Risk mitigation: strengthening the tone at the top for effective risk management

First Annual Risk Conference 2023

What it is about

Erich Schumann, of Global Atlantic Partners, explained at the First Annual Risk Conference (September 2023) how risk culture and the example set by senior management (tone at the top) determine the quality of risk management. The slides are in English.

The 20-slide presentation starts from the idea that taking risks is necessary to obtain results, but doing so without understanding them leads to disaster. It covers the elements of a good risk culture, the 2012 JPMorgan trading loss case, how culture is formed (personal predisposition, ethics, organizational culture and behavior), five steps to change it, common weaknesses in risk governance and ten reasons why the tone from the top matters.

Objectives

Define what a risk culture is and what elements make it up.
Show with a real case the consequences of failures in risk culture and governance.
Give guidance for leaders at all levels to strengthen risk management through their example.

Key takeaways

Avoiding all risks stalls a business; taking them without understanding them leads to disaster. Good risk management is prudence, not just regulatory compliance.
A good risk culture combines a consistent tone from senior management, ethical principles, clear accountability, transparent and timely information, and event reporting without fear of blame.
It also requires rewarding appropriate risk-taking behavior, sanctioning inappropriate behavior, and having diverse perspectives and a risk function with resources.
The presentation proposes five steps to change a risk culture, starting by evaluating the current culture and detecting hidden subcultures.
Among the weaknesses in risk governance, it notes that the board may lack the knowledge and vocabulary to discuss risks with management.
Leaders must walk the talk, show support, improve continuously and avoid actions that undermine the risk culture.