WHAT WE KNOW ABOUT RISK CULTURE MACQUARIE UNIVERSITY

Transcription

1 WHAT WE KNOW ABOUT RISK CULTURE 1

2 01. WHAT AND WHY OF RISK CULTURE WHAT WE KNOW ABOUT RISK CULTURE 1. What and why of risk culture 2. How to assess risk culture 3. How culture drives behavior 4. Explaining culture 5. Gender related findings 2

3 01. WHAT AND WHY OF RISK CULTURE ABOUT US University-based group conducting research into risk culture of large financial institutions. Expertise in risk governance, financial risk management, organisational psychology, survey design and state of the art statistical analysis. Funded by Centre for International Finance and Regulation and Macquarie University. 3

4 01. WHAT AND WHY OF RISK CULTURE DEFINING RISK CULTURE The shared perceptions among employees of the relative priority given to risk management, including perceptions of the practices and behaviours that are expected, valued and supported Why? Governance/rules/compliance alone are not sufficient. 4

5 01. WHAT AND WHY OF RISK CULTURE RISK GOVERNANCE MOVEMENT Post-crisis realisation that shareholder friendly governance doesn t work for banks. Board Risk Committee Risk Appetite Statements Compliance Remuneration High status CRO Is governance, like beauty, only skin deep? 5

6 01. WHAT AND WHY OF RISK CULTURE 6

7 01. WHAT AND WHY OF RISK CULTURE EMPLOYEE PERCEPTIONS Genuine commitment or just words? Making sense of competing priorities. Reacting quickly to issues (instinct) Rules don t cover all scenarios Learn by following others 7

8 02. HOW CAN WE ASSESS RISK CULTURE HOW CAN WE ASSESS RISK CULTURE? Interviews and observations 8

9 02. HOW CAN WE ASSESS RISK CULTURE HOW CAN WE ASSESS RISK CULTURE? Survey methods Objective measures across businesses and over time 9

10 02. HOW CAN WE ASSESS RISK CULTURE PSYCHOMETRICS and QUESTION WRITING Survey instrument designed to be: Valid Reliable Short as possible Minimize faking 10

11 02. HOW CAN WE ASSESS RISK CULTURE SURVEY DEVELOPMENT ITEM DEVELOPMENT PILOT TESTING CONFIRMATORY ANALYSIS Academic literature Industry papers Subject matter experts M. Applied Finance students & alumni Smaller Australian bank Large bank with multiple business lines & locations 11

12 02. HOW CAN WE ASSESS RISK CULTURE SURVEY DEVELOPMENT Macquarie University Risk Culture Scale Macquarie University Risk Structures Scale Macquarie University Risk Behaviour Scale 12

13 02. HOW CAN WE ASSESS RISK CULTURE RESEARCH FINDINGS SO FAR 13

14 02. HOW CAN WE ASSESS RISK CULTURE MEASURING RISK CULTURE Example 14

15 02. HOW CAN WE ASSESS RISK CULTURE RISK CULTURE: Australia v. Canada % Favourable 15

16 02. HOW CAN WE ASSESS RISK CULTURE Avoidance Scores in 236 Business Units (7 banks) 60 Number of Business Units % Favourable Scores 16

17 02. HOW CAN WE ASSESS RISK CULTURE LOW AGREEMENT Exemplar 17

18 02. HOW CAN WE ASSESS RISK CULTURE VS HIGH AGREEMENT Exemplar 18

19 02. HOW CAN WE ASSESS RISK CULTURE POSSIBLE CAUSES OF LOW AGREEMENT? Large business units Units lack cohesion Lack of social interaction Low tenure Inconsistent behaviour by leaders Lack of guidance from leaders 19

20 02. HOW CAN WE ASSESS RISK CULTURE WHAT WE LEARNED FROM SENIOR MGT Things look much better from the top!! 20

21 03. HOW CULTURE DRIVES BEHAVIOUR CULTURE AND BEHAVIOURAL OUTCOMES 21

22 03. HOW CULTURE DRIVES BEHAVIOUR SAFETY CULTURE FACTORS vs OUTCOMES Commitment of leaders Organisational learning (incidents, near misses etc) Good communications Staff encouraged to identify safety issues Safe behaviour, fewer accidents 22

23 03. HOW CULTURE DRIVES BEHAVIOUR What Influences Positive Risk Behaviour? Standardised Regression Coefficient Country (Canada) Retail BL Institutional Banking BL Wealth Management BL Risk BL Gender (Female) Tenure Seniority Indiv risk tolerance Risk attitudes Training Frameworks Remuneration/KPIs Risk Managers Valued Avoidance Proactive Manager Denotes significance at p <.05. Individual Structures Risk Culture 23

24 03. HOW CULTURE DRIVES BEHAVIOUR What Influences Negative Risk Behaviour? Standardised Regression Coefficient Country (Canada) Retail BL Institutional Banking BL Wealth Management BL Risk BL Gender (Female) Tenure Seniority Indiv risk tolerance Risk attitudes Training Frameworks Remuneration/KPIs Risk Managers Valued Avoidance Proactive Manager Individual Structures Risk Culture Denotes significance at p <

25 04. EXPLAINING CULTURE RISK STRUCTURES: Australia v. Canada % Favourable 25

26 05. GENDER ISSUES BU Gender (% male) Influences BU Positive Risk Behaviours Standardised Regression Coefficient Bank C1 Bank C2 Retail Risk Other Groups Valued Avoidance Proactive Manager Gender (male) Denotes significance at p <.05. denotes significance at p<.10. Controls Risk Culture BU 26

27 05. GENDER ISSUES BU Gender (% male) Influences BU Risk Culture (Proactive) Standardised Regression Coefficient Bank C1 Bank C2 Risk Other Groups Gender (male) Controls BU Denotes significance at p <.05. denotes significance at p<

28 ONGOING RESEARCH Extension to insurance Interactions with Personality (Machiavellianism) and Ethical behaviour Predictive validity (with objective and survey based performance measures) Cross-cultural validity. Intervention what works? Risk culture assessment also offered on a commercial basis using our validated survey instruments. 28

29 QUESTIONS? Contact: A/Professor Elizabeth Sheedy Download interim paper at be.mq.edu.au/ risk_culture 29