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Risk Culture in Financial Organisations

Prof Mike Power and Dr Tommaso Palermo, LSE
Date: 5 November 2013
Time: 1.00pm- 2.30pm
Venue: KSW.3.01

Abstract for CARR presentation

Interest in the culture of organisations in financial services has increased dramatically in recent years and many reports point to failures of culture in large institutions.  Furthermore, a new twist in the vocabulary of culture has taken place and companies, advisors and regulators now seem to have a specific focus on something called risk culture.

What is this new object which features so prominently in discussions about financial regulation? Is it a single thing or does it have many faces? How do companies understand and operationalise it? Do they do this in similar ways? How do financial regulators influence conceptions of risk culture? Is the demand to improve risk culture at all coherent? Can it – whatever it is – be consciously managed? Is it auditable? Is there a single desirable risk culture or are there diverse and plural approaches? If so, are there any limits to this diversity?

Our research provides some answers to these questions based on investigations over a period of 18 months. It shows how organisations are grappling with several trade-offs as they seek to address their risk cultures. These trade-offs provide a way of framing some of the challenges that CROs, CEOs and Boards need to consider: for instance, should financial organisations promote informal network building or formal processes? Pursue internal change or use advisors? Co-operate or resist to regulatory pressures? 

The prescriptions arising from the research suggest that risk culture is a not a thing or discrete management object.  Rather financial organisations need to recover the capability to make visible and understand a series of key trade-offs and tensions involved in the positioning of the risk function.

The full report can be obtained here: http://www.lse.ac.uk/researchAndExpertise/units/CARR/pdf/Final-Risk-Culture-Report.pdf|

The research team

Michael Power is Professor of Accounting and Director of the Centre for the Analysis of Risk and Regulation (CARR) at the London School of Economics. He is a Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW), an Associate member of the UK Chartered Institute of Taxation and an Honorary Fellow of the Institute of Risk Management. Since May 2005 he has been a non-executive Director of St James’s Place plc where he is chair of the risk committee. Power holds an honorary doctorate in Economics from the University of St Gallen, Switzerland and an Honorary Doctorate in Social Science from the University of Uppsala, Sweden. His research and teaching focuses on regulation, accounting, auditing, internal control and risk management. His major work, The Audit Society: Rituals of Verification (Oxford 1997) has been translated into Italian, Japanese and French. Organised Uncertainty: Designing a World of Risk Management (Oxford 2007) has been translated into Japanese. He has given evidence to both the UK Treasury Committee and the House of Lords Economic affairs committee regarding the role of auditors. Email: m.k.power@lse.ac.uk  

Simon Ashby is Associate Professor in Financial Services at the Plymouth Business School and Head of the Accounting and Finance Discipline Group. Prior to this he was a Lecturer in Risk Management at Sheffield Hallam University and the University of Nottingham, a regulator (writing policy on risk management at the UK Financial Services Authority), and a practicing risk manager in a number of large and small banks. Simon has a PhD in corporate risk management and has published many academic papers in respected journals (e.g. British Journal of Industrial Relations, Geneva Papers, Safety Science, Risk, Decision and Policy), book chapters, professional articles and industry reports in the fields of risk management and financial services. This recently included a major study into the causes of the financial crisis and the risk management lessons that need to be learned (Picking up the Pieces: Risk Management in a PostCrisis World). Simon remains actively involved in the financial services sector and is a Fellow and the Chairman-Elect of the Institute of Operational Risk. Email: simon.ashby@plymouth.ac.uk   

Tommaso Palermo is a Lecturer at the London School of Economics – Department of Accounting. Tommaso has a PhD in Management, Economics and Industrial Engineering (Politecnico di Milano, Italy). His research and teaching focuses on the roles and uses of management control systems, the relation between risk management and performance management, and management accounting innovations in the public sector. Email:  t.palermo@lse.ac.uk