The Importance of Having a Strong Risk Culture

Every business has its own risk culture, as companies across all industries are exposed to a wide variety of hazards on a daily basis. The difference is how they deal with such risks and how successful these measures are in getting through to employees and forming the risk culture of a business. Creating an enterprise-wide awareness of risk is essential according to RSM and one of the first steps towards a strong risk culture is understanding why it’s so important.

Business team

image credit: Alexander Komlik/Flickr

Protect Your Assets and Reputation

With a range of recent headlines highlighting instances of fraud, employee scandals, misconduct and more, a strong risk culture is required to prevent this happening in your business. Or at least to minimise its potential impact should anything like this occur. Risk culture is essentially creating a structure of rules, frameworks and processes that will effectively control any risk within the company as best as possible.

Employee misconduct can lead to theft, damaging a business’ assets if it goes on for too long without being noticed or addressed. A strong risk culture should stop this before it escalates and spirals into an internal disaster. There is also a great reputation risk if any such scandal is revealed to the press. Negative headlines can have a quick impact on peoples’ perceptions which may be reflected on the stock market.

Avoid Future Disasters

Flaws in risk culture, from poor leadership and communication to general incompetence, have all been blamed for a variety of industry disasters. Rogue traders have lost millions for investment banks due to mistakes in risk behaviour, for example. Had there been a better risk culture in place then this disaster may have been avoided or the impact lessened.

Another great example is the decline of Kodak. Rather than taking a lot of risk and putting the company in jeopardy, this was the opposite where poor leadership and planning for other risks resulted in its failings. A risk-averse strategic failing meant it failed to reinvent itself, prepare for and embrace the digital revolution, with a culture that was far too risk averse and avoided adapting.

How to Implement a Good Risk Culture

A good risk culture is one that understands its employees, enabling and rewarding employees for taking the right risks in an effective way. There are a few ways to implement a strong risk culture:

  • Educate your workers about business risks and their importance
  • Employ a risk manager
  • Create an efficient risk management process
  • Recognise and reward good risk behaviour
  • Action consequences for poor risk culture behaviour
  • Set the correct risk culture at board and senior management level

A strong risk culture is vital for any business and these steps should help you create one within your company.


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