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General Risk Management Ethics


MANAGING REPUTATIONAL RISK

2017-04-07

CULTURAL ALIGNMENT

What’s culture to do with managing reputation risk? A lot of course!

A strong culture targeted at managing compliance in a proactive, holistic manner will invariably contribute to lowering costs, increasing effectiveness and sustaining reputation in challenging times.

Strong Corporate Values

In this era of internet and social media facilitating the rapid exchange of information, words, whether true or not, spreads fast. This is exacerbated by the increasing usage of whistleblowing which has been attracting more ‘converts’ of recent by the day in Nigeria, including the bankers (account officers and relationship managers!). The overall effect of this is that the need for transparency has increased in managing corporate organizations generally, nowadays. Hence, strong corporate values must be entrenched in institutions that care about their reputation. The era of just listing the values such as INTEGRITY, ACCOUNTABILITY, SERVICE, EXCELLENCE etc and displaying them in strategic places in the organization without living the values is gone. Nowadays, you must not only be transparent but must be seen to be transparent for the management of your company’s reputation to make appreciable impact.

Appropriate Performance Incentives

Compensation structures incent employees to behave the way they do and drive behavior leading (sometimes)to unintended consequences that could tarnish the company’s reputation.  In some organizations, employees who are casuals and (relatively) poorly paid are sometimes put in very sensitive positions. A particular bank terminated most of all the IT (Information Technology) staff in nearly all its branches nationwide, almost at the same time, because they were committing ‘huge’ frauds using the sensitive information of customers that they had at their disposal,  thereby exposing the organization to ridicule and reputational damage. The question that was heavily debated then was, ‘why giving such sensitive responsibilities’ (data security and management) to contract staffs who are generally not as well remunerated (and who do not have the same sense of belonging) as their contemporaries given permanent employment? We need to recognize that employee morale has an effect on reputation, because the attitude of employee to employer will eventually become common knowledge.   

Therefore ‘appropriate’ remuneration can, every other thing being equal, be used to manage reputation risk. There are extremes to the above however. The practice of giving top management staffs e.g MDs and EDs and GMs  extra bonuses upon achievement of specific targets or specifically attaching their remuneration to amount of profit delivered, has several times in the past, led many of them to developing huge risk appetites, since they know that the higher the risk the higher is the return. Many hitherto well performing institutions have failed due to reckless risk taking at the top. 

The behavior of many CEOs undulates in line with the’ budgeted bottom Line’ and the accompanying ‘profit sharing’. It is no more about sustainability but ‘what’s in it for me’.  This influences what the Treadway Commission (COSO) refers to as ‘tone at the top’.

But it is not only the tone at the top that matters in fostering a reputable organization. According to Protiviti, the notion that if ‘tone at the top is good’, the organization’s culture must be good, doesn’t always hold. At times there may be ‘disconnect’ between the ‘tone at the top’ and the ‘tone at the middle’ and if this happens it won’t take long for lower level employees to notice, thus affecting the ‘tone at the bottom’ and ultimately, the “tone of the organization”. This development is not good for the management of reputation risk in an institution. That is why executive management and directors should make every effort to:

Implement a strong tone at the top.

Ensure the organization has a variety of effective escalation processes.

Consider conducting a periodic assessment of the “tone in the middle” and “tone at the bottom.”

 

Positive Culture Regarding Compliance with Laws and Regulations

Generally paying adequate attention to Compliance issues is a subtle way of managing reputation risk. If the organization is perceived as being a ‘rascal’ by the regulators for being consistently non-compliant with rules, regulations and reporting,  it would not take long before this defiant behavior ‘oozes’ out to the public, thereby affecting its reputation negatively.

...To be continued








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