Building an Effective Risk Culture Starts from the Top

By Michel Feijen, Managing Director, APAC, MetricStream

The dynamic market conditions that businesses operate in today have resulted in the rising adoption of a more strategic and proactive approach to risk management. Echoing the popular adage ‘the best offense is a great defense, enterprises are now ranking the development of a risk culture as one of their top risk management priorities.

According to Deloitte’s recent Global Risk Management Survey, more than half (55%) of financial institutions are actively building a risk culture across the enterprise. The growth in adoption is aided by the influence of legislation from local authoritative bodies. In Malaysia, the Malaysian Code on Corporate Governance (MCCG) by the Securities Commission of Malaysia, provides a framework of control mechanisms that support companies in achieving its goals, while preventing unwanted conflicts. The framework outlines how pillars of corporate governance are important to the governance of companies and stewardship of investors’ capital. Furthermore, the framework highlights the need for board or management committees to oversee, implement and shape the risk culture, drive initiatives, review effectiveness of the implemented culture, as well as include regular culture and conduct agenda items at board or senior management forums. This is especially important in developing the risk appetite framework that will be cascaded to the front line employees.

The risk accountability role played by the front line becomes crucial in developing an integrated and agile approach to risk management. The pandemic has highlighted the need for companies to strengthen their operational resilience. In the wake of profound uncertain market conditions, organisations needed to fast-track their risk management strategies as they realised to achieve operational resilience, a strong risk-aware culture is imperative in effective risk management.

Enabling a risk aware culture among frontline workers is the crucial first step as their interactions put them in the unique position of being valuable sources of risk-related information for their companies. Unless there is a deeply embedded risk culture, they may not even be aware that they hold critical intelligence as they go about their daily work. Hence, it is vital to instill in the front line the need to protect their organizations and not expose them to risk.

To achieve this, enterprises must overcome any unsupportive culture towards risk awareness. Even the lack of reporting tools and insights can work as a stumbling block to progress. Instilling an adequate timely reporting structure would make employees more self-aware thus creating good habits with the right proactive behaviour. This structure further supports an organization’s risk management strategy and works to strengthen the core of an organization’s operations.

The pandemic has made an indelible mark on the work environment, moving from the traditional office-based method to the hybrid or remote workforce we often see today. This has effectively transformed every employee into a frontline worker and by extension a risk manager who will have to be equipped with the right training and behaviour to help them identify and report suspicious attacks.

Equipping the Front Line—Vital to Embedding a Risk-Aware Culture

Strengthening an organization’s risk culture is a continuous evolving process. And when it comes to frontline workers, faster adoption of a risk-aware culture will depend on:

  • The ease of capturing and reporting of business anomalies as well as the tracking of reported anomalies,
  • The efficient use of frontline workers time, including the time spent in training,
  • The availability of psychological and physical safety around risk reporting pertaining to sensitive issues, and
  • The effective use of technology such as AI-powered tools to simplify reporting of observations, issues, or any anomalies.

This is where leveraging the right tools and technologies can play a key role in equipping your front line – leading to the building of a strong risk culture across the organization. Despite the rapid acceleration of technological adoption across the Asian region, many organisations face difficulties in achieving a holistic view of potential risks within the company. In Malaysia, the Malaysian Investment Development Authority (MIDA) and Malaysia Digital Economy Corporation (MDEC) has pledged RM100 million for the Smart Automation Grant to enable SMEs and MTCs to enhance their operational efficiencies through high-tech processes.

In this regard, leading technology vendors also have a role to play in equipping the frontline to own risk and in serving the needs of GRC professionals. The use of technology and digital tools must serve to complement the front line of an organisation. Over time, adapting to new technology will become second nature among front line workers. By integrating a top to bottom view of risk and engaging your front line, your organization will be better equipped to avoid or even predict issues before they get out of hand. Companies that consider proactive measures to manage risk by engaging the front line and embracing advanced technology will reap the rewards and can turn risk into a strategic advantage.

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