RISK MANAGEMENT
Is Failure To Establish A Strong Organizational Risk Culture Your Biggest Risk ?
By Reuben Kisigwa
“ Culture eats strategy for breakfast ,” according to Peter Drucker - “ the father of management ”. Simply said , you can have a vision that inspires and a fantastic plan to get there . But if you don ’ t have a culture that supports it , you ’ ll never get there .
Individual acts can have a substantial impact on many aspects of an organization ’ s operations , including regulatory and statutory compliance , financial performance , and market reputation , as a number of industry leaders have tragically learned . More shifts in business mindsets toward building and maintaining strong risk cultures have occurred as a result of this .
What is culture ?
Formal definitions tell us that culture is the shared values , beliefs , and assumptions that govern behavior . Informally , many of us will simply define culture as “ the way we do things around here .” Indeed , it is expected that most people are familiar with these definitions , however culture can be difficult to describe clearly because values , beliefs , and assumptions are not directly observable , and “ the way we do things ” is too vague to be useful .
Dr . Edgar Schein ( Professor Emeritus at the MIT Sloan School of Management ) defines organizational culture as : “ A pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration , that has worked well enough to be considered valid , and therefore , to be taught to new members as the correct way to perceive , think and feel in relation to these problems .”
Organizational Culture ’ s Beginnings
Perhaps one of the early commentators to mention ‘ culture ’ in the context of work organizations was Dr . Elliot Jaques . The term organizational culture , is said to have been first introduced by Dr . Jaques in his book The Changing Culture of a Factory . ( Jaques , 1951 ).
According to Dr . Jaques “ the culture of the factory is its customary and traditional way of thinking and doing of things , which is shared to a greater or lesser degree by all its members , and which new members must learn , and at least partially accept , in order to be accepted into service in the firm …”. ( Jaques , 1951 , p251 ). This basically means the extent people can share common wishes , desires and aspirations and commit themselves to work together . It is a matter of being able to care about the same things in an organization , industry and even nation .
“ The tone at the top sets an organization ’ s guiding values and ethical climate . Properly fed and nurtured , it is the foundation upon which the culture of an enterprise is built . Ultimately , it is the glue that holds an organization together .”
The developments in understanding corporate culture
In a 2001 journal article , “ Corporate Culture and the Bottom Line ” ( Flamholts , 2001 ), Eric Flamholts shared his discovery of a statistically significant relationship between culture and financial performance ( measured by ‘ EBIT ,’ or earnings before interest and taxes ).
Flamholts developed and validated a model of corporate culture components that influence financial performance . The model consisted of five known dimensions of corporate culture : treatment of customers , treatment of people , performance standards and accountability , innovation and change , and process orientation . These are aspects that are similar to the Key Result Areas ( KRAs ) used in today ’ s workplace performance evaluations .
He concludes his article by saying : “ Organizational culture does have an impact on financial performance . It provides additional evidence of the significant role of corporate culture not only in overall organizational effectiveness , but also in the so-called bottom line ”.
So , what is risk culture ?
Poor risk culture continues to impact industries , and the associated implications are under high stakeholder scrutiny . This poor risk culture is evidenced by the following risk management failures that have continued to play out even among the dominant leaders of Industry : poor governance and “ tone of the organization ”, reckless risk-taking , inability to implement effective
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MAL 47 / 22 ISSUE