Cultural health check could prevent corporate meltdowns

Cultural health check could prevent corporate meltdowns: risk culture is missing link in most organisations.

Extract from Institute of Risk Management (IRM) – Press Release:

Organisations should personality-test their workers in order to avoid scandals and disasters such as Libor rate-fixing and the Gulf of Mexico oil spill, according to guidance issued recently by the Institute of Risk Management (IRM).

Key staff should undergo psychometric testing in order to gauge an organisation’s ‘health’ and prevent or mitigate corporate meltdowns, IRM’s risk culture guidance said. It blamed flawed risk cultures for international scandals and disasters such as Libor-fixing, Deepwater Horizon, Enron’s collapse, the closure of the News of the World and abuse of MPs expenses.

“Airline pilots are routinely given personality tests to determine how effectively they can exhibit self-control under stress – we should be ready to look at other key staff, managers and board members in the same way”, the guidance said.

The two documents, Risk culture: resources for practitioners, and Risk culture: under the microscope – guidance for boards, follow nine months of research and consultation with international risk experts on the root causes of organisational underperformance.
They offer guidance and resources to help organisations better understand cultural issues and move towards successful examples such as the John Lewis Partnership, the Co-Op, UPS and Semco.

In order to move from a vicious to virtuous cultural cycle, remuneration and risktaking should be linked, with those who take inappropriate risks being sanctioned and those who choose smart risks rewarded.

“Historically, remuneration and risk management policies have not been aligned. The banking sector demonstrated the effect of incentivising staff to take significant risks to secure high returns without due consideration of the impact on balance sheet and long term reputation,” the guidance stated.

Backed as “the definitive guide” to risk culture by the Business Continuity Institute (BCI) and described as “groundbreaking” by the Association of Chartered Certified Accountants (ACCA), the research has the backing of the Federation of European Risk Management Associations (FERMA) and the European Institute of Governance Awards.

Alex Hindson, an IRM director and project leader, said that risk culture was “the missing link” for organisations, adding: “We have identified certain key aspects of risk culture that organisations need to understand and address as part of their risk management approach.”

More … http://www.theirm.org/RiskCulture.html