Companies Urged to Reward Employees Who Question Corporate Culture

There should be a different sort of culture surrounding risk management - one in which dissent and a questioning mindset are welcomed, expected and rewarded, says a report by the Association of Chartered Certified  Accountants and the Institute of Management Accountants.

Corporate cultures that prevent employees from raising questions about perceived risks and threats to an organization can only be changed if board members lead by example and become more sceptical and challenging, says the report.

The report, "A Risk Challenge Culture," looks at 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.

"Even some organizations that claim to have a robust risk governance structure have one in name only; the directors are not as actively engaged in risk oversight as they need to be," says the report.

The report notes that there are times where there is a lack adequate training in risk issues and may receive unduly optimistic risk reporting. "In the wake of a risk debacle, a typical question is, 'Where was the board while this was happening?'"

It calls for the development of a risk challenge culture which encourages, requires, and rewards inquiries that challenge existing conditions.

The report says: "When a subordinate is afraid to ask senior management about perceived risks, that is not a challenge culture. When a board member is satisfied with the CEO’s facile answer to a serious risk issue, that is not a challenge culture. When board members 'rubber stamp' management’s critical actions without serious debate, they have not enhanced a challenge culture."

The report acknowledges that it is very difficult for a board member or manager to question critically policies or decisions when their organization is earning outsized profits or enjoying unprecedented growth- and where there are bonuses at stake.

Ewan Willars, Director of Policy at ACCA and co-author of the report, said: "It is critical that the board and executive set the tone for the rest of the organization, which includes encouraging and rewarding those who raise concerns about behaviour and priorities- rather than those who take unnecessary risks or who act only in the short-term interests of the organization.

"All too often decision makers talk about wishing they had the benefit of hindsight - but skepticism and a culture in which people are actively encouraged and rewarded for challenging decisions can be highly effective in ensuring that organisations take the right course, and must be actively promoted."

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."

 

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