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Issue 07 / October 2015

Deterring unethical employee behaviour

At a glance
  • Almost every failure in a financial institution was a result of senior people’s behaviour
  • Companies often affected by good people doing bad things because of inappropriate bonus systems or undue pressure
  • Incentive systems should be compatible with corporate culture and not result in perverse behaviours
Risk managers can help HR specialists to ensure that incentive systems do not result in perverse behaviours, says Jim Blaney

One of the major risks in business is that board members do not actually know what is happening down the line and what is actually being done in their name. 

Companies are often affected by people not doing what is expected of them – particularly good people doing bad things.

Mindful of this, Andrew Bailey, CEO of the Prudential Regulation Authority (the UK’s financial services regulatory body), told UK politicians in early 2015 that, in almost every case where there had been a failure in a financial institution, it was a result of the behaviours of the senior people. 

Consequently, the Prudential Regulation Authority has brought in a ‘Senior Persons Regime’, where, in the event of any serious failure down the line, the senior person will be held responsible – thereby creating an incentive for senior management to know and understand what is happening in the wider organisation.

Errant behaviour

At the micro level, businesses’ risks are increasingly people related. Modern technology and control systems mean that mechanical processes are now very closely monitored so there is much less chance of faults or erroneous outcomes. 

Managing people risks of the future

How risk managers can help to mitigate people risks, recruit and retain the best talent and ensure success

http://www.resilience.willis.com/articles/2015/09/27/managing-human-capital-risk-2030/

However, companies are often affected by people not doing what is expected of them – particularly good people doing bad things. There are normally two reasons why good people do bad things:

1) They are on a bonus system where the rewards are so great they behave unethically to get results, even if it is potentially damaging to their employer. The money trumps the ethics scenario – the Libor rigging and Forex rigging cases are obvious examples.

2) Employees are under pressure from above to get results (to ‘just do it’) and those who deliver get rewarded in status, if not in money, with no questions asked. This is what led to newspaper phone hacking in the UK.

Incentives and culture

The role of the risk manager, alongside the HR specialist, is to ensure that incentive systems are compatible with the corporate culture and do not result in perverse behaviours.

There are dangers in:

• Pushing too hard and creating short term progress at expense of long-term sustainability.

• Creating perverse incentives that make employees put themselves before their employer.

• Undermining the corporate culture and opening the door to reputational risk.

Risk managers need to ensure that reporting lines and chains of command have the integrity not to be subverted or bypassed by people bending the rules to their own advantage.

Find out more

Photo of James   Blaney
James Blaney

james.blaney@willis.com | +1 610 254 5656

James Blaney is CEO of the Human Capital practice at Willis Global Solutions. He is responsible for overall human capital business unit growth specifically focused on new sales, client retention, training, talent recruiting and mergers & acquisitions.

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Photo of James   Blaney
James Blaney

james.blaney@willis.com | +1 610 254 5656

James Blaney is CEO of the Human Capital practice at Willis Global Solutions. He is responsible for overall human capital business unit growth specifically focused on new sales, client retention, training, talent recruiting and mergers & acquisitions.

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Resilience is the risk management magazine from Willis for business leaders around the world. Each issue explores the latest trends and issues facing multinational businesses as they compete in an increasingly dynamic and interconnected threat landscape.

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