Prologue

It was not my intention to write this article before  - Resiliency – An Impossible Dream?

But events and circumstances conspired and I have now written this one to respond to a question that I have been asking myself for sometime now:

Why is it so difficult to implement sustainable risk management i.e.the management of risk is embedded in organizational culture?

I am not sure that I have the complete answer, but I think I am tracking in the right direction. And neither do I provide a “how-to” answer – more a “what-to-do”?

Success Speaks for Itself!

The consensus view (1) amongst the world’s largest banks was that during the relatively benign economic environment leading up to the 2007 global financial crisis, the risk/reward balance became skewed with many companies focusing upon growth for growth’s sake; risk management being viewed primarily as an analytical function rather than a critical component of decision-making.

In the opinion of many, greed (both organizational and individual) aided and abetted by inappropriate incentive/bonus schemes underpinned this growth for growth’s sake strategy. But, digging deeper into the underlying reasons for this focus takes you to organizational and individual beliefs – assumed (tacit) truths, the matrix of organizational and indeed societal culture.

With the “social mood” up until the time of the crisis being one of “hubris” fueled by success after success (record profits & bonuses), the belief that became embedded in the culture of these organizations, the tacit assumptions upon which their people based their decision-making, was:

We know what we are doing, we are managing risk well; our performance -our success speaks for itself!

Whether or not they were managing risk well is a mute point. But there can be little doubt that in their collective minds they believed that they were and the success they were achieving was, in their view, testament to their capability to manage risk. Again, in their collective minds, they were of the view that if they were not adequately managing risk, they would not be successful. And anyone daring to question the adequacy of their risk decision-making, or more accurately lack of it, was viewed with distain and given the message:

Clearly you don’t understand that we know what we are doing; our record of success, our revenue streams and profits are testament to the correctness of the way we do things.

Cultural Entrapment!

The essence of culture is jointly learned values and beliefs that work so well that they become both taken for granted and non-negotiable; they are considered to be valid and taught to new members as the way to think and feel. They become tacit assumptions that are shared as the organization continues to be successful. It is these learned, shared, tacit assumptions that people base their view of reality; hence “the way we do things around here.”

[To view the full article, login or register. Registration is free.]