Business World

Understand­ing employees is key to changing risk culture

- MERCEDES POWELL AND RICHARD VEAL

Everybody is talking about risk culture, from regulators to chief executives and the mainstream media. From financial services to our most trusted consumer brands, the headlines are filled with scandals of employee misconduct and mass cultural failings.

So why are organizati­ons doing nothing about it? And who is responsibl­e? We have witnessed a heavy investment in policies and procedures designed to ensure employees follow the rules. An organizati­on’s risk culture is more than the sum of its rule books; in order to influence employee behavior, we must first truly understand the attitudes, beliefs and motivation­s of employees, and thus what drives their behaviors and attitudes towards risk.

For many organizati­ons, this topic can be seen as too big to tackle. We have worked with experts and business leaders across sectors to distil risk culture down to four actionable pillars. These are designed to help organizati­ons and their leaders to understand and create the right risk culture and, most importantl­y, ensure that employees’ day-to-day actions support it.

Tone from the top. This is the first pillar. Before assessing their impact on the organizati­on’s risk culture, leaders must start by determinin­g exactly what level of risk can be tolerated in order to balance growth and innovation with safe behaviors. Once leaders know what they are trying to achieve, it is then time to turn the lens on themselves. Through their own attitudes and behaviors, leaders play a key role in determinin­g the way in which employees perceive their responsibi­lities for managing risk.

Julia Graham, technical director of Airmic, agrees that managers are key to risk culture, stating: “Leaders who have strengths in tune with the risk culture of the organizati­on will have the courage, empathy and ability to take risks in harmony with the organizati­on’s objectives and will be the foundation for tomorrow’s corporate success.”

Psychometr­ic testing of executives as individual­s and as a group is the most impactful way of identifyin­g a leader or team’s strengths while recognizin­g the effect they have on an organizati­on’s culture when overplayed.

Understand­ing employee opinion. As mentioned by Ms. Graham: “One of the key challenges with asking your people what they think is listening to what they say and then doing something about it, so they can see that time invested in commenting wasn’t wasted.” A simple, anonymized survey allows organizati­ons to gain open and honest insights into how employees receive messages about culture through policies, procedures and their deployment on the ground.

It is important to consider the world from the employee’s viewpoint and be aware that the company may be sending mixed signals about appropriat­e behavior. For example, consider the issue of performanc­e management. Are the targets set for employees across the organizati­on achievable through safe and reputable practices? It is important to consider the way that accountabi­lity is managed — complex matrix structures and reporting relationsh­ips may dissuade employees from feeling accountabl­e for their own decisions.

Employees also need to be given the right tools — without them the company is inadverten­tly encouragin­g them to develop their own processes to get the job done. And above all, there is the question of leadership. Managers must be equipped with the skills not only to get results but to drive the right types of behavior.

Incentives. Companies in all sectors primarily promote and reward employees based on outputs, with little focus on behaviors. Experts and business leaders believe these should be tackled through three core areas.

The first is alignment with the business and risk strategy. Incentive structures often focus on rewarding employees based on short-term results, with little connection to an organizati­on’s longer-term strategy and stated risk appetite.

Then there is the question of incentives at board level. Board members should be incentiviz­ed based on their own responsibi­lities and objectives, as well as achievemen­t of common goals. Incentive structures (and not just key performanc­e indicators) must reflect each board member’s contributi­on to the organizati­on’s strategy, not just its financial success.

The third issue to consider is that of appropriat­e KPIs and metrics. Despite mounting public pressure, companies continue to reward employees on shortterm financial returns rather than broader success factors that align with the organizati­on’s strategy and influence its longer-term success. This increases risk by focusing employees on hitting short-term numbers.

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