Jumat, 21 November 2008

Post Crisis Banking Architecture - Cultural Changes


When people think of and talk about changes that are required in the financial system, they bring in a lot of structural elements; the most visible is the risk management system.

There is however a cultural element that needs to change too. Culture is a broad area, but one essential part is related to the rewarding system. We have been engaged lately in setting up a balanced score card where performance metrics have been the most important indicators. The short-term focus combined with a performance (narrow) focus, has brought a breeding ground for a pseudo-positive-culture.

In this culture the main drive is speed; everything must fit in the goal orientation and any delay costs money. Risk management is a delaying factor in the business process and was seen as a nuisance. "Saying No," strongly disagreeing with propositions, vetoes or negative arguments were banned in such a culture. These would delay the process too much...

Putting risk-management back on the agenda won't be sufficient for banks to function properly. The culture of the organization should change too.
"Everybody is a risk manager," is one way of dealing with this problem. So far the risk manager was one person (department) and an organized from a central role. Risk management is a tough position like that of quality control. If there is a single quality management department, the company will face the same risk as the bank with the central risk management.

Instead, both Risk and Quality should be managed throughout the organization. Otherwise, people can shift the risk or quality responsibility towards these departments. And these departments are consecutively ignored...

The cultural attribute to make this possible has to do with simple communication. If someone is not backing-up a proposal he should receive space to clearly state this, even when this will delay the process. Only if an organization accepts this, the risk or quality system will work; otherwise the old culture of speeding things up will thwart the change initiative towards a more overall risk-sensitive culture.

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