Organizational Dilemma: The Discrepancy Between Strategic Plans and Corporation's Culture: Where Risk Management Confronts Real-World Organizational Circumstances.
Adam Ennamli serves as the Chief Risk Officer at General Bank of Canada, bringing extensive experience from his role as the former VP O&T at Thomson Reuters, and as a global board advisor on strategy and risk. Many companies invest heavily in risk management strategies and frameworks, yet their execution often falls short. The missing link in this scenario is culture. While executives focus on establishing risk models and strategic plans, the underlying organizational culture can either support or obstruct these carefully constructed systems.
Culture goes beyond published values and mission statements, encompassing how individuals behave when making risky decisions or when nobody is watching. This human reality can create a gap between theoretical risk management and its practical implementation, resulting in a paradox between risk culture and risk strategy.
Uncovering the Hidden Forces
Risk management failures can stem from the complex, unpredictable interactions between formal systems and organizational culture. Three crucial cultural elements that significantly influence this relationship are:
1. The Tension Between Risk Protocols and Incentives
Organizations that value short-term success while advocating for long-term risk management unwittingly create a conflict between their stated risk management goals and incentivized behaviors. This tension can hinder the effective implementation of risk management systems.
2. The Power of Informal Networks
Official risk management channels might coexist alongside informal power structures and communication networks that are not visible to newcomers or even some seasoned veterans. Understanding these informal networks is essential to influencing risk management and improving its effectiveness.
3. The Silence of Experience
Hierarchical structures and internal politics frequently obstruct the flow of valuable risk insights from frontline employees to executive decision-makers. This communication gap can lead to blind spots that can fracture within an organization's risk management systems.
Bridging Cultural Divides
To close the risk strategy-culture gap, organizations can take the following steps:
- Integrating Cultural Factors in Risk Assessments: Adopting a more holistic approach to risk assessment by including cultural indicators, such as communication patterns, decision-making flows, and employee feedback loops, can help improve risk evaluation and management.
- Assessing Incentive Systems: Analyzing performance metrics to ensure they are aligned with risk management goals is crucial to promoting a risk-aware culture.
- Encouraging Open Dialogue: Creating an environment where employees feel comfortable sharing their insights and concerns is vital in developing a risk-conscious culture.
- Building Leadership Awareness: Becoming aware of the impact of cultural dynamics on risk management can help leaders make informed decisions and influence their organizations' risk profiles.
Embracing a Culture-First Approach
Risk management failures are not primarily the result of flawed frameworks, but rather a misaligned focus on the wrong issues. By addressing the cultural elements that contribute to risk management failures, organizations can foster a risk-conscious culture that is more resilient and adaptive to emerging risks. This approach involves:
- Recognizing that the organization's culture is essential for effective risk management.
- Accepting the significant role play of informal networks in shaping the behaviors and attitudes of individuals within the organization.
- Understanding that the way individuals work within an organization is more influential than the way they should work.
By making these fundamentals of risk management an integral part of their organizational culture, businesses can promote a more sustainable and adaptive approach to risk management.
- Adam Ennamli, in his role as the Chief Risk Officer at General Bank of Canada, emphasizes the importance of integrating cultural factors into risk assessments, recognizing that the organization's culture plays a significant role in the effectiveness of risk management strategies.
- To bridge the gap between risk strategy and culture, companies should assess their incentive systems to ensure they are aligned with risk management goals, striving for a strategic balance between short-term success and long-term risk mitigation.
- In the context of General Bank of Canada, Adam Ennamli's strategic approach to risk management involves building leadership awareness of cultural dynamics and encouraging open dialogue, fostering a risk-conscious culture that values employee insights and feedback.
