risk culture

A recent report from a major consultancy includes the following statement:

Building an effective risk culture is the foundation of ERM, requiring both leadership and clear communication from senior management and the board.

There is so much wrong with this sentence, it is hard to know where to begin.

Culture is what we have done around here, not what we do around here.

GOVERNANCE SYSTEMS

When it comes to risk, more nonsense it talked about ‘culture’ than almost anything else. Contrary to popular opinion, you cannot create an effective risk management culture; you cannot create any culture for that matter. Culture emerges from the behaviours of people in the firm you create; it’s that simple. Talk about behaviours and actions, drive behaviours and actions; leave the culture to anthropologists.

We get pretty heated about this point. There are dozens of advisors out there in the risk field that wax on about ‘culture’ without any understanding of culture as a phenomenon or studying culture as a discipline. As a multi-disciplinary consulting practice, our team includes social scientists who have studied culture, certainly more so than most accountants.

Driving the right risk behaviours is a sensible and realistic objective for any firm, financial or non-financial. But starting from a flawed premise is like the best way to get to Dublin: you wouldn’t want to start from there. Most important is an understanding of what you cannot do; that is, limited unintended consequences.

We help firms to develop realistic programmes of risk behaviours and actions. The culture that emerges cannot be more ‘risk-aware’ (only people can be risk-aware, and even that is problematic) nor will it have anything ‘embedded’ in it (another nonsense phrase developed by accountants lacking in humility). But it will get the firm closer to a target level of risk performance through actions and behaviours that are consistent with that target. And that is what you really want to achieve.

RISK CONSULTING

> RISK STRATEGY

> RISK APPETITE & TOLERANCE

> RISK FRAMEWORKS & SYSTEMS

> QUANTITATIVE RISK ANALYSIS

> RISK & ECONOMIC SCENARIOS

> RISK DISCLOSURE

> BEHAVIOUR & RISK CULTURE

INTERNAL CONTROL & ASSURANCE

REGULATION, RISK & CULTURE