions.
3. Financial; covering financial risks such as interest rates and foreign exchange rates. Its limitation is that it is too narrowly focused on specific risks and funding tools.
4. Safety and Security; covering risk control such as safety and quality control. The limitation with this is that it is often too moralistic and unrealistic with regard to cost.
The risk financing approach must consider: -
• general management theory,
• insurance management and risk funding,
• macro risk assessment and decision risk theory,
• quality assurance methodology for products and services,
• loss prevention, safety and security engineering,
• crisis or contingency planning and
• financial engineering using derivative products.
Components of Risk Management
The risk management process must integrate, impact, inform, interpret and influence practices within the organisation.
A proactive approach to risk management is not just a reliance on good practice, or the creation of systems. It is a process of managing risk.
The traditional approach placed great emphasis on insurance.
Insurance does nothing for risk!
Insurance only provides money to offset loss, the result of risk. It is, however, an important risk (loss) financing tool. In some instances, it is the only way an organisation can handle the consequences of being exposed to certain types of risks.
A common sense approach must be adopted. The first approach is for the organisation, especially the Board of Directors, to be provided with an understanding of all (major) risks faced by the organisation. They must fully understand the risks that need to be managed, their impact and the need to implement the various risk financing measures.
The basic components include:
1. Risk Management Policy.
The policy should be approved by the Board of Directors and should outline the broad objectives to be adopted in the risk management process.
It should consider the role of risk manager, its level of seniority and the level to whom the risk manager reports.
Risk management should be a negative compromise.
2. Risk Management Process.
This must define the basic steps to be followed is risk is to be managed. Risk identification such as physical inspection, check lists, flow charts, hazard indices and hazard operability studies to name a few.
This is not a static concept. As discussed earlier, risk is a dynamic concept that operates in a circular fashion. It is an ongoing process.
3. Administrative Support for the Risk Management Process.
The risk management process cannot operate with inadequate resources.
Organisations providing inadequate resources are considered to be providing only “lip service” to the concept of risk management!
Risk Measurement.
Risk Measurement provides information to enable management to make more informed decisions about actions to be taken, especially in the areas of: -
• risk financing,
• value of insurance,
• retention levels,
• premium allocations.
It should measure the total impact of risk on the organisation including the number of events, their cost, their frequency (historical and potential) and their severity (historical and potential).
The traditional measure of risk is in terms of frequency and probability.
The analysis must be understandable.
Risk measurement can best be highlighted in pictorial form rather than in the written word. Graphs, frequency curves and loss layers are useful methods of conveying the impact to risk management to personnel within the organisation, especially the Board of Directors.
We have looked at the paradigm of risk management and suggested strongly that the future of companies will be based on the application of risk management principles.
Senior management and boards of directors have a duty of care to ensure correct management exists within the entities under their control. Shareholders will be less forgiving in the future to those people who ignore developments in management that have the potential to make obsolete over night existing principles. Especially since the restructuring of industry has created the environment where the application of new management methods will ensure survival. Risk management supplies the framework for survival now and into the new century.
The risk manager of the future will be an educated professional, a generalist who will help their company navigate the minefield of business activity. They will need to be recognized by their peers as a professional. A combination of educational and professional qualification will become the paradigm for the future of the profession.
Tuesday, September 29, 2009
Changing Paradigms in Risk Management
Changing Paradigms in Risk Management
The world of finance has always had an intuitive understanding of risk. The risks that emerge from the increased variety and complexities of banking business, as well as from the various new drivers of growth has pushed the contours of risk management in banks much beyond what would probably have existed in the more traditional forms of banking activity of accepting deposits and lending in relatively stable environments. Internationally, the last two decades or so have witnessed significant changes in the profile of the banking sector, as well the nature of risk management in banks. What perhaps has changed the nature of risk management, particularly are, inter-alia, advances in technology that have aided quantitative approaches to risk management, like models etc., and the increasing volumes of transactions in derivatives and other structured products that are so complex that they are often labeled “exotic”. India too has responded to this change, tempered with a gradualist, non disruptive approach, that has stood us in good stead over the years.
In my brief remarks today, I intend to first, highlight few of the broader and more general issues currently engaging the financial risk management fraternity and then, move to the Indian context in this regard.
I. Some general perspectives on risk management
Quantification of risk and model risk: As mentioned earlier, significant developments in the area of quantification of risk, has shifted focus to statistical aspects of risk management, especially to risk modeling and other computational techniques of risk measurement. During the last decade there has been a proliferation of academic research on the use of VaR for market risk assessment. Such models have to be used with some care and serious examination of the data used, especially the use of historical data for forecasting future scenarios, the assumptions behind the models, estimation errors etc. Further, if intraday positions are not captured it would expose banks to such risks.
Similarly in respect of Credit Risk, there is no single ‘‘best practice’’ model for credit risk capital assessment, although the Basel 2 ‘‘Internal Rating Based’’ methodology provides a portfolio model. Bank managements will have to focus on the determinants of credit risk factors, the dependency between risk factors, the integration of credit risk to market risk, data integrity issues like consistency of data over long periods, accuracy and so on.
Institutions are already mapping events to operational loss categories and building warehouses of operational risk data for implementation of Advanced Measurement Approaches. Many data availability and reliability issues still need resolving. An internal loss experience for the important (low frequency, high severity) operational risk types is rare and any relevant data are likely to be in the form of risk self-assessments and/or external loss experiences.
Extreme events and stress testing: One of the key roles of the risk management process is to manage extreme events, such as those associated with the tails of statistical distributions and could have probability of occurrence as low as one percent. These are low probability but high loss instances associated with extreme operational events such as rogue trading or accounting fraud. The importance of stress testing to assess the impact of not only these events but also the impact of various scenarios is engaging the attention of risk management personnel, academicians and bankers alike
Risk based capital and back-testing: An important reason as to why the quantitative techniques have received so much attention, is not because of the intellectual satisfaction it can give to the academician but a rather mundane reason that it can be used to convince the regulator that given the risks as measured by these techniques the amount of capital required could be far less than that may be stipulated under broad brush, standardized techniques. An immediate linkage between the risk models, the quantum of risk that is measured by use of these models and the capital that is required to support these risks immediately emerge. Estimates of capital being sufficient to meet the risk can be only as good as the models are and the credibility of the models would ultimately depend upon their actual performance. Back testing the models to gauge and reduce the variance between the deviations of the actual numbers from those projected are largely relied upon to give a degree of comfort to both management of banks and supervisors alike.
II. Indian Perspective
Internationally, there has been a continuous coordinated effort under the aegis of institutions like the BIS to evolve best practices in risk management in banks and these have gradually come to be accepted as some sort of international standards for banks across the world to benchmark themselves to. At the regulatory and supervisory level also, there has been an effort to achieve convergence to the best practices set out by the BCBS after duly allowing for national characteristics and feasibility. Banks have responded to this initiative with varying levels of effectiveness.
It was in October 1999, that the Reserve Bank issued guidelines on Risk Management in banks setting out its expectations from banks; the guidelines adopted an integrated approach to risk management. Even earlier, in February 1999, banks were advised to set up an asset liability management framework to manage liquidity and interest rate risk. In this context, I would like to make following observations:
a) The need to accelerate the speed at which banks have been moving towards establishment of risk management systems
b) The need to achieve convergence with regulatory and supervisory expectations/requirements while deciding on the sophistication of methods to be adopted.
c) Developing appropriate risk management architecture, MIS and skill enhancement
d) The need to integrate risk management process with capital planning strategies
The current business environment, with its pointed emphasis on corporate governance, is making it critical for banks to explain their risk profiles publicly with greater clarity and detail than ever before. Risk is still a complex and technical subject, so achieving transparency will not be easy. Internal constituents, analysts, ratings agencies, investors, and regulators all have varying levels of understanding of advanced risk measurement techniques. All will require continuing education before the market as a whole reaches a common understanding of risk. In particulars, direct stakeholders in any transaction need to be aware of the risks involved. For the third pillar of Basle II (Market Discipline) to be efficacious, it is important that the stakeholders are aware of the risks involved in the banks’ transactions and the systems in place to manage the risks. In this context, the importance of an appropriateness policy for banks offering various products to the corporate clients can't be over-emphasised.
The risk management systems developed by banks would include a lot of attention of top management to the suitability of IT structure including issues of connectivity, designing an MIS format that is risk focused, setting up an organization to manage risk that ensures segregation of risk assessment from operations, frequent review of risk management systems to ensure there is no slippage and last but not the least, to develop appropriate skills within the organization. In this context, it must be kept in view that risk management is not the sole concern of the risk management department but rather a culture that pervades the whole organization with specific support from the top management.
III. Recent initiatives in risk management
In India, over the years various steps have been taken to strengthen the Risk Management Architecture, both at the bank specific level as well as a broader systemic level.
ALM Guidelines: Most banks have put in place an ALM framework. However there is lot to be done to internalize this framework as a part of the overall risk perceptions of the bank and the capital planning strategy of the bank. Issues in data infirmity still remain to some extent. In many cases, the ALCO’s role remains confined to deciding on interest rates of the bank. This is partly due to lack of decision support system available to the ALCO. Availability of impact and scenario analysis of changes in yield structures would be a significant enabling factor.
The Reserve Bank has recently issued draft guidelines to banks with the objective of graduating from the current maturity ladder approach prevalent in most banks to a duration gap approach. The later approach makes it possible for banks to calculate the modified duration of assets and liabilities, the duration gap and duration of equity. The concept of duration of equity gives banks, subject to certain limitations, a single number indicating the impact of a one per cent change of interest rate on its capital, captures the interest rate risk and thereby helps move a step forward towards assessment of risk based capital/economic capital.
Credit risk: Another important issue is that bank resources and supervisory resources have concentrated on credit risk modeling of commercial and industrial portfolios, with relatively fewer resources devoted to risk quantification in the retail credit area . The possible reasons could be (i) from a systemic perspective, it makes economic sense to devote more resources to evaluating the risk factors of larger loans (ii) there is a long history of ratings agency evaluations for publicly traded firms which , along with the extensive data available for publicly traded firms, provided an extremely useful benchmark for the development of quantification methods for commercial portfolios.
However, despite this commercial side emphasis, retail credit is a substantial part of the risk borne by the banking industry, and can not be ignored. Recognizing this, over the last decade or so, the industry and academia have devoted significant resources to developing more sophisticated credit-scoring models for measuring this risk. Like their counterparts on the commercial side, these models also rely heavily on quantitative analysis.
Derivatives: There has been a spurt of derivatives exposures in the off balance sheet exposures. The composition of derivatives portfolio of the banking system has also undergone a significant transformation. Forward foreign exchange contracts which accounted for around 80% of total derivatives in March 2002 declined steadily and stood at almost 43% in March 2006 while the share of interest rate contracts went up from 19% to 54% during the same period. Foreign currency options have recorded noticeable increase during the last year. The share of single currency interest rate swaps in total derivatives of the banking system has risen sharply from 15% in March 2002 to 53% in March 2006.
The risks arising on account of OBS activities of banks are controlled through a combination of both banks’ internal risk management and control policies and risk mitigation mechanism imposed by the regulators. The board approved internal control policies covering various aspects of management of risks arising both on and off balance sheet exposures constitute the first line of defence to the bank. Holding of minimum defined regulatory capital for all OBS exposures, collection of periodic supervisory data and incorporating transparency and disclosure requirements in bank balance sheet are some of the major regulatory initiatives undertaken to control and monitor OBS exposures of the banking system.
The rapid proliferation of derivatives exposures inevitably poses a challenge on account of the downside risks associated with them, if not managed properly. There are issues relating to use of structured products, valuation, counterparty related issues, risk management and reporting issues and last but not the least, training and skill development. While derivatives facilitate risk hedging and risk transfer to institutions more willing to bear the risks, the tendency of participants to use derivatives to assume excessive leverage, and lack of prudential accounting guidelines are matters of concern.
One of the features of in the Indian derivative market relates to concentration risk in respect of both the market makers (banks) and the corporates. The combined share of top 15 banks has steadily grown from around 74% in March 2002 to 82% of total OBS exposures of the banking system in March 2006, of which 62% is accounted for by foreign banks. Concentration of knowledge is another risk which results in the concentration of derivative activity among few players.
RBI has been stressing on the need to carry out due diligence regarding customer appropriateness and suitability of products before offering derivative products to their customers. There is need to use risk mitigation techniques such as collaterals and netting to reduce systemic risks and evolve appropriate accounting guidelines.
RBI has also issued two separate draft guidelines, one for valuation/accounting of investment portfolio in general and the second relating to derivatives. The proposed guidelines attempt to put in place fair value accounting norms for derivatives broadly in line with IAS 39, the international accounting standard for valuation and accounting for financial instruments. For investments, the proposed framework envisages a symmetrical treatment for unrealized gains and losses, with gains for HFT being reflected in the Profit and loss account. For AFS, however, a gain or loss on subsequent measurement shall be reflected in ‘Unrealised gain/ loss on AFS portfolio’. Similarly for derivatives, all valuation gains and losses are proposed to be routed either through the P&L (for less than 90 days) and or through a new account titled ' Unrealised gains/losses on derivatives' (90 days and more), somewhat similar to AFS portfolio. The idea is to bring all derivative transactions 'on-balance sheet' as against 'off-balance sheet' as is being done currently.
Further, in order to address all issues related to derivatives in a comprehensive manner, we are now in the process of harmonizing the regulatory prescriptions based on generic principles rather than approving specific products.
Stress Testing: The Governor in his Monetary Policy for 2006-07 had stressed the need for banks to have robust stress testing process for assessment of capital adequacy given various possible events like economic downturns, industrial downturns, market risk events and sudden shifts in liquidity conditions. Similarly exposures to sensitive sectors and high risk category of assets would have to be subjected to more frequent stress tests based. Stress tests would enable banks to assess the risk more accurately and, thereby, facilitate planning for appropriate capital requirements.
Subsequently RBI has issued draft guidelines on stress testing. These guidelines cover all major risk areas viz. market risks, credit risks, operational risks and liquidity funding risk. Banks are required to identify an appropriate range of realistic adverse circumstances and events in which the identified risk crystallises and estimate the financial resources needed by it under each of the circumstances to : a) meet the risk as it arises and for mitigating the impact of manifestation of that risk; b) meet the liabilities as they fall due; and c) meet the minimum CRAR requirements. It may be pertinent to note that the banks have been advised to apply stress tests at varying frequencies dictated by their respective business requirements, relevance and cost.
Financial Conglomerates: There is increasingly a need to extend the framework of risk management to the group wide level, particularly among financial conglomerates. The rapid expansion of financial services, both in terms of volumes and variety have, as it is, posed a challenge for financial stability. This is made all the more difficult by the organisational dimension which perhaps provides scope for regulatory arbitrage. While this could appear beneficial to the organisation in the short run, it only hightens systemic risk that in turn exposes the institution to externalities which have a cost. There has been entry of some banks into other financial segments like merchant banking, insurance and several new players have emerged who have a diversified presence across major segments of financial sector. Some of the non-banking institutions in the financial sector can acquire proportions large enough to have a systemic impact. It has, therefore, become necessary not only for the supervisor to have a “conglomerate” approach to regulation and supervision but also for banks themselves to put in place risk management systems at global levels i.e for the whole organizational as a whole, rather than only the bank level. The risks associated with conglomeration may include:
1. The moral hazard associated with the ‘Too-Big-To-Fail’ position of many
financial conglomerates;
2. Contagion or reputation effects on account of the 'holding out' phenomenon;
3. Concerns about regulatory arbitrage, non-arm’s length dealings, etc. arising out of Intra-group Transactions and Exposures (ITEs) both financial and non-financial
It is in this context that the issue of integrated risk management, at the enterprise wide as well as group wide level, acquires significance. RBI has put in place a framework for oversight of financial conglomerates, along with SEBI and IRDA. Half-yearly discussions have also been initiated with the Chief Executive Officers of the designated entities of the conglomerates to address outstanding issues/ supervisory concerns.
IV. To conclude, at the systemic level, efforts have been made to create an enabling environment for all market participants in terms of regulation, infrastructure and instruments. In this context, let me mention about two recent legislative developments that may have far reaching impact on the financial markets in India. One is the promulgation of the RBI (Amendment) Act, 2006. A major issue of concern in the OTC derivatives market in India was the issue of legality. While the Securities Contract Regulation Act, 1956 gave specific legal recognition to derivative instruments traded in the exchanges, there was no explicit legal recognition of OTC derivatives in India. As legal clarity is a basic requirement for the healthy development of any market, legality of OTC derivatives was provided by an appropriate amendment to the RBI Act, with retrospective effect. RBI has also been now empowered to regulate the interest rate and forex OTC derivatives market. The second legislative development pertains to the enactment of Government Securities Bill. The substantive changes brought about in the Government Securities Act are that it provides for hypothecation, pledge and lien of government securities, maintenance of records in electronic form and most importantly, enables STRIPing of Government securities.
Further, during the last few months, few liberalization measures have been introduced in securities market, that would surely have a bearing on the risk management practices in the market, the most important being introduction of 'when issued' trading and short selling in the G-Sec markets in a limited way. Currently the when issued trading is limited to reissuances only. We are examining extending this to new issuances also, as requested by market participants.
What has developed incrementally over the years is now being consolidated and once the regulations, infrastructure and appropriate accounting standards stabilize, several other initiatives like credit derivatives could be considered.
The world of finance has always had an intuitive understanding of risk. The risks that emerge from the increased variety and complexities of banking business, as well as from the various new drivers of growth has pushed the contours of risk management in banks much beyond what would probably have existed in the more traditional forms of banking activity of accepting deposits and lending in relatively stable environments. Internationally, the last two decades or so have witnessed significant changes in the profile of the banking sector, as well the nature of risk management in banks. What perhaps has changed the nature of risk management, particularly are, inter-alia, advances in technology that have aided quantitative approaches to risk management, like models etc., and the increasing volumes of transactions in derivatives and other structured products that are so complex that they are often labeled “exotic”. India too has responded to this change, tempered with a gradualist, non disruptive approach, that has stood us in good stead over the years.
In my brief remarks today, I intend to first, highlight few of the broader and more general issues currently engaging the financial risk management fraternity and then, move to the Indian context in this regard.
I. Some general perspectives on risk management
Quantification of risk and model risk: As mentioned earlier, significant developments in the area of quantification of risk, has shifted focus to statistical aspects of risk management, especially to risk modeling and other computational techniques of risk measurement. During the last decade there has been a proliferation of academic research on the use of VaR for market risk assessment. Such models have to be used with some care and serious examination of the data used, especially the use of historical data for forecasting future scenarios, the assumptions behind the models, estimation errors etc. Further, if intraday positions are not captured it would expose banks to such risks.
Similarly in respect of Credit Risk, there is no single ‘‘best practice’’ model for credit risk capital assessment, although the Basel 2 ‘‘Internal Rating Based’’ methodology provides a portfolio model. Bank managements will have to focus on the determinants of credit risk factors, the dependency between risk factors, the integration of credit risk to market risk, data integrity issues like consistency of data over long periods, accuracy and so on.
Institutions are already mapping events to operational loss categories and building warehouses of operational risk data for implementation of Advanced Measurement Approaches. Many data availability and reliability issues still need resolving. An internal loss experience for the important (low frequency, high severity) operational risk types is rare and any relevant data are likely to be in the form of risk self-assessments and/or external loss experiences.
Extreme events and stress testing: One of the key roles of the risk management process is to manage extreme events, such as those associated with the tails of statistical distributions and could have probability of occurrence as low as one percent. These are low probability but high loss instances associated with extreme operational events such as rogue trading or accounting fraud. The importance of stress testing to assess the impact of not only these events but also the impact of various scenarios is engaging the attention of risk management personnel, academicians and bankers alike
Risk based capital and back-testing: An important reason as to why the quantitative techniques have received so much attention, is not because of the intellectual satisfaction it can give to the academician but a rather mundane reason that it can be used to convince the regulator that given the risks as measured by these techniques the amount of capital required could be far less than that may be stipulated under broad brush, standardized techniques. An immediate linkage between the risk models, the quantum of risk that is measured by use of these models and the capital that is required to support these risks immediately emerge. Estimates of capital being sufficient to meet the risk can be only as good as the models are and the credibility of the models would ultimately depend upon their actual performance. Back testing the models to gauge and reduce the variance between the deviations of the actual numbers from those projected are largely relied upon to give a degree of comfort to both management of banks and supervisors alike.
II. Indian Perspective
Internationally, there has been a continuous coordinated effort under the aegis of institutions like the BIS to evolve best practices in risk management in banks and these have gradually come to be accepted as some sort of international standards for banks across the world to benchmark themselves to. At the regulatory and supervisory level also, there has been an effort to achieve convergence to the best practices set out by the BCBS after duly allowing for national characteristics and feasibility. Banks have responded to this initiative with varying levels of effectiveness.
It was in October 1999, that the Reserve Bank issued guidelines on Risk Management in banks setting out its expectations from banks; the guidelines adopted an integrated approach to risk management. Even earlier, in February 1999, banks were advised to set up an asset liability management framework to manage liquidity and interest rate risk. In this context, I would like to make following observations:
a) The need to accelerate the speed at which banks have been moving towards establishment of risk management systems
b) The need to achieve convergence with regulatory and supervisory expectations/requirements while deciding on the sophistication of methods to be adopted.
c) Developing appropriate risk management architecture, MIS and skill enhancement
d) The need to integrate risk management process with capital planning strategies
The current business environment, with its pointed emphasis on corporate governance, is making it critical for banks to explain their risk profiles publicly with greater clarity and detail than ever before. Risk is still a complex and technical subject, so achieving transparency will not be easy. Internal constituents, analysts, ratings agencies, investors, and regulators all have varying levels of understanding of advanced risk measurement techniques. All will require continuing education before the market as a whole reaches a common understanding of risk. In particulars, direct stakeholders in any transaction need to be aware of the risks involved. For the third pillar of Basle II (Market Discipline) to be efficacious, it is important that the stakeholders are aware of the risks involved in the banks’ transactions and the systems in place to manage the risks. In this context, the importance of an appropriateness policy for banks offering various products to the corporate clients can't be over-emphasised.
The risk management systems developed by banks would include a lot of attention of top management to the suitability of IT structure including issues of connectivity, designing an MIS format that is risk focused, setting up an organization to manage risk that ensures segregation of risk assessment from operations, frequent review of risk management systems to ensure there is no slippage and last but not the least, to develop appropriate skills within the organization. In this context, it must be kept in view that risk management is not the sole concern of the risk management department but rather a culture that pervades the whole organization with specific support from the top management.
III. Recent initiatives in risk management
In India, over the years various steps have been taken to strengthen the Risk Management Architecture, both at the bank specific level as well as a broader systemic level.
ALM Guidelines: Most banks have put in place an ALM framework. However there is lot to be done to internalize this framework as a part of the overall risk perceptions of the bank and the capital planning strategy of the bank. Issues in data infirmity still remain to some extent. In many cases, the ALCO’s role remains confined to deciding on interest rates of the bank. This is partly due to lack of decision support system available to the ALCO. Availability of impact and scenario analysis of changes in yield structures would be a significant enabling factor.
The Reserve Bank has recently issued draft guidelines to banks with the objective of graduating from the current maturity ladder approach prevalent in most banks to a duration gap approach. The later approach makes it possible for banks to calculate the modified duration of assets and liabilities, the duration gap and duration of equity. The concept of duration of equity gives banks, subject to certain limitations, a single number indicating the impact of a one per cent change of interest rate on its capital, captures the interest rate risk and thereby helps move a step forward towards assessment of risk based capital/economic capital.
Credit risk: Another important issue is that bank resources and supervisory resources have concentrated on credit risk modeling of commercial and industrial portfolios, with relatively fewer resources devoted to risk quantification in the retail credit area . The possible reasons could be (i) from a systemic perspective, it makes economic sense to devote more resources to evaluating the risk factors of larger loans (ii) there is a long history of ratings agency evaluations for publicly traded firms which , along with the extensive data available for publicly traded firms, provided an extremely useful benchmark for the development of quantification methods for commercial portfolios.
However, despite this commercial side emphasis, retail credit is a substantial part of the risk borne by the banking industry, and can not be ignored. Recognizing this, over the last decade or so, the industry and academia have devoted significant resources to developing more sophisticated credit-scoring models for measuring this risk. Like their counterparts on the commercial side, these models also rely heavily on quantitative analysis.
Derivatives: There has been a spurt of derivatives exposures in the off balance sheet exposures. The composition of derivatives portfolio of the banking system has also undergone a significant transformation. Forward foreign exchange contracts which accounted for around 80% of total derivatives in March 2002 declined steadily and stood at almost 43% in March 2006 while the share of interest rate contracts went up from 19% to 54% during the same period. Foreign currency options have recorded noticeable increase during the last year. The share of single currency interest rate swaps in total derivatives of the banking system has risen sharply from 15% in March 2002 to 53% in March 2006.
The risks arising on account of OBS activities of banks are controlled through a combination of both banks’ internal risk management and control policies and risk mitigation mechanism imposed by the regulators. The board approved internal control policies covering various aspects of management of risks arising both on and off balance sheet exposures constitute the first line of defence to the bank. Holding of minimum defined regulatory capital for all OBS exposures, collection of periodic supervisory data and incorporating transparency and disclosure requirements in bank balance sheet are some of the major regulatory initiatives undertaken to control and monitor OBS exposures of the banking system.
The rapid proliferation of derivatives exposures inevitably poses a challenge on account of the downside risks associated with them, if not managed properly. There are issues relating to use of structured products, valuation, counterparty related issues, risk management and reporting issues and last but not the least, training and skill development. While derivatives facilitate risk hedging and risk transfer to institutions more willing to bear the risks, the tendency of participants to use derivatives to assume excessive leverage, and lack of prudential accounting guidelines are matters of concern.
One of the features of in the Indian derivative market relates to concentration risk in respect of both the market makers (banks) and the corporates. The combined share of top 15 banks has steadily grown from around 74% in March 2002 to 82% of total OBS exposures of the banking system in March 2006, of which 62% is accounted for by foreign banks. Concentration of knowledge is another risk which results in the concentration of derivative activity among few players.
RBI has been stressing on the need to carry out due diligence regarding customer appropriateness and suitability of products before offering derivative products to their customers. There is need to use risk mitigation techniques such as collaterals and netting to reduce systemic risks and evolve appropriate accounting guidelines.
RBI has also issued two separate draft guidelines, one for valuation/accounting of investment portfolio in general and the second relating to derivatives. The proposed guidelines attempt to put in place fair value accounting norms for derivatives broadly in line with IAS 39, the international accounting standard for valuation and accounting for financial instruments. For investments, the proposed framework envisages a symmetrical treatment for unrealized gains and losses, with gains for HFT being reflected in the Profit and loss account. For AFS, however, a gain or loss on subsequent measurement shall be reflected in ‘Unrealised gain/ loss on AFS portfolio’. Similarly for derivatives, all valuation gains and losses are proposed to be routed either through the P&L (for less than 90 days) and or through a new account titled ' Unrealised gains/losses on derivatives' (90 days and more), somewhat similar to AFS portfolio. The idea is to bring all derivative transactions 'on-balance sheet' as against 'off-balance sheet' as is being done currently.
Further, in order to address all issues related to derivatives in a comprehensive manner, we are now in the process of harmonizing the regulatory prescriptions based on generic principles rather than approving specific products.
Stress Testing: The Governor in his Monetary Policy for 2006-07 had stressed the need for banks to have robust stress testing process for assessment of capital adequacy given various possible events like economic downturns, industrial downturns, market risk events and sudden shifts in liquidity conditions. Similarly exposures to sensitive sectors and high risk category of assets would have to be subjected to more frequent stress tests based. Stress tests would enable banks to assess the risk more accurately and, thereby, facilitate planning for appropriate capital requirements.
Subsequently RBI has issued draft guidelines on stress testing. These guidelines cover all major risk areas viz. market risks, credit risks, operational risks and liquidity funding risk. Banks are required to identify an appropriate range of realistic adverse circumstances and events in which the identified risk crystallises and estimate the financial resources needed by it under each of the circumstances to : a) meet the risk as it arises and for mitigating the impact of manifestation of that risk; b) meet the liabilities as they fall due; and c) meet the minimum CRAR requirements. It may be pertinent to note that the banks have been advised to apply stress tests at varying frequencies dictated by their respective business requirements, relevance and cost.
Financial Conglomerates: There is increasingly a need to extend the framework of risk management to the group wide level, particularly among financial conglomerates. The rapid expansion of financial services, both in terms of volumes and variety have, as it is, posed a challenge for financial stability. This is made all the more difficult by the organisational dimension which perhaps provides scope for regulatory arbitrage. While this could appear beneficial to the organisation in the short run, it only hightens systemic risk that in turn exposes the institution to externalities which have a cost. There has been entry of some banks into other financial segments like merchant banking, insurance and several new players have emerged who have a diversified presence across major segments of financial sector. Some of the non-banking institutions in the financial sector can acquire proportions large enough to have a systemic impact. It has, therefore, become necessary not only for the supervisor to have a “conglomerate” approach to regulation and supervision but also for banks themselves to put in place risk management systems at global levels i.e for the whole organizational as a whole, rather than only the bank level. The risks associated with conglomeration may include:
1. The moral hazard associated with the ‘Too-Big-To-Fail’ position of many
financial conglomerates;
2. Contagion or reputation effects on account of the 'holding out' phenomenon;
3. Concerns about regulatory arbitrage, non-arm’s length dealings, etc. arising out of Intra-group Transactions and Exposures (ITEs) both financial and non-financial
It is in this context that the issue of integrated risk management, at the enterprise wide as well as group wide level, acquires significance. RBI has put in place a framework for oversight of financial conglomerates, along with SEBI and IRDA. Half-yearly discussions have also been initiated with the Chief Executive Officers of the designated entities of the conglomerates to address outstanding issues/ supervisory concerns.
IV. To conclude, at the systemic level, efforts have been made to create an enabling environment for all market participants in terms of regulation, infrastructure and instruments. In this context, let me mention about two recent legislative developments that may have far reaching impact on the financial markets in India. One is the promulgation of the RBI (Amendment) Act, 2006. A major issue of concern in the OTC derivatives market in India was the issue of legality. While the Securities Contract Regulation Act, 1956 gave specific legal recognition to derivative instruments traded in the exchanges, there was no explicit legal recognition of OTC derivatives in India. As legal clarity is a basic requirement for the healthy development of any market, legality of OTC derivatives was provided by an appropriate amendment to the RBI Act, with retrospective effect. RBI has also been now empowered to regulate the interest rate and forex OTC derivatives market. The second legislative development pertains to the enactment of Government Securities Bill. The substantive changes brought about in the Government Securities Act are that it provides for hypothecation, pledge and lien of government securities, maintenance of records in electronic form and most importantly, enables STRIPing of Government securities.
Further, during the last few months, few liberalization measures have been introduced in securities market, that would surely have a bearing on the risk management practices in the market, the most important being introduction of 'when issued' trading and short selling in the G-Sec markets in a limited way. Currently the when issued trading is limited to reissuances only. We are examining extending this to new issuances also, as requested by market participants.
What has developed incrementally over the years is now being consolidated and once the regulations, infrastructure and appropriate accounting standards stabilize, several other initiatives like credit derivatives could be considered.
Career Management Paradigm Shift:
Career Management Paradigm Shift:
Prosperity for Citizens, Windfall for Governments
Phillip S. Jarvis
Vice-President, Partnership Development
National Life/Work Centre, Ottawa, Canada
ABSTRACT
Canada is on the verge of a workforce crisis from which, paradoxically, it could emerge with citizens enjoying a higher standard of living, and governments and corporations enjoying both increased revenues and reduced expenditures. Needed is a career management paradigm shift to help citizens navigate the new work environment. The industrial age vocational guidance mindset that still prevails simply isn’t working for too many people, and the costs in both financial and human terms are intolerable. A cornerstone of the paradigm shift is Blueprint for Life/Work Designs, a new national framework of competencies (skills, knowledge and attitudes) citizens of all ages need to be self-reliant career managers.
Momentum for the career management paradigm shift is growing among government departments, educational leaders, community agencies, business owners, career and employment counsellors, and human resource specialists. The looming skills crisis provides compelling reasons to redouble our commitment to helping many more people acquire knowledge age career management skills to assure increased prosperity for citizens and corporations, windfalls for governments and an even brighter future for our country.
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The economy of the 21st century will need workers who are lifelong learners, who can respond and adapt to change. Canada’s labour market programs must be transformed to meet this challenge. - Speech from the Throne
The knowledge economy is changing the way people work. New labour market entrants can expect to experience a succession of jobs in a number of industry sectors during their working lives. They may have concurrent part-time jobs at one time, and no paid work at other times. Work periods will be interspersed with periods of learning, either full- or part-time, perhaps while working at one or more jobs. Krumboltz and Worthington(1999, 4, 312-325) describe a future where “ . . . there will be more of a need for worker flexibility as worker requirements change more frequently and new teams are formed to work on specific projects. Workers will increasingly be expected to move from project to project doing whatever work needs to be done, and not merely to fulfill a written job description.” That future is here. Project-based work is the norm in more and more public and private sector organizations across the country.
At the same time, our workforce is changing drastically. Knowledge Matters: Skills and Learning for Canadians (2002, 7-8), the recent discussion paper from Human Resources Development Canada, describes the challenges:
• First, the knowledge-based economy means an ever-increasing demand for a well-educated and skilled workforce in all parts of the economy and in all parts of the country….
• Second, there is a looming demographic crunch that will exacerbate these skills shortages….
• Third, our learning system must be strengthened if we are to meet the skills and labour force demands of the next decades.
We need more highly skilled workers, yet our workforce is shrinking. Half the 2015 workforce is already working. By 2011 immigration will account for all net workforce growth. In all sectors, it is more important than ever that Canadians connect with the best possible learning and work opportunities. Yet too few education and training institutions teach career management skills, and most companies of 50 or fewer workers have no employee training and development or human resource services. Thus, most adults make career choices unassisted, without the benefit of professional support, and without having learned career management skills they need to succeed.
The Key: Choosing Wisely
The key is helping students and adults choose education and training, and work that serve both their needs and those of our evolving workforce. The challenge is to help youth and adults learn how to choose wisely and commit to on-going self-improvement for the rewards of satisfaction and self-fulfillment in the near-term and contingency planning in the longer-term. Most youth are not sure how to make good career decisions, and they are not clear, even just prior to graduation, what they want to do when they enter the workforce. The majority of students do not proceed directly from secondary to post-secondary, in spite of projections that most work in coming years will require some post-secondary qualification. Of those youth who go directly to college or university programs, not to mention apprenticeship or trades training, nearly half change programs or drop our by the end of their first year. Of those who graduate, 50 percent will not be in jobs not directly related to their programs of study two years after they graduate.
In the words of Richard Froeschle (2003), Career Resource Network Director with the Texas Workforce Commission, "…labor market and career information is to students and job seekers what market research data is to business – invaluable.” High quality, current and comprehensive information is more important in today’s workplace than ever, but it’s not enough. Special career management skills are needed to use available information effectively to make sound choices. People need skills that give them legitimate confidence in their ability to construct fulfilling lives. They need:
• focus, on who they are, what they have to offer, and what is important to them;
• direction, knowing their options, what appeals to them, and how to qualify for suitable learning and work opportunities;
• adaptability, the skill of making the best of ever-present change; and
• healthy self-esteem and self-knowledge, to counter uncertainty and doubt.
These are all career management skills, and they cannot be learned solely from printed publications and websites. Human support in the learning process is essential, as it is during times of voluntary and involuntary career transitions. In fact, most adults with good career management skills did not learn them from institutionalized education and training programs. They were fortunate enough to have parents, relatives, teachers, bosses or other mentors who modeled successful life and career management skills, and encouraged, perhaps even at times prodded them throughout their learning process.
The New Career Management Paradigm
The knowledge economy demands a new approach to career development. Too many youth do not have the good fortune of enjoying ready access to good mentors in their home situations. Even in two-parent families, both adults are often so focused on “making ends meet” they cannot give to their children the time, energy and support they would like. Indeed, most parents were never taught the contemporary career management skills their children now need.
Mastery of career management skills cannot be left to chance. It needs be part of mainstream primary, secondary and post-secondary education programs, employee training and development programs and remedial programs for adults in career transitions. Acquisition of these skills increases likelihood of workplace success, and success in relationships, family and community. An investment in helping more citizens master these skills will provide a multi-faceted return on investment, add relevance to the learning experience, and benefit both individuals and society.
The traditional vocational guidance paradigm expected young people to make an informed, long-term career choice before graduating from high school. Yet, when adults are asked if they are now doing what they expected to be doing when they graduated less than 10 percent (teachers and nurses excepted) raise their hands. The evidence suggests only a small minority of us is able to identify a “calling” at a young age.
The vocational guidance model was primarily about helping people make an informed occupational choice, and went as follows:
1. Explore one’s interests, aptitudes, values, etc. (often with tests and professional help)
2. Explore the world of work (occupations)
3. Determine a “best fit” occupation by matching personal traits to occupational factors
4. Develop a plan to obtain the prerequisite education and training
5. Graduate, obtain secure employment, work hard, climb the ladder
6. Retire as young as possible on full pension
Steps 1 through 4 apply to the new career management model as well, although the terms work role, cluster or industry sector may be substituted for occupation. Contemporary workplace realities, however, now make these steps recurrent, and increase the need for career and labour market information and support services. Step 5 is no longer assured, and step 6 will only occur for those who learn career management skills, including financial planning skills and self-discipline.
The career management paradigm is not so much about making the right occupational choice as it is about equipping people with the skills to make the myriad choices necessary throughout their lives to become healthy, self-reliant citizens, able to cope with constant change in rapidly changing labour markets and maintain balance between life and work roles. Cornerstones of the career management paradigm are the “high five” principles:
1. Know yourself, believe in yourself and follow your heart.
2. Focus on the journey, not the destination. Become a good traveler.
3. You’re not alone. Access your allies, and be a good ally.
4. Change is constant, and brings with it new opportunities.
5. Learning is life-long. We are inquisitive by nature, and most alive when we’re learning.
Those who master career management skills and follow the high five principles are more likely to find satisfying and fulfilling work in the knowledge economy, and prosper. Regrettably, most educators, corporate executives, legislators and policy makers, community leaders, workers, parents and children are still encumbered by a vocational guidance mindset.
The catch phrase of the old paradigm, "What do you want to be when …?" focuses on destination, and loses relevance in a world in which most workers will experience regular job, even industry changes. It is no longer realistic, if it ever was, to expect young people to choose an occupation for life. Indeed, educators, spouses and parents who do not fully comprehend the new work world often create undue stress for those they are trying to help. Many adults, for instance, feel young people are failing somehow if they cannot land a “permanent” job soon after graduation. In fact, permanent, secure jobs are simply becoming scarce, particularly for youth. At the same time, there are more interesting and rewarding work opportunities, albeit in less permanent packages, than ever before.
In the career management paradigm the question, “What do you want to be when … ?” is replaced by questions like:
“Who are you now, and what do you love to do?”
“What are your specials talents and skills?”
“What types of situations, environments and work roles have special appeal for you?”
“What types of organizations need what you can offer?”
“What innovative work arrangements will suit you and potential employers?”
“People don’t succeed by migrating to a ‘hot’ industry. They thrive by focusing on who they really are – and connecting to or creating work that they truly love (and, by doing so, unleashing a productive and creative power that they never imagined). Companies win when they engage the hearts and minds of individuals who are dedicated to answering their life question.” People who love what they do are more productive. In the words of Yahoo chief solutions officer Tim Sanders, "Over and over again, I've discovered that the businesspeople who are the busiest, the happiest, and the most prosperous are the ones who are the most generous with their knowledge and their expertise. People who love what they're doing, who love to learn new things, to meet new people, and to share what and whom they know with others: these are the people who wind up creating the most economic value and, as a result, moving their companies forward."
Tests seldom answer people’s life questions, and certified professionals are not needed to ask them. The career management paradigm puts control, and responsibility, in the hands of the individual, not in tests, computer systems or specialists. To be fully in control of their own lives, people need to learn career management skills just as they learn math, science, language or technical skills. Career development is now an on-going, learning process for all rather than an occasional counselling process for the few “who need help.” All staff can contribute to the career management learning process, as can parents, spouses and any one else who knows and cares about the individual. As resident career experts, counsellors and practitioners who understand the new paradigm become pivotal players in the paradigm shift in their organizations, playing vital coaching, mentoring and coordinating roles for the learners and for those assisting in the learning process, rather than increasingly being relegated to the periphery in declining numbers.
The workplace of the knowledge era is a radically different place at the beginning of the 21st century than that of the 20th century. Over 95 percent of Canadian businesses have fewer than 50 employees. 750,000 have fewer than 5 employees. Self-employment, particularly among aging baby boomers, is growing. Even in larger organizations, the notions of self-employment and working for customers and clients have replaced working for a boss. Doing what you are told to do and following set procedures are now balanced with encouragement to invent new solutions to getting the job done and to serving customers and clients better. Just being responsible for your job has been replaced by pressure to be a good team player and help the team continuously learn and improve. Respect used to be accorded to position. It is now earned by people, at any level in the organization, on the basis of their contribution, commitment to learning and growing and their willingness to help others improve.
What is emerging is a new language register. The new terms denote concept shifts, not just “vernacular du jour.” They are occurring at different rates in different regions and sectors of society indicative of a global career management paradigm shift that is traced in the chart on the following page.
Old Paradigm New Paradigm
General
Office Virtual space
Success = career ladder Success = valued skills
Authority Influence
Manager/Management Leader/Leadership
Entitlement Marketability
Loyalty to company Loyalty to work and self
Salaries and benefits Contracts and fees
Job security Personal freedom and control
Identity = job, position, occupation Identity = contribution to work, family and community
Attention to bosses and managers Attention to clients and customers
Employees Vendors, entrepreneurs, team members
Retirement Self-employment – 2nd career
Private Sector/Employers
Social Contract At-Will Workforce
Mass Production Customization
Industry Knowledge Consumer Pull
Cost Reduction Revenue Growth
Vertical Integration Outsourcing
Incumbent Workers Contingent Workers
Retail Stores “E-tailing”
Bureaucratic organization Shared Vision and Mission
Local Labour Supply Global Labour Competition
Jobs as Continuous Duty Project Orientation
Job Security Employment Resilience
Job Description Task/Duty Statements
Public Sector/Education
Entitlement Personal Responsibility
Employment Service One Stop Co-Location Centers
Worker Training Work First-Welfare Reform
Job Qualifications Skills Standards
Occupational Titles Skills Clusters
Diploma or Degree Skill Certification
Degree Attainment Non-linear Perpetual Learning
Recruitment Informed Choice
Academic Calendar Open entry/Open exit
Semester Courses Discrete Learning Events
Carnegie Unit/Seat Time Competency Demonstration
Bricks and Mortar Distance Learning
School Teacher Learning Coach
Career Guidance Career Development/Building/Management
Process/Peer Review Outcomes/External Evaluation
Evaluation Impact Assessment/Provide Evidence
Mainframe Computers Internet Connectivity
Keepers of Knowledge Democratization of Knowledge
As technologies and skill requirements change, demand for workers changes. Workers need to be able to follow occupational and industrial trends, observe where job growth or decline is likely to happen and position themselves to adjust to the trends. The fastest growing category of companies is the smallest ones, which have the greatest failure rate. Larger companies are being merged, downsized, split up, re-engineered, or bought out. Job security is no longer a given for anyone at any level in any organization, and it has become an individual matter. Workers need to prepare themselves for periodic job loss and the inevitable loss of income. The very notion of “job” is shifting dramatically. In most contemporary settings those who say "That’s not my job!" won’t have a job for long! Workers are seeking meaning, purpose and fulfillment from their work roles, not just paycheques.
Career is increasingly being viewed as something every human has, for a lifetime. Outdated definitions of “job” and “occupation” remain cornerstones of too many guidance processes and post-secondary education and training offerings. “Work is now defined not by occupational titles or categories, but by skills and values. Effective career builders know how to shape and build their careers, project by project. This is a new competency, still largely unrecognized by most adults in the workforce.”
It’s becoming acceptable, even desirable, to have one’s “eggs in more than one basket.” More and more people are experiencing satisfaction, feeling stimulated, garnering respect, acquiring wealth and freedom by brokering portions of their time and skills to multiple organizations in creative new work “packages.” Security derives from the knowledge that should one contract end abruptly, others are still in place. As companies do not pay benefits and can initiate and terminate contracts easily, they are willing to pay more. (“We can pay you $500 per day for 10 days every three months, but we can’t offer you a full-time job”). Self-employed workers who deliver reliable, high quality service often find more employers want more of their time. To succeed, self-employed workers in atypical, contract work arrangements need to have specialized, in-demand skills, be aware of their value to specific employers, and be able to market themselves effectively. This engagement with contingent work demands a high level of self-knowledge and self-confidence, both of which are career management skills.
The more education and skills a person has, the greater the likelihood of securing work, earning a good income, and remaining employed. High school dropouts have an unemployment rate of more than 18 percent, compared with 7 percent for those with a university degree. Over the next five years, occupations that require less than high school education will account for less than 6 percent of new job opportunities. More than 70 percent of new jobs will require at least some post-secondary education. The main activity of 61 percent of respondents in a recent British Columbia survey in their first year after high school was attending school full time or part time. Thus, 39 percent were rejecting advice from “the system,” their teachers and their parents.
Society expects people to select an occupational goal then pursue the prerequisite education and training. While preparing to enter the workforce they are graded on acquisition of academic and technical skills, not career management skills, despite constant pleas from employers to teach “employability skills.” While academic and technical qualifications open doors, career management skills largely determine selection, success and advancement. Those who can describe the skills they bring to an organization to help it achieve long-term success, in whatever combination of or packaging of roles, are in greater demand. The key in the workplace as in life is not just finding the right job, friend or life partner: it’s becoming the right worker, friend or life partner.
“Increasingly, career development is about leadership. It’s about the personal leadership required to take action, take risks and learn new skills. It’s also about the leadership required to help others develop, grow and learn. Creating things that don’t yet exist is now part of career development, not just choosing among existing options. Preparedness for an environment that does not yet exist is key to adaptability, and leadership – therefore, it’s key to career management.”
Over the past quarter century disparities in earnings from employment have widened. The well paid have experienced earning gains, while market incomes at the low end of the spectrum have stagnated or even declined. Almost two million adult Canadians work for less that $10 an hour – about one in six employed people. These jobs do not pay enough to support a family, yet workers face barriers to advancing their incomes. Workplace barriers occur because employers concentrate more on controlling payroll costs than on productivity growth and development of skills. The prevalent assumption that money is the shortest route to freedom and happiness is flawed, as so many stressed professionals have discovered. In fact “the shortest route to the good life involves building the confidence that you can live happily within your means while doing work you truly love.”
The new career management paradigm recognizes that career development is a life-long process of skill acquisition and building through a continuum of learning, development and mastery. This process enables people to be in charge of their own career, with enough focus and direction for stability and enough flexibility and adaptability for change along the way. Career management equips people to make good choices throughout their lives. The aim is to help people become self-reliant, allowing them to enjoy personal satisfaction and fulfillment while contributing as fully as possible to our ever-changing society. Failure to do so will be costly. In fact, it already is.
Costs ands Savings
Many workers go through their entire working lives without focus or direction. They fall into employment without preparation and planning. The old paradigm has not worked for them. Many spend 50 percent of their conscious lives in work settings they don’t like. Some take out the stresses of the work day on family members, seek relief in alcohol or substance abuse, and have little energy left for anything other than passive, inert escapes like watching television. The loss of productivity and the waste of human capital are palpable, whether measured in training costs or unrealized human potential. Unquestionably, this sort of investment by both the public and private sectors yields an unacceptable return.
Most Canadians are proud of the social systems and infrastructure we have put in place to ensure as many citizens as possible, young and old, enjoy one of the highest living standards in the world. We invest heavily to support individuals, groups and regions in need. We accept higher taxes than most countries to ensure a better quality of life for more of our citizens. The vast majority of the expenditure items discussed below are essential infrastructure costs, well invested. The numbers are so large, however, that minuscule elements of “slippage” equate to sums large enough to make a real difference to governments, corporations and communities. Fallout from gaps between people’s skills and workforce needs reduces the return on investment we rightly expect from education, health care and social services investments. It also represents lost revenues to governments and lost competitiveness to businesses.
Lost Productivity and Reduced International Competitiveness
For businesses and for our economy, productivity is the key to competitiveness. We rely on the productivity of our workforce to keep us competitive in the global marketplace. If we increase our productivity, our entire economy and social structure benefit. If productivity slips we all lose, and we all pay.
Variability in employee productivity influences the economics of an organization. Employers who can select more congruent (right person in the right job) employees from a better applicant pool have a distinct advantage over their competitors. After conducting a meta-analysis of 85 years of research on personnel selection, Schmidt and Hunter (in press) conclude that person-job congruence benefits the worker, the company, and the nation. In Po Bronson’s words, “We are sitting on a huge potential boom in productivity – if we could just get the square pegs out of the round holes.”
Our annualized Gross Domestic Product as of the second quarter of 2002 was $1,138.2 billion. A 1 percent increase in productivity would have resulted in an increase of over $11 billion in goods and services in 2002. Better mechanisms for helping people connect with work roles they like and in which they excel can have profound ramifications for our society. A modest 1 percent increase in productivity through better matching of individuals’ skills and workforce requirements could generate as much as $10 billion annually in increased gross domestic production. Imagine, over time, a 5 or 10 percent increase in productivity across the country. Any generalized gain would favourably impact our international balance of payments and would be felt in standard of living improvements in communities across the country.
Education Funding
$64.1 billion was invested by all levels of government across the country in the past year on primary, secondary and post-secondary education. Our education systems are among the best in the world. Nonetheless, too many students are floundering or unsure why they are learning what they are learning. Many more cannot decide what programs they should be in. Many change programs, underachieve or drop out. Some extend their education because they are reluctant to move on. Most students do not fully understand the diversity of work roles that match their academic and technical skills. Only a few students are acquiring and mastering the skills of personal management, work and learning exploration, and career management they will need to complement their academic and technical skills in becoming self-reliant career managers beyond graduation. Effective career management programs would help youth develop these skills and gain greater focus and direction. While we might hope to do better, even a 1 percent increase in efficiencies through having more students learning what they are motivated to learn translates to $600 million annually being better invested.
Health Care Funding
Those who are unemployed or in work roles they dislike are subject to increased stress, have increased likelihood of unhealthy lifestyles, and may be more prone to substance and physical abuse. Good jobs foster mental health whereas poor jobs cause distress (Loscocco & Roschelle, 1991) . For instance, in a September 2002 Ipsos-Reid survey for the Globe and Mail and CTV , one in six adults surveyed (17%) said there has been a time in their life when they’ve been under so much stress that they’ve wanted to commit suicide. The main causes of stress cited by survey respondents were associated with their job or work (43%) and their finances (39%).
Over $76.9 billion was invested by all levels of government in the past year on health care. If only 1 percent of the people now availing themselves of health care services require them directly or indirectly as a result of inability to find and keep work they like, nearly $800 million annually could be saved. If the actual percentage is higher, say a modest 5 percent, this equates to $4 billion annually. Some or all of this could be invested in improved health care services for all citizens.
Social Services
In societies committed to improving living standards for all citizens, the term “social inclusion” has received increased attention in recent years. To be included is to be accepted and to be able to participate fully within our families, our communities and our society. Those who are or perceive themselves to be excluded, whether because of poverty, poor health, gender, race, or lack of education or skills, do not have the opportunity for full participation in the economic and social benefits of society.
Anna Diamantopoulou, European Union Commissioner for Employment and Social Affairs, points out that social inclusion makes good economic sense. Her Commission estimates that social exclusion costs between 12% and 20% of the GDP of the European Union member states. If our situation is similar, these percentages translate to social exclusion costs here of $136 to $228 billion annually. The EU regards the fight against social exclusion as a worthwhile investment and has committed 27 billion euros to the Social Fund for the period from 2000-2006.
In Canada, $113 billion was invested by all levels of government in the past year on social services, including social assistance and welfare. Inability to locate and maintain suitable and fulfilling learning and work opportunities is a contributing factor for some recipients. Significant savings could accrue if more citizens possessed the skills they need to self-reliantly plan and manage their careers and constructively address change. For example, a modest 1 percent saving on these expenditures would generate over $1 billion annually.
Protection, Prisons and Corrections
Over $15 billion was invested by all levels of government in the past year on “protection of persons and property,” including policing, prisons and correctional services. One might expect that a contributing factor in the case of some law-breakers and detainees is their inability to connect with appropriate life and work roles. A 1 percent improvement in helping more of these youth and adults acquire career management skills, become hopeful about their future and achieve increased self-reliance, could generate savings of $150 million annually.
Employment Insurance
Human Resources Development Canada paid a total of $9.5 billion in the year ending March 31, 2001 to about 650,000 EI Income Benefits Program recipients, who received an average of 18.5 weeks of payments. For workers in seasonal situations or those subjected to economic forces beyond their control, this income support is invaluable. Some recipients, however, are searching for work they feel suits them. If more in these circumstances were able self-reliantly to manage their work and learning opportunities and to move from one work role to another as needed, EI payments would decrease. A 1 percent improvement in this category would result in savings to the EI fund of about $100 million annually.
Lost Government Revenues
Over $432 billion was collected by all levels of government in the past year in income taxes (individual and corporate), property taxes, consumption taxes, health premiums, social insurance contributions, etc. If more Canadians were able to connect with steady work they like, all levels of government could anticipate increased revenues. A 1 percent improvement here would generate over $4 billion annually in increased government revenues. A 5 percent improvement would yield a $20 billion annual windfall for all levels of government.
The ability of our citizens to make effective connections to meaningful work is the underpinning of improvement in each of these areas. Excellent career, learning and labour market information and mastery of career management skills can help them make these connections. If even a small percentage of our citizens increase their mastery of career management skills, the savings can be enormous. Consider the impact on our economy and society of freeing up that amount of money, no matter how it might be redirected!
What is Needed?
How do we attain the improvements suggested above and the savings that come with them? Some of the necessary tools are already in place. What is needed is a concerted effort to use the tools now in place effectively and in concert with each other, to increase understanding of the necessity of this paradigm shift and to help as many people as possible increase their mastery of career management skills. We need programs and resources based on clear career management learning and performance outcomes. We need a comprehensive accountability infrastructure for this proposed career management paradigm shift. We need a means by which career practitioners, counsellors, educators and human resources specialists can easily select resources based on the outcomes they want to achieve with their clients and the skills they wish to build. We need a common map or framework of career management skills to see the linkages, or overlaps, between programs, and to identify gaps in existing programs and services. We need a common language of career management so there is no ambiguity or confusion among career practitioners, employment counsellors, educators and human resources specialists and the public. Like the health and fitness culture of the “Participaction” and non-smoking movements, we need a new, national career management culture.
Pioneering work on a national career management skills framework began in the United States in 1988, under the leadership of the National Occupational Information Coordinating Committee (NOICC) and its network of 58 State Occupational Information Coordinating Committees (SOICCs). The process of adapting what became the U.S. National Career Development Guidelines for Canada began in 1998, lead by the National Life/Work Centre in concert with the Canada Career Information Partnership , with support from Human Resources Development Canada. The result is Canada’s Blueprint for Life/Work Designs. Thousands of American and Canadian career practitioners, employment counsellors, educators, human resources specialists and researchers have spent fourteen years developing, piloting, evaluating, revising and implementing this North American career management skills framework.
The Blueprint identifies core career management competencies with associated performance indicators for each competency at four developmental levels across the lifespan. The core competencies are the basis upon which career development programs can be designed. The performance indicators, which are organized by learning stages, can be used to measure learning gains and demonstrate the effectiveness of such programs.
Competencies and performance indicators are arranged under three key headings:
Area A: Personal Management
1. Build and maintain a positive self-image
2. Interact positively and effectively with others
3. Change and grow throughout ones' life
Area B: Learning and Work Exploration
4. Participate in life-long learning supportive of life/work goals
5. Locate and effectively use life/work information
6. Understand the relationship between work and society/economy
Area C: Life/Work Building
7. Secure or create and maintain work
8. Make life/work enhancing decisions
9. Maintain balanced life and work roles
10. Understand the changing nature of life and work roles
11. Understand, engage in and manage one's own life/work building process
These competencies include the employability skills employer groups suggest are lacking in too many prospective employees, particularly youth. In fact, work habits and attitudes strongly influence early adult earnings, so educational and training programs need to emphasize work behaviours as much as they emphasize job skills. Self-reliance grows out of the acquisition of these skills.
The Blueprint recognizes that people at different ages and stages learn differently, and that even young children can learn and appreciate the Blueprint competencies. In fact, we know that attitudes toward work are formed early in life, so workforce and vocational guidance policy should take a developmental perspective. Vocational psychologists such as Super, Crites, Gribbons, and Lohnes have each concluded from their longitudinal studies that planful competence in early adolescence relates to more realistic educational and vocational choices, occupational success, and career progress . For this reason, the Blueprint's core competencies are defined for four developmental levels:
Level 1: Primary/Elementary School
Level 2: Junior High/Middle School
Level 3: High School
Level 4: Adult, including Post-secondary
There are performance indicators for each competency, at each level, organized by "learning stages." For example, the performance indicators for Competency 5 at Level 3 are:
Competency 5 – Level 3 (High School)
Locate, interpret, evaluate and use life/work information
Learning stage a: Acquisition
5.3 a1 Explore the educational and training requirements of various work roles.
5.3 a2 Discover how key personnel in selected work roles could become ideal information resources and/or role models.
5.3 a3 Explore how trends and work opportunities in various economic/industry sectors impact the nature and structure of work roles.
5.3 a4 Explore how employment and workplace trends impact education and training scenarios.
5.3 a5 Understand how a variety of factors (e.g., supply and demand for workers, demographic changes, environmental conditions, geographic location) impact work opportunities.
5.3 a6 Understand how labour market information (profiles, statistics, etc.) should be used when making life and work decisions.
5.3 a7 Explore a variety of work alternatives (e.g., full employment, multi-tracking, contracting, consulting, self-employment, entrepreneurship).
Learning Stage b: Application
5.3 b1 Use career information resources such as career monographs, occupation classifications systems, labour market information, mass media, computer and Internet-based career information delivery systems to educate oneself to the realities and requirements of various work roles.
5.3 b2 Consult key personnel in selected work roles as information resources, role models and/or mentors.
Learning Stage c: Personalization
5.3 c1 Determine, according to one’s preferences, the advantages and disadvantages of various work alternatives (e.g., full employment, multi-tracking, contracting, consulting, self-employment, entrepreneurship).
5.3 c2 Assess life/work information and evaluate its impact on one’s life/work decisions.
Learning Stage d: Actualization
5.3 d1 Improve one’s strategies to locate, interpret, evaluate and use life/work information.
The Blueprint provides the basis for setting the learning outcomes, establishing performance standards, and measuring success in any public or private sector agency in the career development business. It’s a foundation piece of the new career management paradigm, and implementation is well underway.
Many provincial and territorial ministries of education, human resources and employment, community services and others are adopting the Blueprint as the foundation of their career management programs or imbedding its competencies into their own guidelines. Career resources, programs, curricula and services from public and private sector organizations, large and small, are being coded to the Blueprint competencies and performance indicators. Free Blueprint Orientation and Leadership Sessions are being offered across the country to develop local Blueprint Facilitators to teach educators, career and employment counsellors and human resources specialists to make effective use of the Blueprint and its support materials.
Organizations across the country are contributing to the career management paradigm shift in different ways. For example, the Conference Board of Canada’s Employability Skills 2000 , Human Resources Development Canada’s Essential Skills , and the Workinfonet national partnership of career, learning and labour market information Internet gateway sites are making important contributions. The Canada Career Consortium , Industry Sector Councils, Canada Career Information Partnership , Career Circuit , Canadian Career Development Foundation, and National Life/Work Centre are as well. The National Career Development Standards and Guidelines for Career Practitioners is a complementary competency framework for career and employment counsellors and career practitioners. The Real Game Series, now in thousands of schools from coast-to coast, provides national curricula to teach career management skills in educational and community settings. The Blueprint provides a map of the career management terrain by which these and many other contributions of large and small, public and private sector organizations across Canada can be plotted and tracked.
Conclusion
School-to-work transition and workforce development initiatives have failed too many citizens because career management skills have not received the curricular focus that academic and technical skills receive. Career theorists provide clear and unequivocal evidence to demonstrate the need to imbed career management skills in all education and training programs and services designed to help people succeed in the employment market of the future. Implementing career-relevant programs that integrate the Blueprint career management skills and accountability procedures will:
help more youth and adults become satisfied, fulfilled, self-reliant, contributing and prosperous citizens;
bring more motivated and engaged learners to teachers and trainers;
provide more qualified and motivated workers to Canadian businesses that are increasingly challenged to find the talent they need to compete successfully;
save billions of dollars annually in support of people who have difficulty locating and maintaining suitable work roles; and
increase our international competitiveness and improve living standards in communities across the nation.
The OECD applauds Canada’s approach in its current 14-country Career Guidance Policy Review. After visiting Canada from July 2nd to July 10th, 2002 the OECD reviewers noted:
“The team identified the strengths of the career guidance system in Canada as including:
• the extent and quality of labour market information;
• the development of creative resources (like The Real Game);
• the development of strategic instruments (notably the Blueprint for Life/Work Designs and the Standards and Guidelines for Career Development Practitioners); and
• the creative support for public-private sector partnerships and for third-sector initiatives, both a national level and at local level.
In all of these respects, Canada is widely recognized as being a world leader, a position endorsed and reinforced by the two recent international symposia on career development and public policy (funded by Human Resources Development Canada and managed and coordinated by the Canadian Career Development Foundation).”
Momentum for the career management paradigm shift is growing among government departments, educational leaders, community agencies, business owners, career and employment counsellors, and human resource specialists. Their support will help close the gap between workers' skills and workforce needs. The looming skills crisis provides compelling reasons to redouble our commitment to helping many more people acquire knowledge age career management skills to assure increased prosperity for citizens and corporations, windfalls for governments and an even brighter future for our country.
ACKNOWLEDGEMENTS
The author is grateful for the contributions of many people to this paper, but in particular: Yves Boutot, National Life/Work Centre, Fredericton; Dr. Bruce Cassie, Ontario Institute for Studies in Education, North Bay, Ontario; Susan Deruelle, Nova Scotia Community Services, Sydney; Nova Scotia; Rich Froeschle, Texas Career Resource Network, Austin, Texas; Robert Goguen, National Life/Work Centre, Montreal, Québec; Dale Gullekson, Elk Island School Division, Edmonton, Alberta; Helen Hackett, Arcadia Works, Ottawa, Ontario; Vicki King, California Career Resource Network, Sacramento, California; Carol Kososki, South Carolina Occupational Information Coordinating Committee, Columbia, South Carolina; Paul Lukaszek, BC Ministry of Education, Victoria, British Columbia; Marie Lapointe, National Life/Work Centre, Ottawa, Ontario; Dr. Roberta Neault, Life Strategies Ltd, Coquitlam, British Columbia; Juliette Noone-Lester, formerly ED of the National Occupational Information Coordinating Committee, Washington, D.C.; Dave Redekopp, Life Role Development Group, Edmonton, Alberta; Gunter Rochow, CAPRA International, Cumberland, Ontario; Dr. Mark Savickas, Northeastern Ohio Universities College of Medicine, Rootstown, Ohio; Rob Straby, Life Works by Design, Elora, Ontario; Lee Wallace, Car-Ed Consulting, Ottawa, Ontario; Dr. Tony Watts, OECD, Paris, France; Jessi Zielke, BC Career Education Society, Vancouver, British Columbia.
Prosperity for Citizens, Windfall for Governments
Phillip S. Jarvis
Vice-President, Partnership Development
National Life/Work Centre, Ottawa, Canada
ABSTRACT
Canada is on the verge of a workforce crisis from which, paradoxically, it could emerge with citizens enjoying a higher standard of living, and governments and corporations enjoying both increased revenues and reduced expenditures. Needed is a career management paradigm shift to help citizens navigate the new work environment. The industrial age vocational guidance mindset that still prevails simply isn’t working for too many people, and the costs in both financial and human terms are intolerable. A cornerstone of the paradigm shift is Blueprint for Life/Work Designs, a new national framework of competencies (skills, knowledge and attitudes) citizens of all ages need to be self-reliant career managers.
Momentum for the career management paradigm shift is growing among government departments, educational leaders, community agencies, business owners, career and employment counsellors, and human resource specialists. The looming skills crisis provides compelling reasons to redouble our commitment to helping many more people acquire knowledge age career management skills to assure increased prosperity for citizens and corporations, windfalls for governments and an even brighter future for our country.
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The economy of the 21st century will need workers who are lifelong learners, who can respond and adapt to change. Canada’s labour market programs must be transformed to meet this challenge. - Speech from the Throne
The knowledge economy is changing the way people work. New labour market entrants can expect to experience a succession of jobs in a number of industry sectors during their working lives. They may have concurrent part-time jobs at one time, and no paid work at other times. Work periods will be interspersed with periods of learning, either full- or part-time, perhaps while working at one or more jobs. Krumboltz and Worthington(1999, 4, 312-325) describe a future where “ . . . there will be more of a need for worker flexibility as worker requirements change more frequently and new teams are formed to work on specific projects. Workers will increasingly be expected to move from project to project doing whatever work needs to be done, and not merely to fulfill a written job description.” That future is here. Project-based work is the norm in more and more public and private sector organizations across the country.
At the same time, our workforce is changing drastically. Knowledge Matters: Skills and Learning for Canadians (2002, 7-8), the recent discussion paper from Human Resources Development Canada, describes the challenges:
• First, the knowledge-based economy means an ever-increasing demand for a well-educated and skilled workforce in all parts of the economy and in all parts of the country….
• Second, there is a looming demographic crunch that will exacerbate these skills shortages….
• Third, our learning system must be strengthened if we are to meet the skills and labour force demands of the next decades.
We need more highly skilled workers, yet our workforce is shrinking. Half the 2015 workforce is already working. By 2011 immigration will account for all net workforce growth. In all sectors, it is more important than ever that Canadians connect with the best possible learning and work opportunities. Yet too few education and training institutions teach career management skills, and most companies of 50 or fewer workers have no employee training and development or human resource services. Thus, most adults make career choices unassisted, without the benefit of professional support, and without having learned career management skills they need to succeed.
The Key: Choosing Wisely
The key is helping students and adults choose education and training, and work that serve both their needs and those of our evolving workforce. The challenge is to help youth and adults learn how to choose wisely and commit to on-going self-improvement for the rewards of satisfaction and self-fulfillment in the near-term and contingency planning in the longer-term. Most youth are not sure how to make good career decisions, and they are not clear, even just prior to graduation, what they want to do when they enter the workforce. The majority of students do not proceed directly from secondary to post-secondary, in spite of projections that most work in coming years will require some post-secondary qualification. Of those youth who go directly to college or university programs, not to mention apprenticeship or trades training, nearly half change programs or drop our by the end of their first year. Of those who graduate, 50 percent will not be in jobs not directly related to their programs of study two years after they graduate.
In the words of Richard Froeschle (2003), Career Resource Network Director with the Texas Workforce Commission, "…labor market and career information is to students and job seekers what market research data is to business – invaluable.” High quality, current and comprehensive information is more important in today’s workplace than ever, but it’s not enough. Special career management skills are needed to use available information effectively to make sound choices. People need skills that give them legitimate confidence in their ability to construct fulfilling lives. They need:
• focus, on who they are, what they have to offer, and what is important to them;
• direction, knowing their options, what appeals to them, and how to qualify for suitable learning and work opportunities;
• adaptability, the skill of making the best of ever-present change; and
• healthy self-esteem and self-knowledge, to counter uncertainty and doubt.
These are all career management skills, and they cannot be learned solely from printed publications and websites. Human support in the learning process is essential, as it is during times of voluntary and involuntary career transitions. In fact, most adults with good career management skills did not learn them from institutionalized education and training programs. They were fortunate enough to have parents, relatives, teachers, bosses or other mentors who modeled successful life and career management skills, and encouraged, perhaps even at times prodded them throughout their learning process.
The New Career Management Paradigm
The knowledge economy demands a new approach to career development. Too many youth do not have the good fortune of enjoying ready access to good mentors in their home situations. Even in two-parent families, both adults are often so focused on “making ends meet” they cannot give to their children the time, energy and support they would like. Indeed, most parents were never taught the contemporary career management skills their children now need.
Mastery of career management skills cannot be left to chance. It needs be part of mainstream primary, secondary and post-secondary education programs, employee training and development programs and remedial programs for adults in career transitions. Acquisition of these skills increases likelihood of workplace success, and success in relationships, family and community. An investment in helping more citizens master these skills will provide a multi-faceted return on investment, add relevance to the learning experience, and benefit both individuals and society.
The traditional vocational guidance paradigm expected young people to make an informed, long-term career choice before graduating from high school. Yet, when adults are asked if they are now doing what they expected to be doing when they graduated less than 10 percent (teachers and nurses excepted) raise their hands. The evidence suggests only a small minority of us is able to identify a “calling” at a young age.
The vocational guidance model was primarily about helping people make an informed occupational choice, and went as follows:
1. Explore one’s interests, aptitudes, values, etc. (often with tests and professional help)
2. Explore the world of work (occupations)
3. Determine a “best fit” occupation by matching personal traits to occupational factors
4. Develop a plan to obtain the prerequisite education and training
5. Graduate, obtain secure employment, work hard, climb the ladder
6. Retire as young as possible on full pension
Steps 1 through 4 apply to the new career management model as well, although the terms work role, cluster or industry sector may be substituted for occupation. Contemporary workplace realities, however, now make these steps recurrent, and increase the need for career and labour market information and support services. Step 5 is no longer assured, and step 6 will only occur for those who learn career management skills, including financial planning skills and self-discipline.
The career management paradigm is not so much about making the right occupational choice as it is about equipping people with the skills to make the myriad choices necessary throughout their lives to become healthy, self-reliant citizens, able to cope with constant change in rapidly changing labour markets and maintain balance between life and work roles. Cornerstones of the career management paradigm are the “high five” principles:
1. Know yourself, believe in yourself and follow your heart.
2. Focus on the journey, not the destination. Become a good traveler.
3. You’re not alone. Access your allies, and be a good ally.
4. Change is constant, and brings with it new opportunities.
5. Learning is life-long. We are inquisitive by nature, and most alive when we’re learning.
Those who master career management skills and follow the high five principles are more likely to find satisfying and fulfilling work in the knowledge economy, and prosper. Regrettably, most educators, corporate executives, legislators and policy makers, community leaders, workers, parents and children are still encumbered by a vocational guidance mindset.
The catch phrase of the old paradigm, "What do you want to be when …?" focuses on destination, and loses relevance in a world in which most workers will experience regular job, even industry changes. It is no longer realistic, if it ever was, to expect young people to choose an occupation for life. Indeed, educators, spouses and parents who do not fully comprehend the new work world often create undue stress for those they are trying to help. Many adults, for instance, feel young people are failing somehow if they cannot land a “permanent” job soon after graduation. In fact, permanent, secure jobs are simply becoming scarce, particularly for youth. At the same time, there are more interesting and rewarding work opportunities, albeit in less permanent packages, than ever before.
In the career management paradigm the question, “What do you want to be when … ?” is replaced by questions like:
“Who are you now, and what do you love to do?”
“What are your specials talents and skills?”
“What types of situations, environments and work roles have special appeal for you?”
“What types of organizations need what you can offer?”
“What innovative work arrangements will suit you and potential employers?”
“People don’t succeed by migrating to a ‘hot’ industry. They thrive by focusing on who they really are – and connecting to or creating work that they truly love (and, by doing so, unleashing a productive and creative power that they never imagined). Companies win when they engage the hearts and minds of individuals who are dedicated to answering their life question.” People who love what they do are more productive. In the words of Yahoo chief solutions officer Tim Sanders, "Over and over again, I've discovered that the businesspeople who are the busiest, the happiest, and the most prosperous are the ones who are the most generous with their knowledge and their expertise. People who love what they're doing, who love to learn new things, to meet new people, and to share what and whom they know with others: these are the people who wind up creating the most economic value and, as a result, moving their companies forward."
Tests seldom answer people’s life questions, and certified professionals are not needed to ask them. The career management paradigm puts control, and responsibility, in the hands of the individual, not in tests, computer systems or specialists. To be fully in control of their own lives, people need to learn career management skills just as they learn math, science, language or technical skills. Career development is now an on-going, learning process for all rather than an occasional counselling process for the few “who need help.” All staff can contribute to the career management learning process, as can parents, spouses and any one else who knows and cares about the individual. As resident career experts, counsellors and practitioners who understand the new paradigm become pivotal players in the paradigm shift in their organizations, playing vital coaching, mentoring and coordinating roles for the learners and for those assisting in the learning process, rather than increasingly being relegated to the periphery in declining numbers.
The workplace of the knowledge era is a radically different place at the beginning of the 21st century than that of the 20th century. Over 95 percent of Canadian businesses have fewer than 50 employees. 750,000 have fewer than 5 employees. Self-employment, particularly among aging baby boomers, is growing. Even in larger organizations, the notions of self-employment and working for customers and clients have replaced working for a boss. Doing what you are told to do and following set procedures are now balanced with encouragement to invent new solutions to getting the job done and to serving customers and clients better. Just being responsible for your job has been replaced by pressure to be a good team player and help the team continuously learn and improve. Respect used to be accorded to position. It is now earned by people, at any level in the organization, on the basis of their contribution, commitment to learning and growing and their willingness to help others improve.
What is emerging is a new language register. The new terms denote concept shifts, not just “vernacular du jour.” They are occurring at different rates in different regions and sectors of society indicative of a global career management paradigm shift that is traced in the chart on the following page.
Old Paradigm New Paradigm
General
Office Virtual space
Success = career ladder Success = valued skills
Authority Influence
Manager/Management Leader/Leadership
Entitlement Marketability
Loyalty to company Loyalty to work and self
Salaries and benefits Contracts and fees
Job security Personal freedom and control
Identity = job, position, occupation Identity = contribution to work, family and community
Attention to bosses and managers Attention to clients and customers
Employees Vendors, entrepreneurs, team members
Retirement Self-employment – 2nd career
Private Sector/Employers
Social Contract At-Will Workforce
Mass Production Customization
Industry Knowledge Consumer Pull
Cost Reduction Revenue Growth
Vertical Integration Outsourcing
Incumbent Workers Contingent Workers
Retail Stores “E-tailing”
Bureaucratic organization Shared Vision and Mission
Local Labour Supply Global Labour Competition
Jobs as Continuous Duty Project Orientation
Job Security Employment Resilience
Job Description Task/Duty Statements
Public Sector/Education
Entitlement Personal Responsibility
Employment Service One Stop Co-Location Centers
Worker Training Work First-Welfare Reform
Job Qualifications Skills Standards
Occupational Titles Skills Clusters
Diploma or Degree Skill Certification
Degree Attainment Non-linear Perpetual Learning
Recruitment Informed Choice
Academic Calendar Open entry/Open exit
Semester Courses Discrete Learning Events
Carnegie Unit/Seat Time Competency Demonstration
Bricks and Mortar Distance Learning
School Teacher Learning Coach
Career Guidance Career Development/Building/Management
Process/Peer Review Outcomes/External Evaluation
Evaluation Impact Assessment/Provide Evidence
Mainframe Computers Internet Connectivity
Keepers of Knowledge Democratization of Knowledge
As technologies and skill requirements change, demand for workers changes. Workers need to be able to follow occupational and industrial trends, observe where job growth or decline is likely to happen and position themselves to adjust to the trends. The fastest growing category of companies is the smallest ones, which have the greatest failure rate. Larger companies are being merged, downsized, split up, re-engineered, or bought out. Job security is no longer a given for anyone at any level in any organization, and it has become an individual matter. Workers need to prepare themselves for periodic job loss and the inevitable loss of income. The very notion of “job” is shifting dramatically. In most contemporary settings those who say "That’s not my job!" won’t have a job for long! Workers are seeking meaning, purpose and fulfillment from their work roles, not just paycheques.
Career is increasingly being viewed as something every human has, for a lifetime. Outdated definitions of “job” and “occupation” remain cornerstones of too many guidance processes and post-secondary education and training offerings. “Work is now defined not by occupational titles or categories, but by skills and values. Effective career builders know how to shape and build their careers, project by project. This is a new competency, still largely unrecognized by most adults in the workforce.”
It’s becoming acceptable, even desirable, to have one’s “eggs in more than one basket.” More and more people are experiencing satisfaction, feeling stimulated, garnering respect, acquiring wealth and freedom by brokering portions of their time and skills to multiple organizations in creative new work “packages.” Security derives from the knowledge that should one contract end abruptly, others are still in place. As companies do not pay benefits and can initiate and terminate contracts easily, they are willing to pay more. (“We can pay you $500 per day for 10 days every three months, but we can’t offer you a full-time job”). Self-employed workers who deliver reliable, high quality service often find more employers want more of their time. To succeed, self-employed workers in atypical, contract work arrangements need to have specialized, in-demand skills, be aware of their value to specific employers, and be able to market themselves effectively. This engagement with contingent work demands a high level of self-knowledge and self-confidence, both of which are career management skills.
The more education and skills a person has, the greater the likelihood of securing work, earning a good income, and remaining employed. High school dropouts have an unemployment rate of more than 18 percent, compared with 7 percent for those with a university degree. Over the next five years, occupations that require less than high school education will account for less than 6 percent of new job opportunities. More than 70 percent of new jobs will require at least some post-secondary education. The main activity of 61 percent of respondents in a recent British Columbia survey in their first year after high school was attending school full time or part time. Thus, 39 percent were rejecting advice from “the system,” their teachers and their parents.
Society expects people to select an occupational goal then pursue the prerequisite education and training. While preparing to enter the workforce they are graded on acquisition of academic and technical skills, not career management skills, despite constant pleas from employers to teach “employability skills.” While academic and technical qualifications open doors, career management skills largely determine selection, success and advancement. Those who can describe the skills they bring to an organization to help it achieve long-term success, in whatever combination of or packaging of roles, are in greater demand. The key in the workplace as in life is not just finding the right job, friend or life partner: it’s becoming the right worker, friend or life partner.
“Increasingly, career development is about leadership. It’s about the personal leadership required to take action, take risks and learn new skills. It’s also about the leadership required to help others develop, grow and learn. Creating things that don’t yet exist is now part of career development, not just choosing among existing options. Preparedness for an environment that does not yet exist is key to adaptability, and leadership – therefore, it’s key to career management.”
Over the past quarter century disparities in earnings from employment have widened. The well paid have experienced earning gains, while market incomes at the low end of the spectrum have stagnated or even declined. Almost two million adult Canadians work for less that $10 an hour – about one in six employed people. These jobs do not pay enough to support a family, yet workers face barriers to advancing their incomes. Workplace barriers occur because employers concentrate more on controlling payroll costs than on productivity growth and development of skills. The prevalent assumption that money is the shortest route to freedom and happiness is flawed, as so many stressed professionals have discovered. In fact “the shortest route to the good life involves building the confidence that you can live happily within your means while doing work you truly love.”
The new career management paradigm recognizes that career development is a life-long process of skill acquisition and building through a continuum of learning, development and mastery. This process enables people to be in charge of their own career, with enough focus and direction for stability and enough flexibility and adaptability for change along the way. Career management equips people to make good choices throughout their lives. The aim is to help people become self-reliant, allowing them to enjoy personal satisfaction and fulfillment while contributing as fully as possible to our ever-changing society. Failure to do so will be costly. In fact, it already is.
Costs ands Savings
Many workers go through their entire working lives without focus or direction. They fall into employment without preparation and planning. The old paradigm has not worked for them. Many spend 50 percent of their conscious lives in work settings they don’t like. Some take out the stresses of the work day on family members, seek relief in alcohol or substance abuse, and have little energy left for anything other than passive, inert escapes like watching television. The loss of productivity and the waste of human capital are palpable, whether measured in training costs or unrealized human potential. Unquestionably, this sort of investment by both the public and private sectors yields an unacceptable return.
Most Canadians are proud of the social systems and infrastructure we have put in place to ensure as many citizens as possible, young and old, enjoy one of the highest living standards in the world. We invest heavily to support individuals, groups and regions in need. We accept higher taxes than most countries to ensure a better quality of life for more of our citizens. The vast majority of the expenditure items discussed below are essential infrastructure costs, well invested. The numbers are so large, however, that minuscule elements of “slippage” equate to sums large enough to make a real difference to governments, corporations and communities. Fallout from gaps between people’s skills and workforce needs reduces the return on investment we rightly expect from education, health care and social services investments. It also represents lost revenues to governments and lost competitiveness to businesses.
Lost Productivity and Reduced International Competitiveness
For businesses and for our economy, productivity is the key to competitiveness. We rely on the productivity of our workforce to keep us competitive in the global marketplace. If we increase our productivity, our entire economy and social structure benefit. If productivity slips we all lose, and we all pay.
Variability in employee productivity influences the economics of an organization. Employers who can select more congruent (right person in the right job) employees from a better applicant pool have a distinct advantage over their competitors. After conducting a meta-analysis of 85 years of research on personnel selection, Schmidt and Hunter (in press) conclude that person-job congruence benefits the worker, the company, and the nation. In Po Bronson’s words, “We are sitting on a huge potential boom in productivity – if we could just get the square pegs out of the round holes.”
Our annualized Gross Domestic Product as of the second quarter of 2002 was $1,138.2 billion. A 1 percent increase in productivity would have resulted in an increase of over $11 billion in goods and services in 2002. Better mechanisms for helping people connect with work roles they like and in which they excel can have profound ramifications for our society. A modest 1 percent increase in productivity through better matching of individuals’ skills and workforce requirements could generate as much as $10 billion annually in increased gross domestic production. Imagine, over time, a 5 or 10 percent increase in productivity across the country. Any generalized gain would favourably impact our international balance of payments and would be felt in standard of living improvements in communities across the country.
Education Funding
$64.1 billion was invested by all levels of government across the country in the past year on primary, secondary and post-secondary education. Our education systems are among the best in the world. Nonetheless, too many students are floundering or unsure why they are learning what they are learning. Many more cannot decide what programs they should be in. Many change programs, underachieve or drop out. Some extend their education because they are reluctant to move on. Most students do not fully understand the diversity of work roles that match their academic and technical skills. Only a few students are acquiring and mastering the skills of personal management, work and learning exploration, and career management they will need to complement their academic and technical skills in becoming self-reliant career managers beyond graduation. Effective career management programs would help youth develop these skills and gain greater focus and direction. While we might hope to do better, even a 1 percent increase in efficiencies through having more students learning what they are motivated to learn translates to $600 million annually being better invested.
Health Care Funding
Those who are unemployed or in work roles they dislike are subject to increased stress, have increased likelihood of unhealthy lifestyles, and may be more prone to substance and physical abuse. Good jobs foster mental health whereas poor jobs cause distress (Loscocco & Roschelle, 1991) . For instance, in a September 2002 Ipsos-Reid survey for the Globe and Mail and CTV , one in six adults surveyed (17%) said there has been a time in their life when they’ve been under so much stress that they’ve wanted to commit suicide. The main causes of stress cited by survey respondents were associated with their job or work (43%) and their finances (39%).
Over $76.9 billion was invested by all levels of government in the past year on health care. If only 1 percent of the people now availing themselves of health care services require them directly or indirectly as a result of inability to find and keep work they like, nearly $800 million annually could be saved. If the actual percentage is higher, say a modest 5 percent, this equates to $4 billion annually. Some or all of this could be invested in improved health care services for all citizens.
Social Services
In societies committed to improving living standards for all citizens, the term “social inclusion” has received increased attention in recent years. To be included is to be accepted and to be able to participate fully within our families, our communities and our society. Those who are or perceive themselves to be excluded, whether because of poverty, poor health, gender, race, or lack of education or skills, do not have the opportunity for full participation in the economic and social benefits of society.
Anna Diamantopoulou, European Union Commissioner for Employment and Social Affairs, points out that social inclusion makes good economic sense. Her Commission estimates that social exclusion costs between 12% and 20% of the GDP of the European Union member states. If our situation is similar, these percentages translate to social exclusion costs here of $136 to $228 billion annually. The EU regards the fight against social exclusion as a worthwhile investment and has committed 27 billion euros to the Social Fund for the period from 2000-2006.
In Canada, $113 billion was invested by all levels of government in the past year on social services, including social assistance and welfare. Inability to locate and maintain suitable and fulfilling learning and work opportunities is a contributing factor for some recipients. Significant savings could accrue if more citizens possessed the skills they need to self-reliantly plan and manage their careers and constructively address change. For example, a modest 1 percent saving on these expenditures would generate over $1 billion annually.
Protection, Prisons and Corrections
Over $15 billion was invested by all levels of government in the past year on “protection of persons and property,” including policing, prisons and correctional services. One might expect that a contributing factor in the case of some law-breakers and detainees is their inability to connect with appropriate life and work roles. A 1 percent improvement in helping more of these youth and adults acquire career management skills, become hopeful about their future and achieve increased self-reliance, could generate savings of $150 million annually.
Employment Insurance
Human Resources Development Canada paid a total of $9.5 billion in the year ending March 31, 2001 to about 650,000 EI Income Benefits Program recipients, who received an average of 18.5 weeks of payments. For workers in seasonal situations or those subjected to economic forces beyond their control, this income support is invaluable. Some recipients, however, are searching for work they feel suits them. If more in these circumstances were able self-reliantly to manage their work and learning opportunities and to move from one work role to another as needed, EI payments would decrease. A 1 percent improvement in this category would result in savings to the EI fund of about $100 million annually.
Lost Government Revenues
Over $432 billion was collected by all levels of government in the past year in income taxes (individual and corporate), property taxes, consumption taxes, health premiums, social insurance contributions, etc. If more Canadians were able to connect with steady work they like, all levels of government could anticipate increased revenues. A 1 percent improvement here would generate over $4 billion annually in increased government revenues. A 5 percent improvement would yield a $20 billion annual windfall for all levels of government.
The ability of our citizens to make effective connections to meaningful work is the underpinning of improvement in each of these areas. Excellent career, learning and labour market information and mastery of career management skills can help them make these connections. If even a small percentage of our citizens increase their mastery of career management skills, the savings can be enormous. Consider the impact on our economy and society of freeing up that amount of money, no matter how it might be redirected!
What is Needed?
How do we attain the improvements suggested above and the savings that come with them? Some of the necessary tools are already in place. What is needed is a concerted effort to use the tools now in place effectively and in concert with each other, to increase understanding of the necessity of this paradigm shift and to help as many people as possible increase their mastery of career management skills. We need programs and resources based on clear career management learning and performance outcomes. We need a comprehensive accountability infrastructure for this proposed career management paradigm shift. We need a means by which career practitioners, counsellors, educators and human resources specialists can easily select resources based on the outcomes they want to achieve with their clients and the skills they wish to build. We need a common map or framework of career management skills to see the linkages, or overlaps, between programs, and to identify gaps in existing programs and services. We need a common language of career management so there is no ambiguity or confusion among career practitioners, employment counsellors, educators and human resources specialists and the public. Like the health and fitness culture of the “Participaction” and non-smoking movements, we need a new, national career management culture.
Pioneering work on a national career management skills framework began in the United States in 1988, under the leadership of the National Occupational Information Coordinating Committee (NOICC) and its network of 58 State Occupational Information Coordinating Committees (SOICCs). The process of adapting what became the U.S. National Career Development Guidelines for Canada began in 1998, lead by the National Life/Work Centre in concert with the Canada Career Information Partnership , with support from Human Resources Development Canada. The result is Canada’s Blueprint for Life/Work Designs. Thousands of American and Canadian career practitioners, employment counsellors, educators, human resources specialists and researchers have spent fourteen years developing, piloting, evaluating, revising and implementing this North American career management skills framework.
The Blueprint identifies core career management competencies with associated performance indicators for each competency at four developmental levels across the lifespan. The core competencies are the basis upon which career development programs can be designed. The performance indicators, which are organized by learning stages, can be used to measure learning gains and demonstrate the effectiveness of such programs.
Competencies and performance indicators are arranged under three key headings:
Area A: Personal Management
1. Build and maintain a positive self-image
2. Interact positively and effectively with others
3. Change and grow throughout ones' life
Area B: Learning and Work Exploration
4. Participate in life-long learning supportive of life/work goals
5. Locate and effectively use life/work information
6. Understand the relationship between work and society/economy
Area C: Life/Work Building
7. Secure or create and maintain work
8. Make life/work enhancing decisions
9. Maintain balanced life and work roles
10. Understand the changing nature of life and work roles
11. Understand, engage in and manage one's own life/work building process
These competencies include the employability skills employer groups suggest are lacking in too many prospective employees, particularly youth. In fact, work habits and attitudes strongly influence early adult earnings, so educational and training programs need to emphasize work behaviours as much as they emphasize job skills. Self-reliance grows out of the acquisition of these skills.
The Blueprint recognizes that people at different ages and stages learn differently, and that even young children can learn and appreciate the Blueprint competencies. In fact, we know that attitudes toward work are formed early in life, so workforce and vocational guidance policy should take a developmental perspective. Vocational psychologists such as Super, Crites, Gribbons, and Lohnes have each concluded from their longitudinal studies that planful competence in early adolescence relates to more realistic educational and vocational choices, occupational success, and career progress . For this reason, the Blueprint's core competencies are defined for four developmental levels:
Level 1: Primary/Elementary School
Level 2: Junior High/Middle School
Level 3: High School
Level 4: Adult, including Post-secondary
There are performance indicators for each competency, at each level, organized by "learning stages." For example, the performance indicators for Competency 5 at Level 3 are:
Competency 5 – Level 3 (High School)
Locate, interpret, evaluate and use life/work information
Learning stage a: Acquisition
5.3 a1 Explore the educational and training requirements of various work roles.
5.3 a2 Discover how key personnel in selected work roles could become ideal information resources and/or role models.
5.3 a3 Explore how trends and work opportunities in various economic/industry sectors impact the nature and structure of work roles.
5.3 a4 Explore how employment and workplace trends impact education and training scenarios.
5.3 a5 Understand how a variety of factors (e.g., supply and demand for workers, demographic changes, environmental conditions, geographic location) impact work opportunities.
5.3 a6 Understand how labour market information (profiles, statistics, etc.) should be used when making life and work decisions.
5.3 a7 Explore a variety of work alternatives (e.g., full employment, multi-tracking, contracting, consulting, self-employment, entrepreneurship).
Learning Stage b: Application
5.3 b1 Use career information resources such as career monographs, occupation classifications systems, labour market information, mass media, computer and Internet-based career information delivery systems to educate oneself to the realities and requirements of various work roles.
5.3 b2 Consult key personnel in selected work roles as information resources, role models and/or mentors.
Learning Stage c: Personalization
5.3 c1 Determine, according to one’s preferences, the advantages and disadvantages of various work alternatives (e.g., full employment, multi-tracking, contracting, consulting, self-employment, entrepreneurship).
5.3 c2 Assess life/work information and evaluate its impact on one’s life/work decisions.
Learning Stage d: Actualization
5.3 d1 Improve one’s strategies to locate, interpret, evaluate and use life/work information.
The Blueprint provides the basis for setting the learning outcomes, establishing performance standards, and measuring success in any public or private sector agency in the career development business. It’s a foundation piece of the new career management paradigm, and implementation is well underway.
Many provincial and territorial ministries of education, human resources and employment, community services and others are adopting the Blueprint as the foundation of their career management programs or imbedding its competencies into their own guidelines. Career resources, programs, curricula and services from public and private sector organizations, large and small, are being coded to the Blueprint competencies and performance indicators. Free Blueprint Orientation and Leadership Sessions are being offered across the country to develop local Blueprint Facilitators to teach educators, career and employment counsellors and human resources specialists to make effective use of the Blueprint and its support materials.
Organizations across the country are contributing to the career management paradigm shift in different ways. For example, the Conference Board of Canada’s Employability Skills 2000 , Human Resources Development Canada’s Essential Skills , and the Workinfonet national partnership of career, learning and labour market information Internet gateway sites are making important contributions. The Canada Career Consortium , Industry Sector Councils, Canada Career Information Partnership , Career Circuit , Canadian Career Development Foundation, and National Life/Work Centre are as well. The National Career Development Standards and Guidelines for Career Practitioners is a complementary competency framework for career and employment counsellors and career practitioners. The Real Game Series, now in thousands of schools from coast-to coast, provides national curricula to teach career management skills in educational and community settings. The Blueprint provides a map of the career management terrain by which these and many other contributions of large and small, public and private sector organizations across Canada can be plotted and tracked.
Conclusion
School-to-work transition and workforce development initiatives have failed too many citizens because career management skills have not received the curricular focus that academic and technical skills receive. Career theorists provide clear and unequivocal evidence to demonstrate the need to imbed career management skills in all education and training programs and services designed to help people succeed in the employment market of the future. Implementing career-relevant programs that integrate the Blueprint career management skills and accountability procedures will:
help more youth and adults become satisfied, fulfilled, self-reliant, contributing and prosperous citizens;
bring more motivated and engaged learners to teachers and trainers;
provide more qualified and motivated workers to Canadian businesses that are increasingly challenged to find the talent they need to compete successfully;
save billions of dollars annually in support of people who have difficulty locating and maintaining suitable work roles; and
increase our international competitiveness and improve living standards in communities across the nation.
The OECD applauds Canada’s approach in its current 14-country Career Guidance Policy Review. After visiting Canada from July 2nd to July 10th, 2002 the OECD reviewers noted:
“The team identified the strengths of the career guidance system in Canada as including:
• the extent and quality of labour market information;
• the development of creative resources (like The Real Game);
• the development of strategic instruments (notably the Blueprint for Life/Work Designs and the Standards and Guidelines for Career Development Practitioners); and
• the creative support for public-private sector partnerships and for third-sector initiatives, both a national level and at local level.
In all of these respects, Canada is widely recognized as being a world leader, a position endorsed and reinforced by the two recent international symposia on career development and public policy (funded by Human Resources Development Canada and managed and coordinated by the Canadian Career Development Foundation).”
Momentum for the career management paradigm shift is growing among government departments, educational leaders, community agencies, business owners, career and employment counsellors, and human resource specialists. Their support will help close the gap between workers' skills and workforce needs. The looming skills crisis provides compelling reasons to redouble our commitment to helping many more people acquire knowledge age career management skills to assure increased prosperity for citizens and corporations, windfalls for governments and an even brighter future for our country.
ACKNOWLEDGEMENTS
The author is grateful for the contributions of many people to this paper, but in particular: Yves Boutot, National Life/Work Centre, Fredericton; Dr. Bruce Cassie, Ontario Institute for Studies in Education, North Bay, Ontario; Susan Deruelle, Nova Scotia Community Services, Sydney; Nova Scotia; Rich Froeschle, Texas Career Resource Network, Austin, Texas; Robert Goguen, National Life/Work Centre, Montreal, Québec; Dale Gullekson, Elk Island School Division, Edmonton, Alberta; Helen Hackett, Arcadia Works, Ottawa, Ontario; Vicki King, California Career Resource Network, Sacramento, California; Carol Kososki, South Carolina Occupational Information Coordinating Committee, Columbia, South Carolina; Paul Lukaszek, BC Ministry of Education, Victoria, British Columbia; Marie Lapointe, National Life/Work Centre, Ottawa, Ontario; Dr. Roberta Neault, Life Strategies Ltd, Coquitlam, British Columbia; Juliette Noone-Lester, formerly ED of the National Occupational Information Coordinating Committee, Washington, D.C.; Dave Redekopp, Life Role Development Group, Edmonton, Alberta; Gunter Rochow, CAPRA International, Cumberland, Ontario; Dr. Mark Savickas, Northeastern Ohio Universities College of Medicine, Rootstown, Ohio; Rob Straby, Life Works by Design, Elora, Ontario; Lee Wallace, Car-Ed Consulting, Ottawa, Ontario; Dr. Tony Watts, OECD, Paris, France; Jessi Zielke, BC Career Education Society, Vancouver, British Columbia.
Changing the Emergency Management Paradigm:
Changing the Emergency Management Paradigm:
A Case Study of San Jose, California
Frances Edwards-Winslow, Ph.D., CEM
Director, Office of Emergency Services
The Third Model: Civil Defense
Two models of emergency management have been explored by Michael Selves in his article “Local Emergency Management: A Tale of Two Models.” While smaller cities and newer communities may recognize only these two models, the older cities of the United States have in many cases operated under a third, much older model, that of Civil Defense, bypassing the “emergency services” model Selves describes. During World War II there was a real concern about invasion of the American mainland. In fact, rubber boats of German soldiers infiltrated portions of the Atlantic Coast, and coastal Pacific communities maintained a watch on their coasts.
In 1941 President Franklin D. Roosevelt established the Office of Civil Defense, linked to 44 state and 1,000 local civil defense councils. The Civil Defense Corps coordinated approximately 10 million volunteers “to provide shelter instruction, camouflage vital facilities, develop evacuation readiness, and other services.” The Civil Defense function brought residents into active partnership with local municipal governments. In some cases these activities were related to the Police or Fire Departments, but in many cases they were volunteer groups connected to the executive function. Being an Air Raid Warden was socially and politically prestigious in many communities. Blackout curtain patrol and home survival lectures were the stock-in-trade of these resident-staffed volunteer groups.
When World War II ended Civil Defense at the federal level was reorganized into a Civil Defense Board within the War Department. In 1948 the Office of Civil Defense Planning evaluated the need for a national program. By 1950 the Federal Civil Defense Act provided for federal assistance: “to provide the states and their political subdivisions with guidance, coordination and assistance, training and matching grants on a fifty-fifty basis for the procurement of supplies and equipment,” and a sheltering and evacuation program. Civil Defense was still seen as an element of the military, and was often run by retired military personnel at the local level.
Master Mutual Aid Agreements
In the context of Civil Defense planning, the public safety leaders of California realized that they were facing the Cold War with its own potential for disaster in the post-nuclear world. Examining the realities of war in Europe and Japan, firebombing and nuclear-induced fires were most often the agents of mass destruction. The images of Dresden, Coventry, Tokyo and large portions of London gave testimony to the havoc wrecked by fire. The horrific images of Hiroshima and Nagasaki reinforced the fear of nuclear devastation. The fire service in California joined together to create the Fire Service Mutual Aid Agreement. In this compact the fire chiefs of the state agreed to support each other in the event of wartime firestorms. Under the agreement personnel and equipment would be lent for one shift at no cost.
The horror of nuclear war taught Civil Defense leaders that “time, distance and shielding” were the only protections for the population from nuclear explosions. Therefore the federal Civil Defense structure developed the strategy for “crisis relocation planning:” evacuating the resident population of a threatened community to a more protected area with less potential as a target. In San Jose, for example, then an agricultural county seat town of less than 50,000, the plan was to relocate the population behind the coastal mountains in Stanislaus County or San Joaquin County.
Evaluation of population relocation demonstrated that the burden would rest on law enforcement. Police personnel would have to control traffic flow one way – out of town. This would require staffing roadblocks, deploying tow trucks and gasoline refueling vehicles along the route, and having in place a staff to protect the evacuated community from looters. Law enforcement officials in the state then created the Law Enforcement Mutual Aid Plan, designed to provide one shift of personnel and equipment to a threatened community at no cost.
Civilians Within Public Safety
Because of the developing involvement with police and fire over wartime response actions, Civil Defense was often moved into a public safety department, often supervised by a rotating mid-level sworn supervisor. The Civil Defense civilians were generally viewed as separate from the mainstream work of the host department. At the beginning there was federal funding for the Civil Defense positions, but over time the federal money shrunk to matching grant money, declining to 1/3 of the salary of the primary Civil Defense staff only. All the other costs, including facilities and supervision, were borne by the municipality. As the 1960’s progressed and the threat of nuclear war receded, Civil Defense was seen as competing for scarce resources with the host department’s primary and pressing missions: fire fighting and arson suppression, or crime prevention and civil unrest prevention.
The City of San Jose had an active Civil Defense Program from the early 1950’s. At that time the city had a population of less than 50,000 people and was the county seat of an agricultural community dominated by orchards and fruit canneries. The city’s role in providing civil defense services was highlighted when the federal government invested $250,000 in the construction of a bombproof emergency operations center (EOC), complete with air lock entrances, attack warning center, dispatching capabilities, and a framed photo of President Eisenhower. A metal map dominated one wall, with magnetic “icons” to facilitate damage assessment and evacuation planning. All communications lines were routed through sealed conduit to keep the outside air from entering. The concrete “bunker” was constructed above ground with air scrubbers and the facilities to support the EOC staff for weeks. It was reputed to be blast proof and safe from fallout and radiation. The Office of Civil Defense staff operated from that facility, coordinating the work of city departments to ensure continuity of government in the event of attack. The amateur radio volunteers were early co-occupants of the facility, ensuring a second method of communication, should the telephone system be damaged in an attack.
The role of the Civil Defense staff in war planning was clear from the amount of space dedicated to radiological issues. A large room was constructed external to the main bunker area that contained Cobalt 60 and Cesium radiological sources in a lead and concrete lined pit. Shelves were lined with radiological monitoring equipment and stacked with civil defense hard hats.
The City of San Jose had historically been a reporting station for the National Weather Service. When the bunker-style EOC was built a weather room was included. Since weather information, such as humidity and wind direction, was critically important to the management of any potential radiological emergency, custody and management of the weather station became an important part of the work of the civil defense staff members.
As the threat of war subsided and the likelihood of natural disaster was recognized, federal and state Civil Defense programs evolved to the “all hazards” approach to emergency management. Recognizing that floods and earthquakes were far more likely than Soviet invasion of San Jose, the work of the Civil Defense Office shifted to community preparedness education. During this time the name was changed to Emergency Services, and the civilian staff became part of the San Jose Fire Department. The emergency services staff began to be drawn from civilian analysts, who worked in various departments over a career.
The lead staff member was responsible for external relationships with the federal and state emergency management structures, and for obtaining continuing federal financial support for the program. The federal Emergency Management Assistance (EMA) funding supported one third of the salary of each emergency management staff member. The size of the staff to be supported was based on the federal formula: one professional staff member for each 100,000 community members and one support staff member for every three professionals. In addition grants were available for specified activities, such as acquisition of equipment or additional staff members. When San Jose joined the program with a population of about 200,000 the permanent staff consisted of a manager, an analyst II and a secretary. Federal funding was frozen at this staffing level and cost share.
The emergency management function appears to have been compatible with the work of the Fire Department in the beginning. Fire fighters traditionally delivered public education on fire prevention, evacuation drills, and personal fire safety. The emergency management staff delivered information on developing a personal preparedness capability for 72 hours of self-sufficiency. They worked with city departments to develop standard operating procedures for departmental roles in the EOC. Together with the City Attorney they crafted an emergency management ordinance that detailed the special powers of the City Manager during a declared local emergency.
Competition for Scarce Funds
The passage of Proposition 13 in 1978 forever changed the way local governments in California could raise funding for public programs. Proposition 13 set the taxable value of a home at the time of purchase, and set the tax rate as 1% of that purchase price. In future years, as long as the same owner remained in the home, the taxable value could rise no more than 2%. If property values should slide during a given year, however, the downward valuation of the properties is mandated before the tax bill is figured. This effectively froze the tax base of most communities, driving them to seek new construction and sales tax generators as the only way to increase the tax income of the community.
In communities without such tax limitations, the governing body determines which programs it wants to fund, then sets the tax rate. In California the governing body is presented with the maximum potential income for the community, and it must then divide the funds among the city’s services, creating an environment of competition among the departments, and among programs within a department.
Emergency Management As An Executive Function: All Hazards
In the 1980’s the State of California under Governor George Dukmejian developed the Governor’s Office of Emergency Services. Emergency management functions were gathered from various parts of the state organization and organized into the new office whose Director reported directly to the governor. The first Director was a National Guard general, embracing the military Civil Defense roots of emergency services. Units included fire, law, communications, public education and recovery. The State Warning Center for hazardous materials events and the Local Emergency Preparedness Councils were also part of Governor’s OES.
Following the Coalinga Earthquake of 1983 there was a renewed emphasis on individual and community preparedness for disaster events. The Bay Area Regional Earthquake Preparedness Project (BAREPP) and the Southern California Emergency Preparedness Project (SCEPP) brought together emergency managers, engineers and seismologists to develop knowledge that could be applied to community preparedness.
Growing out of the new emphasis on natural hazards preparedness, Governor’s OES developed a series of special public events, and created accompanying educational materials that were distributed to all local emergency management programs. In honor of the Great San Francisco Earthquake of 1906, the governor declares April as Earthquake Preparedness Month every year. Emergency management staff members across the state, whose salaries were supported by Federal EMA funding, were required to promote related events in their communities to qualify for continuing financial support. Directives from Governor’s OES began to include specific types of public events, programs and activities that had to be undertaken annually in order to qualify for the EMA staff support money. There was no new funding provided to support these activities. Cities now had to spend their own funds on supplies and equipment to support these new activities in order to continue receiving the federal EMA 1/3 salary match.
By the late 1980’s it was becoming clear that emergency management programs across the state were finding it difficult to keep up with the mandated work to keep the federal EMA staff support funds flowing. Annual exercises of EOC staff capabilities, participation in special events, and development of emergency operations plans all added costs to the original civil defense programs without any means of raising the supporting revenue. Local governments adopted a variety of strategies to deal with the problem. Many communities chose to drop out of the EMA program after determining that it was costing them more than they were able to recoup from the federal EMA program. Other cities transferred the emergency management function to a sworn police or fire staff member as a collateral duty. Reasoning that the officer was already being paid, the city would allocate the 1/3 salary funding to support the non-salary expenses of the program. Still others banded together into “joint powers authorities” and combined their staffs to create economies of scale. In these organizations the staff members were fulltime employees shared by several jurisdictions. For example, one emergency coordinator might oversee the emergency planning, training and outreach efforts of three or more communities within the JPA.
Some cities remained in the EMA program, but the host departments found the financial support of the annual campaigns and exercises difficult. As local revenue growth dwindled, and community demands for primary public safety services increased, the value of dedicated emergency management was questioned. Without the ability to raise new revenues for new programs, department heads looked to their core services, and emergency management became a costly stepchild. Positions were not paid in accordance with responsibility and staff was encouraged to simply meet the minimum EMA activity requirements rather than to develop a meaningful program of community preparedness.
The Paradigm Shift in San Jose
In 1984 the Morgan Hill Earthquake clearly demonstrated some of the deficiencies inherent in San Jose’s existing approach to community emergency preparedness. The City Council of San Jose created the Earthquake Preparedness Task Force, a committee of department heads to “plan a City-wide program to mitigate the loss of life and property, increase emergency response readiness and enhance the recovery of the community following a damaging earthquake.” The committee’s report found that emergency management in San Jose was inadequate on many levels. It decried the ancient EOC facility, the outdated emergency plan and the lack of community outreach efforts. It created a Five-Year Program and a Master Plan of individual tasks necessary to achieve a higher level of preparedness.
The 1988 Master Plan identified a number of action steps designed to address the deficiencies the committee discovered. Relationships with the public and the non-governmental elements of the community were emphasized. A staff of two analysts and a secretary was suggested to manage the development and implementation of a public education program that would include written materials, public presentations and the development of a video lending library. Media relations were also highlighted, with staff mandated to create a plan for training emergency public information officers, creating media messages, and obtaining appropriate equipment for the EPIO program.
Structural safety was another key element of the plan. Public Works staff evaluated city-owned buildings for seismic safety and began designing appropriate upgrades. Non-structural hazards in city facilities were also to be mitigated. The City Geologist was tasked to identify high risk areas for liquefaction and slope failures, and work with Planning Department staff members to develop appropriate land use regulations.
In 1989 the Loma Prieta Earthquake struck the Bay Area. San Jose was sheltered from the worst of the shaking by the Santa Cruz Mountains. However, the success of the response to the earthquake was not uniform because some of the deficiencies noted in the 1988 report persisted.
In 1990 a follow-up report was presented to the Committee of the Whole. It addressed “emergency management issues which were raised by events related to the October 17, 1989 Loma Prieta Earthquake….” The omnibus report covered a variety of issues in the areas of mitigation, preparedness, response, and recovery. In the final “General Emergency Management Issues” section it noted that one source of these problems was the placement of the emergency management function within the Fire Department, a department with other competing core services. Access to the city manager and governing body was exclusively through the fire chief, a department head who was fighting for budget for apparatus, personal protective equipment and fire prevention needs. Emergency management was not viewed as a core service of the department, and needed funding was not provided as a priority. “Considering the direct benefits which can be derived in eliminating these encumbrances, the City Manager is exploring the feasibility of transferring the Office of Emergency Services from the Fire Department into the City Manager’s Office organization.”
While the Office of Emergency Services was in the Fire Department, staff members in emergency services roles were drawn from administrative generalists within the city. Placement in emergency services was not viewed as career enhancing by most staff members. The staff members rotated through the emergency management positions without adequate advance training, and often with little opportunity to obtain formal training while on the job.
The windowless civil defense bunker did not provide an employee-friendly environment. Emergency management staff members felt isolated from other members of their own department, as well as from the broader city staff. The state of the art 1950’s facility had not been modernized and no longer met the needs for adequate phone and computer lines to serve the program. The civil defense metal desks and rolling chairs reinforced the staffs’ sense of being by-passed.
In 1990 the city opened the new Police Communications Building. The facility was designed to house the Police Garage, Police and Fire Dispatch, and the Emergency Operations Center. Offices for Office of Emergency Services (OES) staff members were designed as part of the EOC, with excellent telecommunications capabilities and windows. This marked a watershed in the development of the city’s Emergency Management Program.
Local Emergency Management As An Executive Function
Starting on July 1, 1990 the OES moved into the City Manager’s Office. Since under California law the city manager is the Director of Emergency Services, this placement provided an appropriate chain of command for OES staff. Funding of the program was also at the direct control of the Manager as part of his office budget. The interim role of Director of Emergency Preparedness was filled by senior staff members, who began to bring a new level of credibility to the new Office.
In June 1991 the City began the hiring process for a fulltime professional Director of Emergency Preparedness. An experienced emergency management professional was hired from Southern California to guide the formation of the new OES. As an Office Director the new OES Director had immediate access to all members of the City’s Senior Staff. As a member of the Senior Staff she was able to develop collegial working relationships with the other department heads based on a relationship of equals. Office development advanced quickly because of the direct reporting relationship to the Assistant City Manager.
Innovative programs included the completion of the emergency operations center with new technologies. San Jose had one of the first city-level EOCs with computers at every position, using emergency management software. Following the first two federally declared flooding disasters in 1995 the staff evaluated the system and adopted a new software suite from the Microsoft Office series. This kind of flexibility was possible because of the program’s placement in the organization.
OES nurtured the existing Radio Amateurs in Civil Emergency Services (RACES) program, bringing its 2002 membership to 140. Staff also created one of the first Community Emergency Response Team programs outside of a public safety department. With almost 1300 members in 2002, the San Jose Prepared! program has served the community well in floods, traffic accidents and house fires, and is now part of the President’s Community Corps initiative.
In addition to volunteer programs San Jose OES has taken the lead in physical mitigation efforts for the community’s building stock. After the Loma Prieta Earthquake an ordinance was passed to require the retrofit or demolition of unreinforced masonry buildings. In addition, a special assessment district was created to provide below market rate loans for owners who wanted to retrofit their buildings. The City also paid for portions of the pre-construction engineering work.
Later OES obtained Community Development Block Grant funding to partner with the San Jose State University College of Engineering on residential retrofitting. Phase I was a series of workshops for single-family homeowners on bolting and strengthening the wood frame home. Phase II was the creation of the “Apartment Owners Guide to Earthquake Safety” to enable owners to identify potentially dangerous buildings, with the goal of encouraging retrofit. Phase III was a partnership with the Housing Department to hire an engineering firm to create model retrofit plans for three generic multi-family building types, and to develop basic engineering documents and cost estimates.
These and other innovative approaches to community safety were made possible because the OES is an independent organization focused on enhancement of community emergency and disaster preparedness. Investment proposals for support of OES activities are submitted as equals with all other departmental investment proposals, not screened out of the budget process by a department head with other priorities.
San Jose Evolved to the Public Administration Model
San Jose OES never truly fell into the “emergency services” category. The staff never wore uniforms. They never responded to events at the field level. Although they were supervised by the Deputy Fire Chief in the Bureau of Support Services, OES was never part of the first responder group. As the 1990 report noted, “OES does not fit as a support service to fire response activities; therefore, city-wide disaster preparedness program priorities and budgeting requests are in direct competition with the goal specific demands of the Fire Department.”
Under the reorganization San Jose OES left the old Civil Defense model and was one of the first emergency management organizations in California to fully embrace the public administration model. Placement in the City Manager’s Office clearly demonstrated that OES was seen as “an element of the overall administration of government.” While Selves characterizes one view of the public administration model as “simply a ‘remnant’ of the national, Civil Defense, perspective,” it may instead be viewed as the evolutionary development from the older, military oriented model.
The military heritage of emergency management lives on through the Standardized Emergency Management System (SEMS) in California Emergency Operations Centers. Based on the Incident Command System (ICS), used at the field level by the fire service nationally, and by law enforcement in many western states, SEMS is a flexible, hierarchical structure for managing an emergency or disaster. The City Manager in his role as Director of Emergency Services fills the role of the general in the military staffing pattern. The “G-1, G-2, G-3 and G-4” positions are translated into the Operations Section, the Planning/Intelligence Section, the Logistics Section and the Finance/Administration Section.
San Jose follows the public administration model in approaching emergency management as a discipline. All professional staff members are certified by the appropriate part of FEMA for the job that they do. For example, the Director and Emergency Services Coordinator have completed the FEMA Professional Development Series, and they both have graduate degrees in public administration. The Director is a Certified Emergency Manager under the FEMA-sponsored International Association for Emergency Management program. All San Jose Prepared! instructors have completed the FEMA CERT instructor training. As a member of the Collaborative for Disaster Mitigation, based at San Jose State University, San Jose OES has been an active proponent of the development of emergency management courses within the University’s Master of Public Administration program.
Terrorism Forces A New Perspective
Now that “all hazards” has come to include terrorism, emergency services may be working on the edge of the Selves “emergency services” model. OES can actually make an important contribution to community emergency response capability by acting as a neutral ground for police, fire and emergency medical services (EMS) representatives to meet. Historically, police and fire personnel have viewed their roles as incompatible, and to some degree competing, at least for scarce resources. Ten years ago it was common to hear law enforcement personnel disavow any role in a chemical spill, while fire and EMS personnel battled for recognition as public safety partners at a crime scene with living victims. Turf battles were legion and infamous.
Through the Domestic Preparedness Program the Office of Emergency Services in many communities has become the broker for federal grant funds. Because OES itself does not benefit financially from the contracts and grants that are available, OES staff members are often able to be neutral parties, evaluating the needs of the community and working in partnership with the continuum of public safety organizations. OES staff members can create committee structures where all public safety personnel can work together outside of the traditional turf contests, where the common ground is the new mutual threat of terrorism. Fire fighters are learning to respect the need for evidence preservation at a crime scene, and law enforcement personnel are gaining an understanding that while rescue contaminates a crime scene, it is not fatal to the prosecution of the case.
The Metropolitan Medical Task Force structure that developed from the Department of Health and Human Services contracts has created new plans for integrated public safety response. Police officers with masks and NBC canisters are trained and equipped to direct traffic, provide crowd control and evidence protection, whether at an industrial chemical accident or a terrorist attack scene. Fire fighters are trained and equipped to carefully bag and tag the clothing and shoes of terrorist attack victims before decontaminating the victims; to preserve the shrapnel or bomb fragments that they remove from a victim. EMS staff members understand the need to avoid driving through the incident scene at any multiple casualty events. All this joint planning, training, equipping and enhanced understanding grew out of the Domestic Preparedness Program.
Emergency management is an evolutionary profession with roots in Civil Defense, public safety and community service. Its future includes security and citizen involvement. The public administration model best supports this evolving profession. Education and training can equip the twenty first century emergency manager to respond to the new demands of terrorism, technology and organizational integration. San Jose’s emergency management function has evolved, and in doing so become a recognized leader in disaster preparedness at the municipal level.
A Case Study of San Jose, California
Frances Edwards-Winslow, Ph.D., CEM
Director, Office of Emergency Services
The Third Model: Civil Defense
Two models of emergency management have been explored by Michael Selves in his article “Local Emergency Management: A Tale of Two Models.” While smaller cities and newer communities may recognize only these two models, the older cities of the United States have in many cases operated under a third, much older model, that of Civil Defense, bypassing the “emergency services” model Selves describes. During World War II there was a real concern about invasion of the American mainland. In fact, rubber boats of German soldiers infiltrated portions of the Atlantic Coast, and coastal Pacific communities maintained a watch on their coasts.
In 1941 President Franklin D. Roosevelt established the Office of Civil Defense, linked to 44 state and 1,000 local civil defense councils. The Civil Defense Corps coordinated approximately 10 million volunteers “to provide shelter instruction, camouflage vital facilities, develop evacuation readiness, and other services.” The Civil Defense function brought residents into active partnership with local municipal governments. In some cases these activities were related to the Police or Fire Departments, but in many cases they were volunteer groups connected to the executive function. Being an Air Raid Warden was socially and politically prestigious in many communities. Blackout curtain patrol and home survival lectures were the stock-in-trade of these resident-staffed volunteer groups.
When World War II ended Civil Defense at the federal level was reorganized into a Civil Defense Board within the War Department. In 1948 the Office of Civil Defense Planning evaluated the need for a national program. By 1950 the Federal Civil Defense Act provided for federal assistance: “to provide the states and their political subdivisions with guidance, coordination and assistance, training and matching grants on a fifty-fifty basis for the procurement of supplies and equipment,” and a sheltering and evacuation program. Civil Defense was still seen as an element of the military, and was often run by retired military personnel at the local level.
Master Mutual Aid Agreements
In the context of Civil Defense planning, the public safety leaders of California realized that they were facing the Cold War with its own potential for disaster in the post-nuclear world. Examining the realities of war in Europe and Japan, firebombing and nuclear-induced fires were most often the agents of mass destruction. The images of Dresden, Coventry, Tokyo and large portions of London gave testimony to the havoc wrecked by fire. The horrific images of Hiroshima and Nagasaki reinforced the fear of nuclear devastation. The fire service in California joined together to create the Fire Service Mutual Aid Agreement. In this compact the fire chiefs of the state agreed to support each other in the event of wartime firestorms. Under the agreement personnel and equipment would be lent for one shift at no cost.
The horror of nuclear war taught Civil Defense leaders that “time, distance and shielding” were the only protections for the population from nuclear explosions. Therefore the federal Civil Defense structure developed the strategy for “crisis relocation planning:” evacuating the resident population of a threatened community to a more protected area with less potential as a target. In San Jose, for example, then an agricultural county seat town of less than 50,000, the plan was to relocate the population behind the coastal mountains in Stanislaus County or San Joaquin County.
Evaluation of population relocation demonstrated that the burden would rest on law enforcement. Police personnel would have to control traffic flow one way – out of town. This would require staffing roadblocks, deploying tow trucks and gasoline refueling vehicles along the route, and having in place a staff to protect the evacuated community from looters. Law enforcement officials in the state then created the Law Enforcement Mutual Aid Plan, designed to provide one shift of personnel and equipment to a threatened community at no cost.
Civilians Within Public Safety
Because of the developing involvement with police and fire over wartime response actions, Civil Defense was often moved into a public safety department, often supervised by a rotating mid-level sworn supervisor. The Civil Defense civilians were generally viewed as separate from the mainstream work of the host department. At the beginning there was federal funding for the Civil Defense positions, but over time the federal money shrunk to matching grant money, declining to 1/3 of the salary of the primary Civil Defense staff only. All the other costs, including facilities and supervision, were borne by the municipality. As the 1960’s progressed and the threat of nuclear war receded, Civil Defense was seen as competing for scarce resources with the host department’s primary and pressing missions: fire fighting and arson suppression, or crime prevention and civil unrest prevention.
The City of San Jose had an active Civil Defense Program from the early 1950’s. At that time the city had a population of less than 50,000 people and was the county seat of an agricultural community dominated by orchards and fruit canneries. The city’s role in providing civil defense services was highlighted when the federal government invested $250,000 in the construction of a bombproof emergency operations center (EOC), complete with air lock entrances, attack warning center, dispatching capabilities, and a framed photo of President Eisenhower. A metal map dominated one wall, with magnetic “icons” to facilitate damage assessment and evacuation planning. All communications lines were routed through sealed conduit to keep the outside air from entering. The concrete “bunker” was constructed above ground with air scrubbers and the facilities to support the EOC staff for weeks. It was reputed to be blast proof and safe from fallout and radiation. The Office of Civil Defense staff operated from that facility, coordinating the work of city departments to ensure continuity of government in the event of attack. The amateur radio volunteers were early co-occupants of the facility, ensuring a second method of communication, should the telephone system be damaged in an attack.
The role of the Civil Defense staff in war planning was clear from the amount of space dedicated to radiological issues. A large room was constructed external to the main bunker area that contained Cobalt 60 and Cesium radiological sources in a lead and concrete lined pit. Shelves were lined with radiological monitoring equipment and stacked with civil defense hard hats.
The City of San Jose had historically been a reporting station for the National Weather Service. When the bunker-style EOC was built a weather room was included. Since weather information, such as humidity and wind direction, was critically important to the management of any potential radiological emergency, custody and management of the weather station became an important part of the work of the civil defense staff members.
As the threat of war subsided and the likelihood of natural disaster was recognized, federal and state Civil Defense programs evolved to the “all hazards” approach to emergency management. Recognizing that floods and earthquakes were far more likely than Soviet invasion of San Jose, the work of the Civil Defense Office shifted to community preparedness education. During this time the name was changed to Emergency Services, and the civilian staff became part of the San Jose Fire Department. The emergency services staff began to be drawn from civilian analysts, who worked in various departments over a career.
The lead staff member was responsible for external relationships with the federal and state emergency management structures, and for obtaining continuing federal financial support for the program. The federal Emergency Management Assistance (EMA) funding supported one third of the salary of each emergency management staff member. The size of the staff to be supported was based on the federal formula: one professional staff member for each 100,000 community members and one support staff member for every three professionals. In addition grants were available for specified activities, such as acquisition of equipment or additional staff members. When San Jose joined the program with a population of about 200,000 the permanent staff consisted of a manager, an analyst II and a secretary. Federal funding was frozen at this staffing level and cost share.
The emergency management function appears to have been compatible with the work of the Fire Department in the beginning. Fire fighters traditionally delivered public education on fire prevention, evacuation drills, and personal fire safety. The emergency management staff delivered information on developing a personal preparedness capability for 72 hours of self-sufficiency. They worked with city departments to develop standard operating procedures for departmental roles in the EOC. Together with the City Attorney they crafted an emergency management ordinance that detailed the special powers of the City Manager during a declared local emergency.
Competition for Scarce Funds
The passage of Proposition 13 in 1978 forever changed the way local governments in California could raise funding for public programs. Proposition 13 set the taxable value of a home at the time of purchase, and set the tax rate as 1% of that purchase price. In future years, as long as the same owner remained in the home, the taxable value could rise no more than 2%. If property values should slide during a given year, however, the downward valuation of the properties is mandated before the tax bill is figured. This effectively froze the tax base of most communities, driving them to seek new construction and sales tax generators as the only way to increase the tax income of the community.
In communities without such tax limitations, the governing body determines which programs it wants to fund, then sets the tax rate. In California the governing body is presented with the maximum potential income for the community, and it must then divide the funds among the city’s services, creating an environment of competition among the departments, and among programs within a department.
Emergency Management As An Executive Function: All Hazards
In the 1980’s the State of California under Governor George Dukmejian developed the Governor’s Office of Emergency Services. Emergency management functions were gathered from various parts of the state organization and organized into the new office whose Director reported directly to the governor. The first Director was a National Guard general, embracing the military Civil Defense roots of emergency services. Units included fire, law, communications, public education and recovery. The State Warning Center for hazardous materials events and the Local Emergency Preparedness Councils were also part of Governor’s OES.
Following the Coalinga Earthquake of 1983 there was a renewed emphasis on individual and community preparedness for disaster events. The Bay Area Regional Earthquake Preparedness Project (BAREPP) and the Southern California Emergency Preparedness Project (SCEPP) brought together emergency managers, engineers and seismologists to develop knowledge that could be applied to community preparedness.
Growing out of the new emphasis on natural hazards preparedness, Governor’s OES developed a series of special public events, and created accompanying educational materials that were distributed to all local emergency management programs. In honor of the Great San Francisco Earthquake of 1906, the governor declares April as Earthquake Preparedness Month every year. Emergency management staff members across the state, whose salaries were supported by Federal EMA funding, were required to promote related events in their communities to qualify for continuing financial support. Directives from Governor’s OES began to include specific types of public events, programs and activities that had to be undertaken annually in order to qualify for the EMA staff support money. There was no new funding provided to support these activities. Cities now had to spend their own funds on supplies and equipment to support these new activities in order to continue receiving the federal EMA 1/3 salary match.
By the late 1980’s it was becoming clear that emergency management programs across the state were finding it difficult to keep up with the mandated work to keep the federal EMA staff support funds flowing. Annual exercises of EOC staff capabilities, participation in special events, and development of emergency operations plans all added costs to the original civil defense programs without any means of raising the supporting revenue. Local governments adopted a variety of strategies to deal with the problem. Many communities chose to drop out of the EMA program after determining that it was costing them more than they were able to recoup from the federal EMA program. Other cities transferred the emergency management function to a sworn police or fire staff member as a collateral duty. Reasoning that the officer was already being paid, the city would allocate the 1/3 salary funding to support the non-salary expenses of the program. Still others banded together into “joint powers authorities” and combined their staffs to create economies of scale. In these organizations the staff members were fulltime employees shared by several jurisdictions. For example, one emergency coordinator might oversee the emergency planning, training and outreach efforts of three or more communities within the JPA.
Some cities remained in the EMA program, but the host departments found the financial support of the annual campaigns and exercises difficult. As local revenue growth dwindled, and community demands for primary public safety services increased, the value of dedicated emergency management was questioned. Without the ability to raise new revenues for new programs, department heads looked to their core services, and emergency management became a costly stepchild. Positions were not paid in accordance with responsibility and staff was encouraged to simply meet the minimum EMA activity requirements rather than to develop a meaningful program of community preparedness.
The Paradigm Shift in San Jose
In 1984 the Morgan Hill Earthquake clearly demonstrated some of the deficiencies inherent in San Jose’s existing approach to community emergency preparedness. The City Council of San Jose created the Earthquake Preparedness Task Force, a committee of department heads to “plan a City-wide program to mitigate the loss of life and property, increase emergency response readiness and enhance the recovery of the community following a damaging earthquake.” The committee’s report found that emergency management in San Jose was inadequate on many levels. It decried the ancient EOC facility, the outdated emergency plan and the lack of community outreach efforts. It created a Five-Year Program and a Master Plan of individual tasks necessary to achieve a higher level of preparedness.
The 1988 Master Plan identified a number of action steps designed to address the deficiencies the committee discovered. Relationships with the public and the non-governmental elements of the community were emphasized. A staff of two analysts and a secretary was suggested to manage the development and implementation of a public education program that would include written materials, public presentations and the development of a video lending library. Media relations were also highlighted, with staff mandated to create a plan for training emergency public information officers, creating media messages, and obtaining appropriate equipment for the EPIO program.
Structural safety was another key element of the plan. Public Works staff evaluated city-owned buildings for seismic safety and began designing appropriate upgrades. Non-structural hazards in city facilities were also to be mitigated. The City Geologist was tasked to identify high risk areas for liquefaction and slope failures, and work with Planning Department staff members to develop appropriate land use regulations.
In 1989 the Loma Prieta Earthquake struck the Bay Area. San Jose was sheltered from the worst of the shaking by the Santa Cruz Mountains. However, the success of the response to the earthquake was not uniform because some of the deficiencies noted in the 1988 report persisted.
In 1990 a follow-up report was presented to the Committee of the Whole. It addressed “emergency management issues which were raised by events related to the October 17, 1989 Loma Prieta Earthquake….” The omnibus report covered a variety of issues in the areas of mitigation, preparedness, response, and recovery. In the final “General Emergency Management Issues” section it noted that one source of these problems was the placement of the emergency management function within the Fire Department, a department with other competing core services. Access to the city manager and governing body was exclusively through the fire chief, a department head who was fighting for budget for apparatus, personal protective equipment and fire prevention needs. Emergency management was not viewed as a core service of the department, and needed funding was not provided as a priority. “Considering the direct benefits which can be derived in eliminating these encumbrances, the City Manager is exploring the feasibility of transferring the Office of Emergency Services from the Fire Department into the City Manager’s Office organization.”
While the Office of Emergency Services was in the Fire Department, staff members in emergency services roles were drawn from administrative generalists within the city. Placement in emergency services was not viewed as career enhancing by most staff members. The staff members rotated through the emergency management positions without adequate advance training, and often with little opportunity to obtain formal training while on the job.
The windowless civil defense bunker did not provide an employee-friendly environment. Emergency management staff members felt isolated from other members of their own department, as well as from the broader city staff. The state of the art 1950’s facility had not been modernized and no longer met the needs for adequate phone and computer lines to serve the program. The civil defense metal desks and rolling chairs reinforced the staffs’ sense of being by-passed.
In 1990 the city opened the new Police Communications Building. The facility was designed to house the Police Garage, Police and Fire Dispatch, and the Emergency Operations Center. Offices for Office of Emergency Services (OES) staff members were designed as part of the EOC, with excellent telecommunications capabilities and windows. This marked a watershed in the development of the city’s Emergency Management Program.
Local Emergency Management As An Executive Function
Starting on July 1, 1990 the OES moved into the City Manager’s Office. Since under California law the city manager is the Director of Emergency Services, this placement provided an appropriate chain of command for OES staff. Funding of the program was also at the direct control of the Manager as part of his office budget. The interim role of Director of Emergency Preparedness was filled by senior staff members, who began to bring a new level of credibility to the new Office.
In June 1991 the City began the hiring process for a fulltime professional Director of Emergency Preparedness. An experienced emergency management professional was hired from Southern California to guide the formation of the new OES. As an Office Director the new OES Director had immediate access to all members of the City’s Senior Staff. As a member of the Senior Staff she was able to develop collegial working relationships with the other department heads based on a relationship of equals. Office development advanced quickly because of the direct reporting relationship to the Assistant City Manager.
Innovative programs included the completion of the emergency operations center with new technologies. San Jose had one of the first city-level EOCs with computers at every position, using emergency management software. Following the first two federally declared flooding disasters in 1995 the staff evaluated the system and adopted a new software suite from the Microsoft Office series. This kind of flexibility was possible because of the program’s placement in the organization.
OES nurtured the existing Radio Amateurs in Civil Emergency Services (RACES) program, bringing its 2002 membership to 140. Staff also created one of the first Community Emergency Response Team programs outside of a public safety department. With almost 1300 members in 2002, the San Jose Prepared! program has served the community well in floods, traffic accidents and house fires, and is now part of the President’s Community Corps initiative.
In addition to volunteer programs San Jose OES has taken the lead in physical mitigation efforts for the community’s building stock. After the Loma Prieta Earthquake an ordinance was passed to require the retrofit or demolition of unreinforced masonry buildings. In addition, a special assessment district was created to provide below market rate loans for owners who wanted to retrofit their buildings. The City also paid for portions of the pre-construction engineering work.
Later OES obtained Community Development Block Grant funding to partner with the San Jose State University College of Engineering on residential retrofitting. Phase I was a series of workshops for single-family homeowners on bolting and strengthening the wood frame home. Phase II was the creation of the “Apartment Owners Guide to Earthquake Safety” to enable owners to identify potentially dangerous buildings, with the goal of encouraging retrofit. Phase III was a partnership with the Housing Department to hire an engineering firm to create model retrofit plans for three generic multi-family building types, and to develop basic engineering documents and cost estimates.
These and other innovative approaches to community safety were made possible because the OES is an independent organization focused on enhancement of community emergency and disaster preparedness. Investment proposals for support of OES activities are submitted as equals with all other departmental investment proposals, not screened out of the budget process by a department head with other priorities.
San Jose Evolved to the Public Administration Model
San Jose OES never truly fell into the “emergency services” category. The staff never wore uniforms. They never responded to events at the field level. Although they were supervised by the Deputy Fire Chief in the Bureau of Support Services, OES was never part of the first responder group. As the 1990 report noted, “OES does not fit as a support service to fire response activities; therefore, city-wide disaster preparedness program priorities and budgeting requests are in direct competition with the goal specific demands of the Fire Department.”
Under the reorganization San Jose OES left the old Civil Defense model and was one of the first emergency management organizations in California to fully embrace the public administration model. Placement in the City Manager’s Office clearly demonstrated that OES was seen as “an element of the overall administration of government.” While Selves characterizes one view of the public administration model as “simply a ‘remnant’ of the national, Civil Defense, perspective,” it may instead be viewed as the evolutionary development from the older, military oriented model.
The military heritage of emergency management lives on through the Standardized Emergency Management System (SEMS) in California Emergency Operations Centers. Based on the Incident Command System (ICS), used at the field level by the fire service nationally, and by law enforcement in many western states, SEMS is a flexible, hierarchical structure for managing an emergency or disaster. The City Manager in his role as Director of Emergency Services fills the role of the general in the military staffing pattern. The “G-1, G-2, G-3 and G-4” positions are translated into the Operations Section, the Planning/Intelligence Section, the Logistics Section and the Finance/Administration Section.
San Jose follows the public administration model in approaching emergency management as a discipline. All professional staff members are certified by the appropriate part of FEMA for the job that they do. For example, the Director and Emergency Services Coordinator have completed the FEMA Professional Development Series, and they both have graduate degrees in public administration. The Director is a Certified Emergency Manager under the FEMA-sponsored International Association for Emergency Management program. All San Jose Prepared! instructors have completed the FEMA CERT instructor training. As a member of the Collaborative for Disaster Mitigation, based at San Jose State University, San Jose OES has been an active proponent of the development of emergency management courses within the University’s Master of Public Administration program.
Terrorism Forces A New Perspective
Now that “all hazards” has come to include terrorism, emergency services may be working on the edge of the Selves “emergency services” model. OES can actually make an important contribution to community emergency response capability by acting as a neutral ground for police, fire and emergency medical services (EMS) representatives to meet. Historically, police and fire personnel have viewed their roles as incompatible, and to some degree competing, at least for scarce resources. Ten years ago it was common to hear law enforcement personnel disavow any role in a chemical spill, while fire and EMS personnel battled for recognition as public safety partners at a crime scene with living victims. Turf battles were legion and infamous.
Through the Domestic Preparedness Program the Office of Emergency Services in many communities has become the broker for federal grant funds. Because OES itself does not benefit financially from the contracts and grants that are available, OES staff members are often able to be neutral parties, evaluating the needs of the community and working in partnership with the continuum of public safety organizations. OES staff members can create committee structures where all public safety personnel can work together outside of the traditional turf contests, where the common ground is the new mutual threat of terrorism. Fire fighters are learning to respect the need for evidence preservation at a crime scene, and law enforcement personnel are gaining an understanding that while rescue contaminates a crime scene, it is not fatal to the prosecution of the case.
The Metropolitan Medical Task Force structure that developed from the Department of Health and Human Services contracts has created new plans for integrated public safety response. Police officers with masks and NBC canisters are trained and equipped to direct traffic, provide crowd control and evidence protection, whether at an industrial chemical accident or a terrorist attack scene. Fire fighters are trained and equipped to carefully bag and tag the clothing and shoes of terrorist attack victims before decontaminating the victims; to preserve the shrapnel or bomb fragments that they remove from a victim. EMS staff members understand the need to avoid driving through the incident scene at any multiple casualty events. All this joint planning, training, equipping and enhanced understanding grew out of the Domestic Preparedness Program.
Emergency management is an evolutionary profession with roots in Civil Defense, public safety and community service. Its future includes security and citizen involvement. The public administration model best supports this evolving profession. Education and training can equip the twenty first century emergency manager to respond to the new demands of terrorism, technology and organizational integration. San Jose’s emergency management function has evolved, and in doing so become a recognized leader in disaster preparedness at the municipal level.
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