November 28, 2014 by Canadian Underwriter
Financial services organizations are still struggling to align risk management frameworks with their organization, culture and talent to achieve change, notes a report issued this week by Deloitte Touche Tohmatsu Limited (Deloitte Global).
Findings detailed in Risk, Culture and Talent in Global Financial Services reflect input received from global senior financial services leaders – a total of 59 respondents from 13 countries – who were asked to assess the extent of regulatory implications on talent.
Responses indicate significant progress has been made to control risks through process, rules and governance, but challenges aligning risk management frames with their organizations remain, notes a statement from Deloitte Global.
The report specifically cites four key areas of opportunity for organizations to navigate the current and future regulatory environment:
•reviewing risk management programs by expanding their scope to focus on people in addition to rules and controls;
•reinforcing the need for increased CXO (C-suite level officers) accountability and additional clarity regarding the board’s role in providing increased stewardship, governance and management of talent-related risk;
•reframing talent, compensation and performance management programs to reflect risk management tenets; and
•refining the culture to move toward one of trust and “risk intelligence” where everyone understands the organization’s approach to risk, takes personal responsibility to manage risk, and encourages others to follow their example.
The report cites the top four survey findings as follows:
•C-suite leaders and the board must serve a more prominent role in driving risk governance and demonstrate stewardship in managing risk. There is an enterprise-wide agenda to increase alignment, understanding, involvement and clarity of responsibilities among leadership as they relate to risk management to reinforce their role as risk culture champions. Of the survey respondents, 61% reported that they have seen no increase in behavioural indicators, such as personal responsibility for the management of risk.
•Organization, talent and culture risks are not sufficiently visible as part of enterprise risk frameworks, and the board’s attention to people-related risks has been limited. Risk management needs to be expanded to focus on people in addition to controls. On this point, just 36% indicated HR risks are included as part of the risk management framework, suggesting an opportunity to expand risk management’s focus on people in addition to controls.
Read more: Risk Data to Risk Intelligence
Compensation and rewards are falling behind performance management in ensuring alignment with the risk framework. More broadly, all talent management programs should be reframed to support changing regulations and increasing risks, namely by bolstering under-developed leadership pipelines and identifying key successors.
•The presence of formalized risk intelligence talent programs are not translating to the desired enterprise risk culture. Levels of organizational trust and active employee support should be increased to refine the current risk culture, attitudes and behaviours. In all, 57% of respondents reported they have seen no increase in the alignment of individual interests, values and ethics with those of the organization’s risk strategy, appetite, tolerance and approach.
Deloitte Global’s goal in releasing the report is to explore the opportunities that come with creating an environment that can quickly adapt to the ever-changing demands of the regulatory landscape, Heather Stockton, Deloitte Global Human Capital Financial Services Industry Leader, suggests in the company statement.
It is also meant to “help enable a dialogue among key business leaders on how to address the importance of organization, culture and talent in managing organizational risk,” Stockton continues.
In all, 67% of respondents reported that active leadership involvement is required to manage risk. More encouraging, perhaps, is what appears to be the strong momentum to addressing talent management, cited by 80% of respondents, and culture, noted by 69% of respondents, in light of increased regulation and risk requirements.
Asked what elements their organizations have in place to support their current risk programs, the executives surveyed responded as follows:
•86% had an enterprise risk management framework;
•81% had a set of defined key performance indicators/metrics to track risk management;
•75% had audit/risk committee oversight;
•69% had guiding principles on risk management;
•63% had a code of ethics;
•63% had risk management assessment tools and technologies;
•58% had a risk appetite statement;
•36% had inclusion and visibility of HR risks (organization, talent and culture) as part of a risk program; and
•25% had an enterprise risk dashboard.
“Financial services organizations that consider how they can reinforce, reframe and refine their approach to risk management will be well-positioned to demonstrate that embedding risk practices in the fabric of the organization is an enabler of success and longevity,” Stockton emphasizes.