Leadership and Governance
A risk-smart culture is not an accessory but a core component of any resilient organization. It is the shared value that underpins every decision and action, turning risk management into an instinct rather than a protocol. This Article post will illuminate how leadership and governance can foster a culture that doesn’t just manage risks but embraces them as fundamental to strategic decision-making and organizational success.
Series
This Article is just one within the series on Enterprise Risk Management
The Imperative for a Risk-Smart Culture
In the face of rapid technological change, globalization, and increasing regulatory demands, fostering a culture that embeds risk management as a fundamental value is not optional; it is critical. As Dr. Paul J. Sobel, Chairman of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), posits, “Culture sets the tone for the organization, and tone sets the framework for risk management” (Sobel, 2020). Strong governance and enlightened leadership are the twin pillars supporting this culture.
Best Practice Insights
The best practice insights for creating a risk-aware culture advocate for consistent messaging from the top, education and training programs, and robust governance frameworks that ensure accountability at all levels. Harvard Business School’s research on leadership and culture emphasizes the role of leaders in embedding risk considerations into the company’s ethos (Kaplan, R.S., & Mikes, A., 2016).
Thought Leaders in the Field
- Dr. Paul J. Sobel, COSO Chairman – A prominent voice on integrating risk management with governance and internal control.
- Dr. Robert S. Kaplan, Harvard Business School – A leading thinker on strategy execution and risk management.
- Dr. Anette Mikes, Oxford University – Specializes in risk management and organizational behavior.
Choice Additional Reading
- Enterprise Risk Management: Today’s Leading Research and Best Practices for Tomorrow’s Executives by John Fraser and Betty Simkins – A comprehensive overview of ERM best practices, including culture and governance.
- Creating a Risk Intelligent Enterprise: A guide to Risk Management and Governance by Deloitte – Provides practical guidance on establishing governance structures that support risk intelligence.
- Risk Culture: A Practical Guide to Building and Strengthening the Fabric of Risk Management by Erik Banks – A hands-on guide for risk managers looking to build a strong risk culture.
What Separates Great from Good
Great Risk-Smart Culture:
- Integrated Leadership: Exceptional leaders do not delegate risk management; they integrate it into their leadership style, ensuring it permeates every level of the organization.
- Transparent Governance: A hallmark of great governance is transparency, which fosters trust and encourages open discussion about risks and opportunities.
- Empowered Engagement: Great organizations empower all members to take ownership of risk management, fostering a proactive stance on identifying and addressing risks.
Good Risk-Smart Culture, while effective, often:
- Delegated Responsibility: Good cultures may view risk management as a responsibility of a particular department, rather than a shared organizational value.
- Check-Box Governance: Good governance may comply with regulations but without the strategic integration that inspires a true risk-aware culture.
- Inconsistent Commitment: Even with good intentions, the commitment to a risk-smart culture can be inconsistent, often wavering during periods of change or pressure.
Key takeaways
Cultivating a risk-smart culture requires more than policies and procedures; it requires a shift in mindset from the boardroom to the breakroom. Through strong governance and strategic leadership, organizations can foster a culture that not only manages risks but also leverages them for strategic advantage. Embrace the challenge and lead the change toward a risk-smart culture.
Call to Action
Assess the state of your organization’s risk culture. Is risk management viewed as a core value across all levels? How can leadership and governance structures better support a risk-smart culture? Let’s commit to cultivating a culture where risk management is second nature.
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