New Report Urges Leaders to Promote a Risk Challenge Culture
Wednesday, August 20, 2014
Stern + Associates (on behalf of IMA)
(908) 276-4344 x208
Anat Gerstein, Inc.(on behalf of ACCA)
ACCA and IMA Research Says Boards and Executives Should Reward Employee Skepticism as Part of Risk Governance
New York and Montvale, N.J., August 11, 2014 – According to a recent report from ACCA (the Association of Chartered Certified Accountants) and IMA® (Institute of Management Accountants), corporate culture can stifle employees, preventing them from raising important questions and concerns about risk management. Organizations can only change that atmosphere when board members lead by example, through increased skepticism and critical assessments.
The report, “A Risk Challenge Culture to Promote Good Risk Management Practices in the C-Suite and Across the Organization,” by Paul L. Walker, William G. Shenkir and Thomas L. Barton analyzes the need for organizations to develop and implement effective risk oversight in the wake of the 2008 financial crisis, which exposed serious weaknesses in risk management.
Some organizations that claim to have a robust risk governance structure have one in name only -- disguising a lack of adequate training in risk issues and directors that are not as actively engaged in risk oversight as they need to be.
According to Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research and policy, “Organizations should develop a ‘risk challenge culture,’ which provides employees with the opportunity to defy existing conditions. However, the report shows this culture is impossible to achieve if employees are not encouraged, required and rewarded by management when challenging a negative corporate culture.”
Setting the Tone
The report, which draws on discussion from the ACCA/IMA Accountants for Business Global Forum and insights from ACCA/IMA roundtables held in Dubai, London, and New York, discusses the difficulties board members and managers face when critically questioning policies or decisions in their organizations – especially in the event of outsized profits, unprecedented growth, and when bonuses are at stake.
“All too often decision makers talk about wishing they had the benefit of hindsight,” said Ewan Willars, ACCA director of policy. “But skepticism and a culture in which people are actively encouraged and rewarded for challenging decisions can be highly effective in ensuring that organizations take the right course, and must be actively promoted.”
Designing and Implementing a Risk Challenge Culture
In order to create a risk management culture, the report identifies nine critical areas for designing and implementing a risk challenge culture:
- Professional skepticism and board oversight
- Board diversity and expertise development, particularly in Enterprise Risk Management (ERM)
- Leadership roles and setting tone at the top in a risk challenge culture
- Reporting key risk information to the board on a timely basis
- Recognizing cognitive biases in decision making and minimizing their impact
- Diagnosis and awareness of the signs that a risk culture is in need of remediation, including: weak risk leadership, poor risk transparency and rewarding inappropriate risk-taking
- Establishing a formal risk appetite and risk tolerance, communicating them to all levels and updating when necessary
- Performing a thorough risk analysis before setting strategy and re-evaluating often
- Carefully constructing incentives to induce behaviors appropriately aligned with strategy and risk appetite/tolerance
For additional ACCA and IMA reports, research and insights for finance leaders, please visit the ACCA/IMA joint website, roleofcfo.com.
ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. We support our 162,000 members and 428,000 students in 173 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of 91 offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence. www.accaglobal.com
About IMA® (Institute of Management Accountants)
IMA®, the association of accountants and financial professionals in business, is one of the largest and most respected associations focused exclusively on advancing the management accounting profession. Globally, IMA supports the profession through research, the CMA® (Certified Management Accountant) program, continuing education, networking, and advocacy of the highest ethical business practices. IMA has a global network of more than 70,000 members in 140 countries and 300 professional and student chapters. Headquartered in Montvale, N.J., USA, IMA provides localized services through its four global regions: The Americas, Asia/Pacific, Europe and Middle East/Africa. For more information about IMA, please visit www.imanet.org.