EndaTwomey12thOctober2018
WebinarIden%fyingtheKeyLeversof
UnderstandingandShapingCultureandBehaviouralRisk
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Disclaimer:Theviewspresentedinthissessionarepersonalviewsofthespeakerandcannotbeinterpretedasanyotherpersonororganisa:on.
A.Introduc%onWhathavetheseIns%tu%onsgotinCommon?
190519891992
187920072008
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A.LearningObjec%ves
1) Whatdowemeanbycultureandriskculture2) Thinkingaboutthechangingfaceofmanaging
cultureandbehaviouralrisk3) Understandinghowsocio–psychologicalfactorsare
shapingapproachestomanagingbehaviouralrisk4) LearninghowoperaIonalriskmangerscanuIlise
theseapproachesinbuildingmoreresilientorganisaIons.
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A.2008–2018-AdecadeofTurmoil?
WhyisRiskCultureimportant–let’srecall1) Excessiverisktakingledtofinancialcrisis2007–20082) FollowedbyconductriskfailuresCostofPPI-£40BillionesImatedprovisionsinJuly,2018-Bloomberg3)NobodyisimmunetoconductriskissuesTheconsensusisthatanabsenceofastrongriskculturewasattheheartofthefinancialcrisisandconductriskfailures.
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A.WhyisthisImportant?-ConductCostsProjectReport
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A.WhyisthisImportant?–TheBigpicture1. Strategyimplementa%onandrisk
managementneedtobecorrectlyalignedtoavoidtheprudenIalandconductfailuresofthepast
2. ConductfailuresarepuWngcustomercentricstrategiesattheheartoffirms’approaches
3. Improvingoverallfirmperformanceisfocussingon
i. ensuringthattheorganisa%onalcultureissupporIveofthefirm’sstrategyand
ii. thattheriskcultureissupporIveofsoundriskmanagement
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B.SowhatismeantbyCultureandOrganisa%onalCulture WhatismeantbyCulture?
1. "thatcomplexwholewhichincludesknowledge,belief,art,morals,law,customandanyothercapabili:esandhabitsacquiredbyman(sic)asamemberofsociety.“E.B.Tylor
2. CambridgeEnglishDicIonarystatesthatcultureis,"thewayoflife,especiallythegeneralcustomsandbeliefs,ofapar:culargroupofpeopleatapar:cular:me.“
WhatismeantbyOrganisa%onalCulture?1) “Thewaywedothingsaroundhere”(MBower1966-TheWilltoManage:
CorporateSuccessThroughProgrammedManagement)2) “ApaFernofsharedbasicassump:onslearnedbyagroupasitsolvedits
problems…whichhasworkedwellenoughtobeconsideredvalidand,therefore,taughttonewmembersasthecorrectwaytoperceive,thinkandfeelinrela:ontothoseproblems”(ESchein1992-OrganisaIonalCultureandLeadership)
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B.SowhatisRiskCulture
1. RiskculturecanbeseenasasubsetoftheoverallcultureoftheorganisaIon2. TherearenumerousdefiniIonsforexample
i. “…thenormsofbehaviourforindividualsandgroupswithinanorganisaIonthatdeterminethecollec%veabilitytoidenIfyandunderstand,openlydiscussandactontheorganisaIonscurrentandfuturerisk….FSB2013
ii. “thevalues,beliefs,knowledgeandunderstandingaboutrisksharedbyagroupofpeoplewithacommonpurpose,inparIculartheemployeesofanorganisaIonorofteamsorgroupswithinanorganisaIon”IRM2012
3. ExcessiverisktakingisregardedasademonstraIonofinappropriateriskculturehoweverexcessiveriskcontrolcanalsobedetrimentaltotheachievementofobjecIvesandwhatistheappropriateriskcultureisverymuchcontextdependent.
4. RiskcultureisadynamicsocialprocessandnotjustaboutindividualapItudesandbehavioursandheavilyinfluencedbybothexternalandInternalfactors.
5. Wedon’tlackformodelsaroundRiskCulture!
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B.DriversofRiskCulture-InternalFactors1. RiskmanagementFunc%on-thestatusoftherisk
managementfuncIonandemploymentofcentralisedversusdecentralisedmodel
2. ThreeLinesofDefence-howwellarIculatedareeachrolesandwellembeddedaretheyinpracIse
3. RiskAppe%teFrameworks-howeffecIvearetheyinpracIse4. RecentRiskHistory-thefrequencyandseverityofrecentrisk
events5. Natureofformalandinformalorganisa%ons-howwellare
theformalriskgovernancestructuresoperaIngandwhatisthepowerandinfluenceoftheinformalnetworkswithintheorganisaIon.
6. Incen%veStructures-excessiveincenIvestructurescanundermineriskculturethroughexcessiverisktaking
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1. EconomicCondi%ons–theappropriatebalancebetweenriskcontrolandrisktakingacIviIesshouldbe(!)heavilyinfluencedbytheeconomiccycle.
2. Compe%%on–anargumentcanbemadethattheexcessivecompeIIonleadtoexcessiverisktakingpriortotheIrishFinancialcrash.
3. Technology–thespeedandintensityofeventscanbeexacerbatedbytechnologicaldevelopmentsandmayrequireariskculturalresponse
4. Stakeholders–MeeIngstakeholder’sexpectaIoncaninfluenceriskculture
B.DriversofRiskCulture-ExternalFactors
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B.ViewsoftheFinancialStabilityBoardonRiskCulture–RiskCultureStandardModel!
1. TheFinancialStabilityBoardissuedguidance(2014)tosupervisorsaswhattheyshouldbelookingatwhenexaminingriskcultureinfinancialinsItuIons.
2. Founda%onalElementsofaSoundRiskCulture:RiskGovernance;RiskAppeIte;andCompensaIon.
3. IndicatorsofasoundRiskCulture:
i. TonefromtheTop;ii. Accountability;iii. EffecIveCommunicaIon
andChallenge;andiv. IncenIves.
hkp://www.fsb.org/wp-content/uploads/140407.pdf
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C.However–RealityofWorld
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C.LookingforunderlyingSocialPsychologicalReasons-Example-NybergReport
MISJUDGINGRISK:CAUSESOFTHESYSTEMICBANKINGCRISISINIRELAND-REPORTOFTHECOMMISSIONOFINVESTIGATIONINTOTHEBANKINGSECTORINIRELAND–NybergReport.
1. Excessiverisktakingacrossindustryfacilitatedby“Herding”
2. ExcessiverisktakingwithininsItuIonsfacilitatedbypervasive“Groupthink”
hkp://www.bankinginquiry.gov.ie/Documents/Misjuding%20Risk%20-%20Causes%20of%20the%20Systemic%20Banking%20Crisis%20in%20Ireland.pdf
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C.LookingforOtherAnswers–TheDutchModel
DNB’s(theDutchCentralBank)missionstatement“seekstosafeguardfinancialStability…”“Inlightofthatmandate,wemustkeepacloseeyeonanythingthatmayputthatthisfinancialstabilityinjeopardy.Naturally,thisincludesafinancialIns:tu:on’sbehaviourandculture”FrankElderson–ExecuIveDirectorDNB
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Premises1. IncreasingrulesandregulaIonsisnotenough–percepIonofbeing
incontrolbutlimitstowhatcanbeachieved2. ConnecIonbetweenbehavioursandcultureandpublictrustand
ulImatelyfinancialstability–needtoconInuallybuildtrustandreputaIon
3. BehavioursandculturearepartofasoundbusinessoperaIons-needtoidenIfyaninsItuIon-wideviewandmissionstatementonappropriatebehavioursandcultureandeffecIveprocessestoidenIfyandmanagebehavioursandculture
Fundamentalidea-poorpakernsofbehaviourscanbealeadindicatoroffinancialproblemswithorganisaIonalpsychologyunderpinningapproach.
C.LookingforOtherAnswers–TheDutchModel
C.LookingforOtherAnswers–TheDutchModel
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Overview• WhyThisBook?PartI-FoundaIons• TheRaIonalfortheSupervisionof
BehaviourandCulture• ModelandBasicAssumpIons• SupervisoryApproachandMethodologyPartII-PracIse–FocusonGroupeffecIveness• DecisionMaking• Leadership• CommunicaIon• GroupDynamics
PartII-PracIseFocusonChange• CapacityforChange• CultureChange
PartIII–FutureDevelopments• ErrorManagementinFinancial
InsItuIons• TheWayForwardforeffecIveExternal
SupervisionistoInfluenceInternalSupervision
C.LookingforOtherAnswers–TheDutchModel
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MadeinJapanTheJapaneseparliament’sindependentinvesIgaIoncommikeecitedthefollowingunderlyingdynamicsandculturalelementsascontribuIngtothedisaster1. Alackoftrustbetweenthemajor
players2. Areluctancetoescalatebadnews3. AspectsembeddedinthenaIonal
culture“Ourreflexivesobedience,ourreluctancetoquesIonauthority,ourdevoIonto‘sIckingtotheprogram’,ourgroup-ism,andourinsularity…..alongwithaneedtosaveface.”(InvesIgaIonCommikeereport)
C.LookingforOtherAnswers–DNB–GroupDynamics
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C.LookingforOtherAnswer-DNB-GroupDynamics
Oneofthedriversofbehavioursisgroupdynamicswhichcaninfluencedecisionmaking,leadershipandcommunica%ons,thereforeessenIaltounderstandandassessinggroupdynamicsAssumpIons1. RelaIonshipbetweenGroupDynamicsandGroup
Effec%veness2. SocialProcessesingroupsthatunderlineGroup
Dynamics3. AssessmentisatmomentinImeandinaspecific
context
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C.LookingforOtherAnswers-DNB-GroupDynamics
1. GroupComposi%oni. Diversityandperformanceofgroupmembersii. Size
2. GroupClimatei. NatureofInterpersonalRelaIonshipsii. Cohesionsiii. DealingwithConflictiv. BalanceTaskandRelaIonshipOrientaIon
3. StatusDifferencesi. LookingatDynamicsbetweendifferentGroups
IndictorsforAssessingGroupDynamics
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D.LookingforOtherAnswers-Corrup%ngBarrelsvBadApple FocusofakenIonwhenitcomestomis-conducthasbeentheindividual’sfailings.LetsgobackinImeandintothefieldofCriminology…….1. EdwinSutherlandin1939coinedanddefinedwhite-collarcrimeas“an
offensecommikedbyapersonofrespectabilityandhighsocialstatusinthecourseofhis/orheroccupaIon”
2. Developedthedifferen%alassocia%ontheoryofcrimewhichproposesthatthroughinteracIonwithothers,individualslearnthevalues,aWtudes,techniques,andmoIvesforcriminalbehaviour
3. AsSusanSibley(MIT)focusingonEthicsandEthicalTraining,commentsthatthemostimportantcontribuIonSutherlandmakesishisemphasisesoncontextandsocialorganisa%onratherthanexclusivefocusonindividualchoicemakingac%vity.
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D.LookingforOtherAnswers-U%lisingaTeamClimatePerspec%ve–W.Scholten
1. Thisbookprovidesinsightsandtoolsformanagersandexternalsupervisorswithinfinancialservicesthathelptodefineandassessteamclimatesinordertopreventfuturemisconduct.
2. AssessingtheTeamClimate:i. IneffecIveErrors
Approach?ii. OutcomeInequality?iii. DysfuncIonalMoral
TeamClimate?
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D.LookingforOtherAnswers-U%lisingaTeamClimatePerspec%ve–W.Scholten
• Thewaythatateamdealswithtaskrelevanterrorsmayfacilitatemisconduct
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D.LookingforOtherAnswers-U%lisingaTeamClimatePerspec%ve–W.Scholten
ImprovingTeamClimate1. Leadershipiskey2. Improvingthe“Corrup%ngBarrel“TeamClimateCharacterisIcs
i. ImproveErrorApproachii. ReduceOutcomeInequalityiii. ManageEmoIonalconsequencesiv. ImproveMoralClimate
3. ConflictstoResolvei. ContradicIonbetweenastrongcontrolenvironmentandanopennessabout
errorsii. ContradicIonbetweenperformanceandcompliancegaolsiii. ContradicIonbetweenalegalandalearningapproachregardingmisconduct
whichhastakenplace
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E.LookingforOtherAnswers-JustCultureApproach
AfundamentalelementofastrongriskcultureisensuringthatriskinformaIoniscommunicatedupanddowntheorganisaIon.1. A“blameculture”withinanorganisaIoncaninhibitthisidealbuta
“noblame”culturecanhavetheimpactofreducingaccountability.2. Otherindustriessuchthemedicalprofession,nuclearpowerand
aviaIonhavebeenexaminingthisissueandhavedevelopedtheconceptofa“JustCulture”.
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E.LookingforOtherAnswers-JustCultureApproach
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Final,FinalThoughts!!
RiskCultureConversa%ons-2028
?
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QuesIonsandComments
• ContactDetails:• EndaTwomey,HeadofIrishChapter– Telephone:+353872262502– E-mail:[email protected]– URL:www.ior-insItute.org
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