Liquidity, Crime Woes Shake Up Chief Risk Officers

Still, smaller companies may feel satisfied with spreading out risk oversight among a variety of employees without creating a separate function. At $1.3 billion Virgin Mobile USA, all 400 employees have to keep risk in mind, says CFO John Feehan, who will also be speaking at the Core Concerns conference. "With just 400 people, if one person doesn't do [his or her] job, everyone suffers. Everyone takes accountability very seriously."

The prepaid-wireless operator doesn't have a CRO, but senior management meets regularly to discuss potential risks along with financial results and forecasts. "It is very much a part of our DNA to look at risk from all perspectives, from internal to external risks, almost on a daily basis," says Feehan. Among the issues at the top of his list: the U.S. economy, liquidity, and the tight competition among wireless providers that are often in price wars.

Since most of Virgin Mobile's customers are in the low- or middle-income range, the company noticed early on in the recession that its clients were beginning to feel financially pinched. In response, it decided to cut back on the level of energy it expends on riskier customers.

Its business model doesn't make that easy. Unlike other cell-phone service providers, Virgin Mobile doesn't lock in customers with two-year commitments but rather offers two main products: pay as you go — in which customers put money into an account that diminishes for every minute they use their phone — and a monthly plan for unlimited calls.

With the pay-as-you-go plans, Feehan says, Virgin Mobile could spend, say, $100 to acquire a customer, but may not get that cash outlay back until 12 months to 18 months later. But with the monthly plans, the company makes back its investment sooner, at three times the amount of revenue as the pay-as-you-go plans.

Virgin Mobile wanted "to focus on the quality of subscribers in order to provide shareholders with the proper use of cash," says Feehan, noting that focusing on the monthly payment-plan customers could provide the company with more cash: cash that could be used to either acquire more customers or boost free cash flow. "We felt in this economy that was a better strategy than trying to get every customer."

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