9 Keys to Creating a ‘Risk Challenge Culture’ at Your Firm

ACCA and IMA are seeking to develop a risk challenge culture to improve risk management systems at the organizations. Finance professionals, rating agencies, supervisory bodies and all the other stakeholders are also interested in developing the culture of risk management.

IMA’s vice president of research and policy, Raef Lawson, advises entities to establish a risk challenge culture in order to enable employees to resist the current cultures. If employees are not moralized and motivated to challenge the current cultures, this could lead to being unsuccessful in establishing risk challenge culture.

ACCA and IMA have issued a report A Risk Challenge Culture to Promote Good Risk Management Practices in the C-Suite and Across the Organization. It classifies nine steps to establish a risk challenge cultures:

1. Professional skepticism: The risk management culture needs the top management maintaining their skeptical attitude in discharging their responsibilities.

2. Board expertise: The members of board of directors must have vast experience regarding risk management. Further knowledge should be obtained in order to keep it up-to-date.

3. Leadership roles: The board of directors ultimately leads the risk management process, hence being responsible for the tone set from top, regarding the culture of expressing opinions in meetings.

4. Reporting key information: The scattered information between CEO and the board need to be minimized, and attaining the necessary information in time by the board is important.

5. Recognizing cognitive biases: Where favoritism exists, it is necessary to identify and eliminate it, because it could be a big barrier in a decision making process.

6. Indications if ineffectiveness: Some elements cause risk challenge culture being ineffective, these include encouraging risk taking more than desired, and poor risk transparency.

7. Risk appetite/tolerance: It is important to set a risk desire and a limit to which extent you can take risks, and communicating these to all over the organization.

8. Risk analysis: While making a strategy, it is the board’s duty to get a risk analysis performed.

9. Incentives to induce behaviors: Incentives should be carefully decided to bring the behaviors in-line with the strategy.