Over the past few years, organisations across all industries have enhanced their focus on the culture and conduct (or behaviours). This has been driven by regulations in some sectors, and also by the rising incidence and cost of incidents where poor behaviours played a key role.
The two recent Australian Royal Commissions and the APRA CBA Report, have made it very clear that organisational culture and the conduct of individuals, once seen as the responsibility of HR, is a matter that needs to be firmly on the agenda of both senior management and the Board.
Behavioural risk is the possibility of undesirable risk outcomes caused by poor workforce behaviours (or conduct) and the cultural factors that drive them.
Organisational culture is the sum of employee behavior – it is complex, difficult to observe and difficult to change. A desirable culture is unique to each organisation and depends on the purpose, strategy and values, as well as external factors such as the competitive context. It may also vary over time, and by business unit or the country/culture in which it operates, for example.
The interaction of organisation culture with risk management is referred to as risk culture. This is a key focus area including in regulations, to ensure the organisation culture supports strategy execution within risk appetite, and promotes sound risk responses.
Potential risks come to life as issues because of human behaviours - people either doing (or not doing) things that are inconsistent with the strategy, values and risk appetite the organisation desires.
Just as all other risks are assessed, understood and reported against - so too should behavioural risk be. Behaviours of employees are a strong source of evidence of the actual culture in any organisation, and can show if the intended and expressed strategy, values, risk culture and risk appetite are being realised.
All executives and employees have a role to play, and a number of supporting functions such as the HR, risk, audit and compliance functions typically have specific roles.
There are a range of techniques that can be used to consider culture and behaviours:
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