It has been over a decade since the financial crisis, and many firms still find themselves working on establishing the right risk culture. Recent financial scandals, control failures, and ethical violations have continued to keep “risk culture” top of mind for a range of internal and external industry stakeholders.
In 2014, we conducted a risk culture survey of more than 500 global banking professionals, and there were several key takeaways. Many reported inadequate authority in the risk function, a lack of risk compliance incentives, underdeveloped real-time risk reporting, and inconsistent management of global risks.
Our 2018 survey responses show that significant improvements have been made in such visible areas as leadership, communications, and governance. Still, many firms need to do more to manage the consequences of misbehavior or noncompliance.
Considering the challenges of defining and measuring corporate culture, our survey provides a tangible way to evaluate industry sentiment. Based on the results, we’ve assessed what has improved since 2014, what hasn’t, and what firms can do right now to progress.
‘Walking the talk’: Today, 84% of respondents agree that “management actions align with communications on risk management,” up 14% since 2014.
Products that consider risk: 92% of US banking respondents say their organization performs sufficient risk analysis of products and services, a 26% jump from 2014.
Clearer communications: 92% of management-level respondents fully understand the consequences of compliance violations, a 15% jump from 2014.
More risk escalation: In some countries, including the US (93%), nearly all respondents now agree their risk culture encourages personnel to escalate risk concerns to management.
Motivation beyond money: 40% of global respondents report that they’re more or equally motivated by recognition and career growth over tangible financial rewards, an 18% uptick from 2014.
Employee incentives: One in four respondents report that compliance with risk procedures isn’t embedded in their annual goal setting or performance reviews.
Demonstrable action: Globally, we find no improvement in management appropriately addressing compliance violations or better promoting core values over business results. In fact, respondents report a slight decrease in both areas since 2014.
Reporting and tools: Nearly a third (30%) of managers say they don’t have access to “real-time” risk reporting, and 20% say they don’t have the tools they need to adequately analyze risk.
Career development opportunities: A growing number of respondents in some territories feel there aren’t enough career development opportunities for risk personnel.
As many financial institutions continue to evolve their risk culture frameworks and programs, we’ve developed some simple “no regrets” actions that firms can take, driven by our global survey and industry experiences.
Review your risk culture framework. Make sure it covers a broad and realistic set of dimensions, including leadership, governance, talent, communication, and global operating norms. If your firm doesn’t have a risk culture framework, define one.
Figure out what’s working and what needs attention. Once you have a baseline understanding of your risk culture, you can determine the root causes of any significant differences over time, across geographies, functions, and lines of business.
Face the tough questions. Does your firm have a disconnect between the compliance culture and the decisions your employees make on the job? Is there a lack of management consistency across the globe? Ask why—and then, ask why again.
Over-communicate the importance of risk culture. When it comes to explaining your risk culture to stakeholders, enough communication is never really enough. Especially now, with changes in automation and operating models, your communication can make the difference between success and failure.
Focus on your people. It turns out that enhancements in risk culture can improve the overall employee experience. If you want to keep the best talent in control functions, you may need to think creatively about how you provide development opportunities.
Want to learn more? We’ll release our 2018 survey results soon. Follow me on LinkedIn and on Twitter for an update when they are available. Or let me know your thoughts and comments below: How do you think firms can use risk culture to get ahead?
Many thanks to my colleagues Alexandra Hom and Madeline Bryke for the leadership on the risk culture survey and analysis.