A company’s culture is often driven by its beliefs, behaviours and values. But the increasing number of ‘corporate scandals’ in the media suggests there is a greater need for good governance or ethical conduct. Governance Institute has launched a new free handbook designed for all those involved in setting the corporate culture and risk appetite.
Creating a risk-aware culture
The concept of risk appetite seems easy to grasp, yet in practice answering the question of the amount and type of risk an organisation is willing to pursue or retain can be very difficult.
Governance Institute’s new Risk management for directors: A handbook is a free publication designed to provide clarity on risk management and achieve focus on embedding risk management within the strategic framework.
The handbook covers the linkage between risk management and a company’s culture, as well as the questions directors should consider when reviewing if senior management has taken the necessary steps to monitor and manage the organisation’s material risks to ensure the culture matches the board’s risk appetite.
In particular it focuses on the key elements of creating a risk-aware culture including: risk appetite; incentives; and a board’s ability to evaluate culture.
Risk appetite
For a culture to be ‘risk-aware’ it must have clarity and unity in the way directors, managers and employees think, communicate and behave about all aspects of risk.
A ‘risk appetite’ statement should be descriptive enough to give its audience an understanding of the approach the company takes to managing risk and the weighting of risk against potential reward. It should relate directly to the achievement of business objectives, including the allocation of resources and the setting of appropriate boundaries.
Incentives
Incentives play a powerful role in influencing the values and behaviour of individuals, and hence the culture. Incentives may also have unintended consequences.
Research shows that individuals will seek to do those things that are rewarded, often to the exclusion of activities that are not rewarded. This can create cases of folly, however, where the types of behaviour rewarded are those which the organisation is trying to discourage.
Board evaluation of culture
It is an essential element of governance for a board to understand if there is any disconnection between a desired and stated culture, and the actual culture.
While rules are helpful, they are not always enough to instill a culture where the enacted values align with the desired values. At the same time, an open and transparent culture is required to enable the right questions to be asked that test if the enacted and desired values match.
Both rules and transparency go to the heart of governance and risk management if they are to create and protect value for the organisation.
Download your free handbook
Risk management for directors: A handbook equips directors with the questions they can consider to ensure there is an effective risk management framework in place. It will help your board ensure its deliberations and oversight of management link the alignment of risk management practices with strategic objectives throughout the organisation.
For your complimentary copy of Risk management for directors: A handbook, please visit here.
