Six Ways to Embed Risk Management in Corporate Culture
The global recession has put business leaders under more pressure than
ever to manage risk within their organizations. Unfortunately, for many
companies, risk management policies and procedures remain formalities.
They don’t translate into expected behaviors.
That’s not good enough any more. A systematic approach to measuring and building a strong risk management culture is more important than ever. But where do you start?
Leading companies are focusing on six key drivers of risk management culture to ensure that risk tolerance, goals and controls permeate through all levels, territories and business units:
- Communication. Communicating your organization’s risk tolerance, along with corresponding policies and procedures, is an important first step. Including senior representatives from internal communications in risk-related discussions can help. Making sure that employees are free to raise issues without fear of reprisal is equally important.
- Leadership Commitment. Leadership plays a critical role in engaging employees as well as acting as a behavior model. Leaders should focus on talking about and living risk management in a visible manner.
- Teamwork and Collaboration. Every organization needs to link risk policy and everyday behavior. The more people work together and share information, the more areas of risk are identified and individuals come together to develop appropriate risk mitigation strategies.
- Resourcing. Staffing levels, as well as knowledge, skills and abilities of employees, play a prominent role in risk management, but these areas are often overlooked. Involving Human Resources in risk-related discussions while deploying appropriate workforce, talent management and engagement strategies can make a big difference.
- Rewarding Behaviors. The global financial crisis has highlighted corporate compensation practices, including an emphasis on short-term performance. It is important that all companies — not just in financial services — understand and address shortcomings in current reward practices.
- Risk Controls. Many companies believe that they have adequate controls in place. However, when asking employees about the controls and how effective they are, we often get a different answer. Surveying your employees — or running focus groups — is necessary to understand the effectiveness of your risk controls.
Towers Perrin’s Rapid Risk Assessment
Towers Perrin has developed a Rapid Risk Assessment process in which we assist organizations to:
- review existing HR materials, rating agency reports, and corporate policies and procedures
- administer a condensed version of Towers Perrin’s Risk Culture Diagnostic tool to a representative sample of employees
- conduct management/leadership interviews
- analyze the current state of risk management culture
- identify gaps between current state and desired state risk management culture.
With this kind of information, business leaders are quickly equipped to make better decisions about how much, and where, to invest in practices and programs that can help build a stronger risk management culture. You can help drive performance consistently, from one year to the next, and avoid the unnecessary risks that have recently derailed many companies. And your senior leaders and employees can start speaking in a common language based on a positive risk culture.