Morgan Stanley 2010 Annual Report Download - page 102

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Risk Management.
Overview.
Management believes effective risk management is vital to the success of the Company’s business activities.
Accordingly, the Company employs an enterprise risk management (“ERM”) framework to integrate the diverse
roles of the risk departments into a holistic enterprise structure and to facilitate the incorporation of risk
evaluation into decision-making processes across the Company. The Company has policies and procedures in
place to identify, assess, monitor and manage the significant risks involved in the activities of its Institutional
Securities, Global Wealth Management Group and Asset Management business segments and support functions
as well as at the holding company level. Principal risks involved in the Company’s business activities include
market, credit, capital and liquidity, operational, and compliance and legal risk.
The cornerstone of the Company’s risk management philosophy is the execution of risk-adjusted returns through
prudent risk-taking that protects the Company’s capital base and franchise. Five key principles underlie this
philosophy: comprehensiveness, independence, accountability, defined risk tolerance and transparency. The fast-
paced, complex, and constantly-evolving nature of global financial services requires that the Company maintain a
risk management culture that is incisive, knowledgeable about specialized products and markets, and subject to
ongoing review and enhancement. To help ensure the efficacy of risk management, which is an essential
component of the Company’s reputation, senior management requires thorough and frequent communication and
the appropriate escalation of risk matters.
Risk Governance Structure.
Risk management at the Company requires independent company-level oversight, accountability of the
Company’s business segments, and effective communication of risk matters to senior management and across the
Company. The nature of the Company’s risks, coupled with its risk management philosophy, informs the
Company’s risk governance structure. The Company’s risk governance structure comprises the Board of
Directors; the Risk Committee of the Board (“BRC”) and the Audit Committee of the Board (“BAC”); the Firm
Risk Committee (“FRC”); senior management oversight (including the Chief Executive Officer, Chief Risk
Officer, Chief Financial Officer, Chief Legal Officer and Chief Compliance Officer); the Internal Audit
Department and risk managers, committees, and groups within and across the Company’s business segments. A
risk governance structure composed of independent but complementary entities facilitates efficient and
comprehensive supervision of the Company’s risk exposures and processes.
Morgan Stanley Board of Directors. The Board has oversight for the Company’s ERM framework and is
responsible for helping to ensure that the Company’s risks are managed in a sound manner. The Board has
authorized the committees within the ERM framework to help facilitate its risk oversight responsibilities.
Risk Committee of the Board. The BRC, appointed by the Board, is composed of non-management directors.
The BRC is responsible for assisting the Board in the oversight of the Company’s risk governance structure; the
Company’s risk management and risk assessment guidelines and policies regarding market, credit and liquidity,
and funding risk; the Company’s risk tolerance; and the performance of the Chief Risk Officer. The BRC reports
to the full Board on a regular basis.
Audit Committee of the Board. The BAC, appointed by the Board, is composed of independent directors
(pursuant to the Company’s Corporate Governance Policies and applicable New York Stock Exchange and
Securities and Exchange Commission (“SEC”) rules) and is responsible for oversight of certain aspects of risk
management, including review of the major operational, franchise, reputational, legal and compliance risk
exposures of the Company and the steps management has taken to monitor and control such exposure, as well as
guidelines and policies that govern the process for risk assessment and risk management. The BAC reports to the
full Board on a regular basis.
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