Issue 07 / October 2015
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.
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.
How risk managers can help to mitigate people risks, recruit and retain the best talent and ensure successhttp://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.
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.
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.
Willis Group Holdings plc is a leading global risk advisor, insurance and reinsurance broker. With roots dating to 1828, Willis operates today on every continent with more than 18,000 employees in over 400 offices. Willis offers its clients superior expertise, teamwork, innovation and market-leading products and professional services in risk management and transfer. Our experts rank among the world’s leading authorities on analytics, modelling and mitigation strategies at the intersection of global commerce and extreme events.Find more information at our website, www.willis.com
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