A Framework and Measure for Examining Risk Climate in Financial Institutions

Sheedy, Elizabeth; Griffin, Barbara; Barbour, Jennifer Patricia

doi:10.1007/s10869-015-9424-7

Cited by 35 publications

(51 citation statements)

References 36 publications

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“…The goal of risk governance is that staff will behave "well" in a risk management sense, thereby increasing the likelihood that the firm will achieve its objectives and reducing the likelihood of scandal, unex- Undesirable risk behavior has been identified and described in many risk management cases (see summary presented in Table 1 of Sheedy et al, 2017). Lack of compliance with policy/appetite is a common theme; such undesirable risk behavior may result from performance pressure, whether it be short-term profits or simply the need to get the job done efficiently.…”

Section: Literaturementioning

confidence: 99%

Risk governance, structures, culture, and behavior: A view from the inside

Sheedy

Griffin

2017

Corporate Governance

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Manuscript Type EmpiricalResearch Questions/Issues Risk governance (emphasizing internal structures and risk culture) is a relatively new approach to the governance of financial institutions that is being widely adopted in the industry. Due to obvious assessment challenges, to date no evidence exists regarding the effectiveness of risk structures nor the status of risk culture in financial institutions.We therefore investigate the extent to which bank employees view risk structures as effective and risk culture as favorable. We also investigate how risk structures and risk culture together influence risk behavior.Research Findings/Insights Risk structures were typically rated as effective with the exception of remuneration. Risk culture varied at the business unit level as well as by firm and country. Senior leaders tended to have a rosier perception of risk culture than staff generally.Favorable risk culture together with effective risk structures was associated with high levels of desirable and low levels of undesirable risk behavior.Theoretical/Academic Implications The study provides a window into internal bank governance using a novel survey methodology. Many governance papers rely exclusively on external measures of governance; these do not guarantee effective internal risk governance.Practitioner/Policy Implications Further managerial and supervisory attention should be paid to ensure that culture and remuneration structures support risk management in financial institutions. As risk culture varies at the local level, it should be measured and managed at the local level. Senior leaders cannot rely on their own perceptions but should rely instead on independent assessments of risk culture.

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Section: Literaturementioning

confidence: 99%

Risk governance, structures, culture, and behavior: A view from the inside

Sheedy

Griffin

2017

Corporate Governance

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“…Organisational culture (OC), incorporates complex, multiple realities, in addition to the economic reality (Bencherki, Basque, & Rouleau, ; Sackmann & Phillips, ); therefore, OC is utilised in this research. Academic literature looking into Australian finance culture from a systemwide perspective has been described as “sorely lacking,” and presenting a “tremendous opportunity” (Ashkanasy, Humphrey, & Huy, , p. 181; Sheedy, Griffin, & Barbour, ). OC has been underused within the finance industry (Ardalan, ).…”

Section: Introductionmentioning

confidence: 99%

Sustainability – A key to Australian finance directors improving their organisation's CSR culture

Burns

Houghton

Stewart

2019

Corp Soc Responsibility Env

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Sustainability, as one of six (economic, ethical, social, stakeholder, sustainability, and discretionary) dimensions of corporate social responsibility (CSR) is frequently espoused in large finance organisations' corporate reports. In this case study on finance board directors, conducted in the lead‐up to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (hereafter Commission), sustainability assumptions were not found to be a day‐to‐day consideration for the majority of directors. Directors' primary assumptions, their values‐in‐use, were finance first, followed by risk and defence. Finance, in terms of short‐term profitability, was considered before all espoused values such as customer centricity, integrity, trustworthiness, and professionalism. Within the study there were a small number of directors who did prioritise sustainability, which they closely integrated with the economic (finance) dimension. The additional prioritisation of sustainability led to better integration of the other CSR dimensions and a reduced difference between what is said (espoused) and done. While other CSR and finance studies have focused on “how much”, this study provides unique insights into the “why” of the finance industry's values‐in‐use preceding the 2018 to 2019 Commission which exposed some of the “what” and “when” of director behaviour.

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“…The Tolerance construct considers both the available organizational mechanisms to report any type of misconduct risk or excessive risk-taking, as well as the organization's response in such situations. It is very similar to the only dimension of the risk climate measurement scale developed by Sheedy et al (2017) that is systematically associated with behaviours such as misconduct towards customers (Sheedy et al, 2019).…”

Section: Discussionmentioning

confidence: 89%

“…Leaver and Reader () show that the dimensions of safety culture and safety climate used to understand organizational accidents also explain failures in risk management within financial trading organizations. Sheedy et al () likewise appreciate these affinities between both fields of research, safety and risk management, but argue the need to introduce a new concept of organizational climate so as to include a specific risk focus. These authors pioneered the study of the risk climate in financial institutions, which they define as ‘the shared perceptions among employees of the relative priority given to risk management, including perceptions of the risk‐related practices and behaviours that are expected, valued and supported’ (Sheedy et al, , p. 101).…”

Section: Culture and Climatementioning

confidence: 99%

“…It measures the extent to which bank employees believe that their organization values prudence in risk management and compliance with norms, codes and laws, including the focus on satisfying the customer's interests. With respect to previous research, it is a new conceptualization or type of organizational climate that broadens the original focus of Sheedy et al (2017) in risk management to also include such a relevant aspect as misconduct issues so as to better understand the organizational climate among bank employees and how it affects the actions and decisions taken by individuals within the institution. Another novel contribution of the paper is that the measurement scale of the climate that is created is based on indicators put forward by international organizations to guide and facilitate the supervisory review process of banking culture.…”

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confidence: 99%

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Misconduct and Risk Climate in Banking: Development of a Multidimensional Measurement Scale

2020

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Misconduct and risk culture are two critical issues in bank supervision today. This paper reviews recent studies and regulatory documents on both topics to further our understanding of the dimensions that underlie these new, distinct risks to the global banking sector. Based on this review, a multidimensional measurement scale for misconduct and risk climate (M&R climate) is subsequently developed and validated. The scale obtained provides a tool in line with the leading guidelines and recommendations issued by international standard-setting bodies aimed at assessing M&R climate and monitoring the prevalence of misconduct and excessive risk-taking behaviours in banking. Policy Implications• The banking sector has lost the trust of the public and needs to earn it back. • Some types of misconduct, like money laundering, tax evasion and other criminal activities entail severe risks to global security.• Banking culture can be used to prevent future risks for the solvency of banks and for the stability of the global financial system itself.

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A Framework and Measure for Examining Risk Climate in Financial Institutions

Cited by 35 publications

References 36 publications

Risk governance, structures, culture, and behavior: A view from the inside

Risk governance, structures, culture, and behavior: A view from the inside

Sustainability – A key to Australian finance directors improving their organisation's CSR culture

Misconduct and Risk Climate in Banking: Development of a Multidimensional Measurement Scale

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