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EmbeddingaRisk

Culture:

Behavioural

AspectsofManagingRisk

Niamh Brennan, Michael MacCormac Professorof Management, University College Dublin

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1. Perspectiveoncorporategovernance

2. Influenceofculture

3.

Featuresofboardroomsconduciveto

psychologicalandbehaviouralelements

4. Behaviourofboardchairmen

5. Cognitivebiases

MakingYour

Board

Effective

Prof.

Niamh

Brennan,UCD 3

Ov

e

r

v

ie

w

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WalkerReport(2009)AReviewofCorporateGovernanceinUKBanksand

OtherFinancialIndustryEntities.Annex4:PsychologicalandBehavioural

ElementsinBoardPerformance

Lloyds(2010)

Behaviour

Bear,

Bull

or

Lemming,

Lloyds,

London.

Sources

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Bloomfield,Stephen

(2013)

Theory

and

Practice

of

Corporate

Governance:

An

Integrated

Approach,

CambridgeUniversityPress,Cambridge

1. View of Corporate Governance

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Bloomfield,Stephen

(2013)

Theory

and

Practice

of

Corporate

Governance:

An

Integrated

Approach,

CambridgeUniversityPress,Cambridge

1. View of Corporate Governance

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Bloomfield,Stephen

(2013)

Theory

and

Practice

of

Corporate

Governance:

An

Integrated

Approach,

CambridgeUniversityPress,Cambridge

1. View of Corporate Governance

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2.InfluenceofCulture

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Officialpoliciesspecifywhatmanagementwantstohappen

(laws

/

rules

on

the

books)

CorporateculturedetermineswhatACTUALLYhappens,and

whichrulesareobeyed,bentorignored(laws/rulesin

practice)

CommitteeofSponsoringOrganisationsfortheTreadway Commission(1992)

InternalControlIntegratedFramework,AmericanInstituteofCertifiedPublicAccountants,p.19.)

2.InfluenceofCulture

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JusticeOwensreportonHIHandculture

Acauseforseriousconcernarisesfromthegroupscorporate

culture.By

corporate

culture

Imean

the

charism or

personalitysometimesovertbutoftenunstatedthat

guidesthedecisionmakingprocessatalllevelsofan

organisation.InthecaseofHIH,theculturethatdeveloped

wasinimical

to

sound

management

practices.

It

resulted

in

decisionmakingthatfellwellshortoftherequired

standards.

HIHRoyalCommission2003,TheFailureofHIHInsurance,CommonwealthofAustralia,Canberra.

2.InfluenceofCulture

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Collegiate

Clashofcultures

Passive,Disengaged,

Resigned

Aggressive

Competitive

Materialistic

Confused,lacksdirection,leadership

Chaotic,over

trading

Secretive

Riskaverse

Likesrisk

Managerialist

2.InfluenceofCulture

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Collegiate

Clashofcultures

Passive,Disengaged,

Resigned

Aggressive

Competitive

Materialistic

Confused,lacksdirection,leadership

Chaotic,over

trading

Secretive

Riskaverse

Managerialist

What is missingfrom this list?

Likesrisk

2.InfluenceofCulture

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CEOborninIreland,raisedinEngland,PhDCambridge

SignondoorAuthorisedpersonnelonly behindthe

doorhushhushprojects itwasabroomcupboard!

ConferenceroomsnamedaftervillainsinJamesBond

movies GoldenEye,Goldfinger,DrNo

CEOdrovequintessentialBondcar AstonMartin

Stockedpiranhasinofficefishtank

Ben Worthen, Paul Sonne, Justin Scheck

Long before the H-P Deal, Autonomys Red Flags

W S J, 27 November 2012

2.InfluenceofCulture

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2.InfluenceofCulture

Question:

How would you describe

the culture of thisorganisation?

Ben Worthen, Paul Sonne, Justin Scheck

Long before the H-P Deal, Autonomys Red Flags

W S J, 27 November 2012

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2.InfluenceofCulture

Competitive

Secretive

Sense of humour

Boyish

Disconnect fromreality/fantasist

Likes risk

Ben Worthen, Paul Sonne, Justin Scheck

Long before the H-P Deal, Autonomys Red Flags

W S J, 27 November 2012

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Friendly,supportive,warm,trusting

Unfriendly,cold

Loyal

Domineering,aggressive,

bullying

Competitive

Polarising:in

group

out

group

polarisation,

sneering

Narcissistic

Hubristic

2.InfluenceofCulture(interpersonalrelations)

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Friendly,supportive,warm,trusting

Unfriendly,cold

Loyal

Domineering,aggressive,

bullying

Competitive

Polarising:in

group

out

group

polarisation,

sneering

Narcissistic

Hubristic

2.InfluenceofCulture(interpersonalrelations)

What is missingfrom this list?

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SpeakingupFull,frankopencommunication

Silence

Informationoverload/obfuscation

Weaselwords

Whistleblowing

2.InfluenceofCulture(communicationinorganisations)

Guarded,superficial

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SpeakingupFull,frankopencommunication

Silence

Informationoverload/obfuscation

Weaselwords

Whistleblowing

2.InfluenceofCulture(communicationinorganisations)

Guarded,superficial What is missing

from this list?

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TheRockTSEliot

TheEaglesoarsinthesummitofHeaven,

The

Hunter

with

his

dogs

pursues

his

circuit.Operpetualrevolutionofconfiguredstars,

Operpetualrecurrenceofdeterminedseasons,

Oworldofspringandautumn,birthanddying

Theendlesscycleofideaandaction,

Endlessinvention,

endless

experiment,

Bringsknowledgeofmotion,butnotofstillness;

Knowledgeofspeech,butnotofsilence;

Knowledgeofwords,andignoranceoftheWord.

All

our

knowledge

brings

us

nearer

to

our

ignorance,Allourignorancebringsusnearertodeath,

ButnearnesstodeathnonearertoGOD.

WhereistheLifewehavelostinliving?

Whereisthewisdomwehavelostinknowledge?

Whereis

the

knowledge

we

have

lost

in

information?

ThecyclesofHeavenintwentycenturies

BringusfartherfromGODandnearertotheDust.

2.Influenceof

Culture

(communication

in

organisations)

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Thechairman,

EDs

and

NEDs

need

to

be

experts

on

the

ability

toobserve,interpretanddrawconclusionsfromwhatpeople

aregivingcluesabout,butnottalkingabout:thatit,

interpretingwhatliesjustbelowthesurface.

(Source:Walker

Report

(2009:

142))

2.InfluenceofCulture(communicationinorganisations)

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Forme,

it

is

ared

flag

when

Isee

communication

linesbeingcontrolledinanorganisation

(Source:HPExecutive,TheIntoxicationofPower LeadershipandHubris,

CambridgeJudgeBusinessSchoolandDeadalus TrustConference19

September2013)

2.InfluenceofCulture(communicationinorganisations)

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Studies of disasters often show thatthe problem was not with the

processes but [that the processes]were ignored or over-ruled.

Internal communications andbehaviour of senior managers iscritical in setting the tone

Busyfool

Learn to

pick yourbattles

2. Influence of Culture

(Communication in organisations)

Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London,p.5.

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God grant me the serenity

to accept the things I cannot change;

courage to change the things I can;

and wisdom to know the difference.

(Source: Reinhold Niebuhr's "Serenity Prayer)

OR

Whats everyones problem is no ones problem(Bystander theory)

2. Influence of Culture

(Communication in organisations)

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Question

Whomostinfluencescultureinorganisations?

Question:

Howdoyouchangethecultureof

organisations?

Question:

Doboards

have

arole

in

the

culture

of

organisations?

2. Influence of Culture in organisations

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3.Featuresofboardroomsconducive

topsychologicalandbehavioural

elements

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Boardsandboardbehaviourcannotberegulated1.

Boardsandboardbehaviourcannotbemanagedby

structure

and

controls2. Behaviourisdynamic,evolves3.

Dependsonsituation,strategiccontextandgroup

dynamics4.

Desiresstronglyinfluencebehaviour5.

Human

beings

are

susceptible

to

social

influence6.

3.Featuresofboardroomsconducivetopsychological

andbehaviouralinfluences

WalkerReport(2009)AReviewofCorporateGovernanceinUKBanksandOtherFinancialIndustryEntities.

Annex4:PsychologicalandBehaviouralElementsinBoardPerformance,p.137

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Susceptibilityto

social

influence

is

not

atraitofthosewholackwillpower;

itishardwiredintoallofus

4.Featuresofboardroomsconducivetopsychological

andbehaviouralelements

WalkerReport(2009)AReviewofCorporateGovernanceinUKBanksandOtherFinancialIndustryEntities.

Annex4:PsychologicalandBehaviouralElementsinBoardPerformance,p.137

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Question

Whatarethegreatestinfluences

onbehaviour

on

boards?

3.Featuresofboardroomsconducivetopsychological

andbehaviouralelements

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4.CognitiveBias

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Question

Whatisthepurposeofa

company?

Question

Giventhepurposeofacompany,whatisthecentral

purposeof

aboard

of

directors

4.Cognitivebiases

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Subconsciousthoughtscloudjudgements.

Behaviouraltheorytellsustherearemany

unintendedfilterswhichdistortthewaywethinkaboutrisk.Beingawareofthesebiases

will

lead

to

clearer

thinking

and

a

better

managementofrisk.

.

4.Cognitivebiases

Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London,p.4

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Perceptionsdrivebehaviour

Moreattentionisgivento:

Events

which

people

dread

Eventswhichaffectalotofpeople

Unfamiliarevents

4.Cognitivebiases

Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London,p.4

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Humanbeingsmisjudgerisk

Representationbias

Availabilitybias

Anchoring

Hindsightbias

Cognitivedissonance

Confirmation

bias

4.Cognitivebiases

Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London,p.4

S

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Summary1. Corporate

governance

as

geology

not

geography

2. Influenceofculture

3. Featuresofboardroomsconducivetopsychologicaland

behaviouralelements

4. Cognitivebiases

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QUESTIONS?

THANKYOU!