Ambitious risk management transformation initiatives often fail because Organisations do not change their culture
Organisations want to better understand their current culture and engage in surveys that typically assess tangible products of the culture (e.g., risk appetite statements, mission statements, values, etc.). More than 85% of North American Organisations have engaged in this type of survey, and a similar number in Latin America have as well. In Europe and Asia-Pacific, 60% or more of Organisations have programs to assess internal risk culture.1 Assessing culture at this level, however, does not address the beliefs and behaviors that constitute the culture, which are harder to change. Organisations need to go beyond the level of artifacts of the culture and assess motivation, skills, and attitudes.
Diagnosing problematic areas
Developing a plan to build risk culture
Examining culture at three levels
- Risk policy, risk appetite framework, approval limits and processes, organizational structure, systems, templates/forms, physical layout, and geographic diversity.
- Observable behavior of employees (e.g., communications, committee membership, meeting attendance, tenure, and attrition)
- Published statements of corporate values, corporate and departmental mission statements, departmental goals, competency frameworks, and performance and selection criteria
- Revealed in day-to-day attitudes and choices expressed through situational behavior. For example:
- Overruling decisions according to risk policy
- Challenging business lines and senior decision makers
- Influencing and persuading decision makers outside of the formal approval process
- Promoting or retaining individuals whose behavior flouts corporate values, but whose technical capabilities or revenue-earning record are deemed to be of greater importance
- Standing by while colleagues flout rules (e.g., as reported in the Libor rate submissions investigation)
- Investing in technology to aggregate data, but not the skills to interpret the output
L&D plays a key role in diagnosing and fixing cultural impediments
Cultural impediments to training on new policies can be seen even at the design stage of a training program. On one hand, an organization states that they need to improve credit skills. On the other hand, they are reluctant to have senior people take diagnostic tests or put them through training programs that appear too basic. The Underlying Assumption revealed in this type of comment is that it is more important to save face and defer to senior titleholders than to ensure that everyone has the requisite level of credit skills.
To change the culture, Organisations need to develop meta-cognitive abilities – such as reflection, critical thinking, and conscious awareness of the thought process – which is different from the expert-learner paradigm dominant in technical training. They need to develop people who can recognize and address difficult, uncomfortable, or intangible issues arising during their daily work.
Training that is implemented in support of evolving a risk culture must be integrated and designed to give people the awareness and ability to acknowledge, act, and discuss the “un-discussables.” When a critical mass of people have developed this, new norms emerge.
Culture trumps training every time, as we are reminded by the oft-told story of the enthusiastic person who attended a training course only to be told by their seemingly more seasoned and wiser colleague that “it all sounds good, but that’s not the way we do things around here.”
A secondary objective for many Organisations is to enable people to communicate and share the desired culture with colleagues. This does not mean being able to reel off a statement or a set of values. Communicating the culture is about everything people do and say that aligns or undermines the culture Organisations are trying to create.
This is where the assumptions underpinning the culture, versus personal assumptions, come into play. For example, this could include what people pay attention to, what questions they ask, what stories they tell/repeat, and what emotions are attached to those stories (e.g., admiration, disbelief, anger, disappointment, etc.). Storytelling can be a powerful means to reveal these assumptions and challenge them.
L&D and OD play an important role in moving the organization toward integrated risk management. They can help implement new learning methodologies and training designs and align the other parts of the organizational system – such as performance management, reward, selection, and talent management – with the desired culture.
Achieving cultural change
For risk culture transformation to be effective, the following must all be considered when implementing training interventions:
- Understand the Organisation’s desired culture.
- Diagnose the existing culture and identify issues requiring change, using a tool such as Credit Pulse that measures motivation and ability.
- Develop a transformation plan that takes \account of the values, mindset, and behaviors required, in addition to the Artifacts and Espoused Values.
- Design targeted interventions that:
- Break traditional learning silos.
- Combine knowledge of risk taxonomy with an understanding of cognitive and social influences on decision-making.
- Ensure that employees are trained to interpret and use the output from new risk measurement technology, as well as in the system itself.
- Build abilities, such as reflection, critical thinking, and conscious awareness of the thought process.
- Enable credit officers and client relationship managers to attend training together and support managers to reduce the cultural antagonism created by using “them” and “us” language.
- Develop people who recognize and address difficult, uncomfortable, or intangible issues arising during their daily work and foster the willingness and ability to challenge others in the business.
- Enable change by involving people at all levels. For example, senior managers should attend training programs that their staff attends to improve communication and (peer) interaction and show leadership by agreeing to take the same diagnostic tests as their staff to establish existing competencies.
- Evaluate progress – both quantitatively (e.g., through metrics and surveys) and qualitatively (e.g., through focus groups).