EmbeddingaRiskCulture:Behavioural

AspectsofManagingRisk
Niamh Brennan, Michael MacCormac Professor
of Management, University College Dublin

UCD Centre for Corporate Governance

(www.corporategovernance.ie)

Established February 2002

1.TrainingforCompanyDirectors
Director Development Programme short courses on
various aspects of corporate governance
In-house, customised courses for individual company
boards
Diploma in Corporate Governance

2.PromoteResearchinCorporateGovernance

O
v
e
r
v
i
e
w

1.

Perspectiveoncorporategovernance

2.

Influenceofculture

3.

Featuresofboardroomsconduciveto
psychologicalandbehaviouralelements

4.

5.

Behaviourofboardchairmen

Cognitivebiases

MakingYourBoardEffective Prof.Niamh
Brennan,UCD

Sources

WalkerReport(2009)AReviewofCorporateGovernanceinUKBanksand
OtherFinancialIndustryEntities.Annex4:PsychologicalandBehavioural
ElementsinBoardPerformance
Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London.

1. View of Corporate Governance

Bloomfield,Stephen(2013)TheoryandPracticeofCorporateGovernance:AnIntegratedApproach,
CambridgeUniversityPress,Cambridge

1. View of Corporate Governance

Bloomfield,Stephen(2013)TheoryandPracticeofCorporateGovernance:AnIntegratedApproach,
CambridgeUniversityPress,Cambridge

1. View of Corporate Governance

Bloomfield,Stephen(2013)TheoryandPracticeofCorporateGovernance:AnIntegratedApproach,
CambridgeUniversityPress,Cambridge

2.InfluenceofCulture

2.InfluenceofCulture
Officialpoliciesspecifywhatmanagementwantstohappen
(laws/rulesonthebooks)
CorporateculturedetermineswhatACTUALLYhappens,and
whichrulesareobeyed,bentorignored(laws/rulesin
practice)

CommitteeofSponsoringOrganisationsfortheTreadway Commission(1992)
InternalControl IntegratedFramework,AmericanInstituteofCertifiedPublicAccountants,p.19.)

2.InfluenceofCulture
JusticeOwensreportonHIHandculture

Acauseforseriousconcernarisesfromthegroupscorporate
culture.BycorporatecultureImeanthecharism or
personalitysometimesovertbutoftenunstatedthat
guidesthedecisionmakingprocessatalllevelsofan
organisation.InthecaseofHIH,theculturethatdeveloped
wasinimicaltosoundmanagementpractices.Itresultedin
decisionmakingthatfellwellshortoftherequired
standards.

HIHRoyalCommission2003,TheFailureofHIHInsurance,CommonwealthofAustralia,Canberra.

2.InfluenceofCulture
Collegiate
Passive,Disengaged,Resigned
Riskaverse
Confused,lacksdirection,leadership
Chaotic,overtrading
Clashofcultures
Secretive
Managerialist
Competitive
Likesrisk
Materialistic
Aggressive

2.InfluenceofCulture
Collegiate
Passive,Disengaged,Resigned
Riskaverse
Confused,lacksdirection,leadership
Chaotic,overtrading
Clashofcultures
Secretive
Managerialist
Competitive
Likesrisk
Materialistic
Aggressive

What is missing
from this list?

2.InfluenceofCulture
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
WSJ, 27 November 2012

2.InfluenceofCulture

Question:
How would you describe
the culture of this
organisation?

Ben Worthen, Paul Sonne, Justin Scheck

Long before the H-P Deal, Autonomys Red Flags
WSJ, 27 November 2012

2.InfluenceofCulture
Competitive
Secretive
Sense of humour
Boyish
Disconnect from
reality/fantasist
Likes risk

Ben Worthen, Paul Sonne, Justin Scheck

Long before the H-P Deal, Autonomys Red Flags
WSJ, 27 November 2012

2.InfluenceofCulture(interpersonalrelations)
Friendly,supportive,warm,trusting
Loyal
Unfriendly,cold
Polarising:ingroupoutgrouppolarisation,sneering
Competitive
Narcissistic
Hubristic
Domineering,aggressive,
bullying

2.InfluenceofCulture(interpersonalrelations)
Friendly,supportive,warm,trusting
Loyal
Unfriendly,cold
Polarising:ingroupoutgrouppolarisation,sneering
Competitive
Narcissistic
Hubristic
Domineering,aggressive,
bullying

What is missing
from this list?

2.InfluenceofCulture(communicationinorganisations)

Speakingup Full,frankopencommunication
Guarded,superficial
Informationoverload/obfuscation
Weaselwords
Silence
Whistleblowing

2.InfluenceofCulture(communicationinorganisations)

Speakingup Full,frankopencommunication
Guarded,superficial

What is missing
from this list?

Informationoverload/obfuscation
Weaselwords
Silence
Whistleblowing

2.Influenceof
Culture
(communicationin
organisations)

TheRockTSEliot
TheEaglesoarsinthesummitofHeaven,
TheHunterwithhisdogspursueshiscircuit.
Operpetualrevolutionofconfiguredstars,
Operpetualrecurrenceofdeterminedseasons,
Oworldofspringandautumn,birthanddying
Theendlesscycleofideaandaction,
Endlessinvention,endlessexperiment,
Bringsknowledgeofmotion,butnotofstillness;
Knowledgeofspeech,butnotofsilence;
Knowledgeofwords,andignoranceoftheWord.
Allourknowledgebringsusnearertoourignorance,
Allourignorancebringsusnearertodeath,
ButnearnesstodeathnonearertoGOD.
WhereistheLifewehavelostinliving?
Whereisthewisdomwehavelostinknowledge?
Whereistheknowledgewehavelostininformation?
ThecyclesofHeavenintwentycenturies
BringusfartherfromGODandnearertotheDust.

2.InfluenceofCulture(communicationinorganisations)
Thechairman,EDsandNEDsneedtobeexpertsontheability
toobserve,interpretanddrawconclusionsfromwhatpeople
aregivingcluesabout,butnottalkingabout:thatit,
interpretingwhatliesjustbelowthesurface.
(Source:WalkerReport(2009:142))

2.InfluenceofCulture(communicationinorganisations)
Forme,itisaredflagwhenIseecommunication
linesbeingcontrolledinanorganisation
(Source:HPExecutive,TheIntoxicationofPower LeadershipandHubris,
CambridgeJudgeBusinessSchoolandDeadalus TrustConference19
September2013)

2. Influence of Culture
(Communication in organisations)
Studies of disasters often show that
the problem was not with the
processes but [that the processes]
were ignored or over-ruled.

Internal communications and

behaviour of senior managers is
critical in setting the tone

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

Busy
fool
Learn to
pick your
battles

2. Influence of Culture
(Communication in organisations)
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 in organisations

Question
Whomostinfluencesculturein
organisations?
Question:
Howdoyouchangethecultureof
organisations?
Question:
Doboardshavearoleinthecultureof
organisations?

3.Featuresofboardroomsconducive
topsychologicalandbehavioural
elements

3.Featuresofboardroomsconducivetopsychological
andbehaviouralinfluences

1.

Boardsandboardbehaviourcannotberegulated

2.

Boardsandboardbehaviourcannotbemanagedby
structureandcontrols

3.

Behaviourisdynamic,evolves

4.

Dependsonsituation,strategiccontextandgroup
dynamics

5.

Desiresstronglyinfluencebehaviour

6.

Humanbeingsaresusceptibletosocialinfluence

WalkerReport(2009)AReviewofCorporateGovernanceinUKBanksandOtherFinancialIndustryEntities.
Annex4:PsychologicalandBehaviouralElementsinBoardPerformance,p.137

4.Featuresofboardroomsconducivetopsychological
andbehaviouralelements

Susceptibilitytosocialinfluenceisnot
atraitofthosewholackwillpower;
itishardwiredintoallofus

WalkerReport(2009)AReviewofCorporateGovernanceinUKBanksandOtherFinancialIndustryEntities.
Annex4:PsychologicalandBehaviouralElementsinBoardPerformance,p.137

3.Featuresofboardroomsconducivetopsychological
andbehaviouralelements

Question
Whatarethe
greatestinfluences
onbehaviouron
boards?

4.CognitiveBias

4.Cognitivebiases
Question
Whatisthepurposeofa
company?

Question
Giventhepurposeofa
company,whatisthecentral
purposeofaboardofdirectors

4.Cognitivebiases
Subconsciousthoughtscloudjudgements.
Behaviouraltheorytellsustherearemany
unintendedfilterswhichdistortthewaywe
thinkaboutrisk.Beingawareofthesebiases
willleadtoclearerthinkingandabetter
managementofrisk.
.
Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London,p.4

4.Cognitivebiases
Perceptionsdrivebehaviour
Moreattentionisgivento:
Eventswhichpeopledread
Eventswhichaffectalotofpeople
Unfamiliarevents

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

4.Cognitivebiases
Humanbeingsmisjudgerisk
Representationbias
Availabilitybias
Anchoring
Hindsightbias
Cognitivedissonance
Confirmationbias
Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London,p.4

Summary
1. Corporategovernanceasgeologynotgeography
2. Influenceofculture
3. Featuresofboardroomsconducivetopsychologicaland
behaviouralelements
4. Cognitivebiases

THANKYOU!

QUESTIONS?