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Reputability LLP are pioneers and leaders globally in the field of behavioural risk and organisational risk. We help business leaders to find the widespread but hidden behavioural and organisational risks that regularly cause reputational disasters. We also teach leaders and risk teams about these risks. Here are our thoughts, and the thoughts of our guest bloggers, on some recent stories which have captured our attention. We are always interested to know what you think too.

Monday, 16 March 2015

De-risking Bonuses

Matching long term incentives to long term risks sounds easy until you consider that long term risks can fester for decades whereas a typical long term incentive has run its course within a few years.

Banks have started to address the issue.  Goldman Sachs requires top management to hold up to 75% of bonuses as share awards until they leave the company, with many senior staff similarly obliged to hold 25% of any bonus award as shares until retirement. This leaves leaders with the temptation to time their departure as they are free to realise their career-long accumulation of shares as son as they have left.

HSBC has followed Goldman’s example, requiring bonus shares to be held to retirement with a clawback arrangement.  UBS not only has a bonus/malus system but pays most senior bonuses in bonds and shares and requires Executive Board members to hold at least 350,000 shares and the CEO to hold 500,000. At about twenty swiss francs apiece this means holding from 7 to 10 million swiss francs in UBS shares. And Credit Suisse pays part of bonuses in "bail-in-able” bonds that have to be held for 3 years and can be converted to equity or wiped out in the case of trouble.

But none of these arrangements matches the incentive time scale to the period at risk after top management leave, a time when longer term risks can still come home to roost.

In their insightful new book "Risky Rewards", Professor Andrew Hopkins and Sarah Maslen have proposed a solution that includes a 'malus' element that can be set to run for a period after departure to match the duration of post-departure risks.

The core of the scheme is a unitised trust fund into which a proportion of all senior staff bonuses, long or short term, are paid.  On payment in, participants receive units in the fund at their current value.  In the meantime the fund is invested in assets that are not connected with the employer.

The employee or former employee may only cash in their units after the deferral period.  This is done at the unit value prevailing at the time.  However the first charge on the trust fund is to pay the company compensation in the event of defined catastrophic events. 

The authors plausibly suggest that such a scheme would create a highly motivated corps of trusted, knowledgeable and experienced former senior staff keen to provide practical advice to current decision-makers.  Those people would also know where any bodies were buried.

Such a scheme should also reduce sharply any temptation felt by senior executives to focus on short term profit (for example by cutting investment or maintenance or turning a blind eye to unethical sales) at the expense of the long term success of the firm.  This balance between long term success and and short term profit can become even more acute as a leader approaches departure.

In scheme of this kind, the deferral period  can be matched to the influence and seniority of the individual.  Thus a less senior employee with less influence might have a smaller proportion of his bonuses paid into the scheme and the deferral period might be shorter.

In contrast a highly influential individual severely exposed to the temptation to cut corners or save cost to garner short term profit (and a bigger bonus) at the expense of exposing the organisation to long term catastrophic risks might have a substantial portion of her bonuses paid into the scheme and payment out might be deferred for a long period, which could run until several years after his retirement.  The ideal deferral period would depend on the possible latency period of potentially catastrophic risks to which the company might be exposed. 

Another practicality is the issue of compensation for the company if something goes wrong.  This has two parts: defining 'what goes wrong' and quantifying compensation.

As to defining the event, Hopkins and Maslen were writing in the context of the oil industry.  There the major accident they most had in mind was perhaps some kind of fire or explosion.  However, taking that example, oil companies do other things: for example many have trading arms which might give birth to a rogue trader whose ability to operate can be as much due to a systemic risk as any oil accident - perhaps neglecting cuolture or cutting corners on control systems.  This illustrates that the 'event' needs to be defined broadly if it is to capture all potentially catastrophic events driven by systemic forces.

As to compensation, this is perhaps more complicated than Hopkins and Maslen envisage.  BP, with whose travails Hopkins is particularly familiar, is unusual in that it did not buy insurance.  The result was that all losses resulting from the systemic failures at BP at Texas City and in the Gulf of Mexico were paid for by BP and thus suffered by its shareholders.

More typically, the consequences of a major physical accident will be insured at least in part, with only a modest part of the costs falling on the company.  However, reputational damage is a widespread consequence of catastrophic events.  It may not be insurable let alone insured but it is most acutely felt by shareholders in the share price.  If a company comes to be seen as dysfunctional or its management comes to be seen as ineffective, the share price will fall.  The scheme would need to reflect this kind of loss to shareholders.  Making good shareholders' loss through a payment to the company confers a benefit directly to the company and indirectly to shareholders.

Indeed such a fund could come to be seen as the indirect insurer of damage to the reputation of the company resulting from the actions or inactions of senior management, important behavioural and organisational risks with which readers of this blog will be very familiar.  Insurance of reputational risk is something of a 'Holy grail' for many corporate leaders and this could provide a practical solution to which insurers might then be prepared to add greater depth.

This interesting idea needs more thought and development before it, or something like it, becomes a practical proposition. We would welcome readers' comments on how it might be improved and, importantly, made attractive to Chief Executives and Finance Directors.

In the meantime we welcome "Risky Rewards".  It is a readable, research-based analysis and explanation of many risks inherent in incentive and bonus schemes.  It ranges over subjects as diverse as whether and when bonuses and other incentives actually work, how to target them effectively and how to avoid unintended consequences.  And while its roots are in the world of physical accidents, its insights are relevant to all organisations that are run by people. 


Anthony Fitzsimmons
Chairman
Reputability LLP
London
www.reputability.co.uk




Sunday, 15 March 2015

Latency in Systemic Risks

Most behavioural, organisational and process risks typically lie latent for years to decades before they erupt to cause a serious accident or reputational damage.  This is the finding of the latest analysis from Reputability.

We analysed two sets of data to ascertain how long the root cause lay latent before it caused harm or damage.

The first set of data was taken from 24 accidents and crises analysed in 'Roads to Ruin' the Cass business School  report for Airmic.  Almost all the events analysed occurred between 1999 and 2009 and almost all had their origins in what we now call behavioural and organisational risks. 

To this we added a set of 12 major UK accidents analysed by Turner and Pigeon in their seminal book "Man-made Disasters" (1997).  These occurred between 1966 and 1975 and included the Aberfan disaster, the Coldharbour Hospital fire,  the Hixon Level Crossing disaster, the Summerland Night Club disaster, the 1973 London Smallpox outbreak and the Flixborough fire all of which counted behavioural or organisational risks among their root causes.

Since accidents and disasters rarly have a single cause, we and Turner and Pigeon considered when the root causes began to develop and accumulate, un-recognised by those in authority.  This inevitably involves estimates.  Turner and Pigeon analysed their series of accidents into a series of bands ranging from "less than one month" through "3 to 8 years" to "about 80 years".  We did likewise.

The graph below does not show the last two categories, of incidents where the root causes had been at work for more than 20 years.  Thus the graph ends with 94% of events having emerged after 20 years.

Cumulative percentage emerged by N months


The results show:
  • Only 45% of crises had manifested within 3 years;
  • 30% emerged within 3 to 8 years;
  • 25% took longer than 8 years to emerge and
  • 6% had yet to emerge after 20 years' incubation.


These very long incubation periods for what are mainly, possibly all, unrecognised behavioural and organisational risks have important implications for risk mangers and boards.

First, the long delay before emergence of damage from these slowly incubating risks allows an organisation to appear successful for long periods.  The unfortunate truth is that the organisation is suffering from the delusion that all is well because nothing yet appears to have gone badly wrong.  Boards and risk managers should avoid this risk of complacency that our recent research has illustrated.

The emergence of child abuse in churches and other respected institutions around the world and the Deepwater Horizon explosion are more recently emerged examples of this delusion that all is well and under control. 

Second, this long latency period has implications for how incentives, particularly so-called long term incentives, are structured.  We have discussed that problem here.


Anthony Fitzsimmons
Reputablity LLP
London
www.reputability.co.uk




Monday, 2 February 2015

Complacency - a Behavioural and Organisational Risk

Robert Shrimsley, one of the FT's satirical columnists (when he isn't managing FT.com) wrote about a recent Mayfair dinner hosted, I suspect, by Edelmans to promote their Global Trust Barometer.  The Barometer is a valuable institution that has been going for 15 years.  We have written about it in the past and we expect to return to it.

The dinner was attended by former ministers, former and current CEOs and senior journalists (such as him).  They made a well-educated, well-heeled cohort of 'serious concerned people'.

One of the Barometer's findings was a drop in trust in leaders, institutions and elites.  The decline in trust in the CEO as a credible spokesperson continued for the third consecutive year, with trust levels now at 31 percent in developed markets. Globally, CEOs (43%) and government officials and regulators (38%) continue to be the least credible sources for information.  CEOs lagged far behind academic or industry experts (70%) or "people like me" (60%).

The reaction of those diners is interesting.  Shrimsley did not mention anxious discussion of the possibility that the Barometer might be onto something fundamental - for example that elites' collective behaviour leads outsiders to regard elites as untrustworthy - let alone soul-searching to understand why people like those present are seen as so untrustworthy.  On the contrary, Shrimsely summed up the event as
"an evening of high-level hand-wringing, the kind of self-reinforcing event that goes on all over London most weeks."
We recently carried out a poll on perceptions of behavioural and organisational risk.  The cohort consisted of almost 100 company secretaries and senior in-house lawyers, who had recently completed an intense training session we had run to introduce them to behavioural and organisational risk and its tragic reputational consequences.  These were people who often know more about 'where bodies are buried' than most.

We asked two pairs of questions, separating them as much as we could (which wasn't much) to reduce the effect of 'anchoring bias'. 

The first pair of questions concerned the extent to which behavioural and organisational risks were understood across business generally and in their own organisation. 

The results clearly imply that those present thought that their own organisation deals with behavioural and organisational risks better than others could.

Our second pair of questions produced a similar pattern.  

Whilst not suggesting a solid working knowledge, those present clearly thought that their own board understood these risks rather better than boards in general.

In his second 2015 Reith Lecture, Atul Gawande looked at analogous behaviour in a different context: surgery.  After introducing a checklist system for surgeons, modelled on those used by airline pilots for procedures routine and emergency, he surveyed surgeons on their attitudes.

Whilst most surgeons had become very happy to use the checklist system, about 20% really disliked it even after three months' use.  So he asked those who really disliked the system whether, if they were to have an operation, they would wish their surgeon to use such checklists.  94% wanted their surgeon to use the checklists!  The implication was clear: I don't need such a system but everyone else sure does!

Drivers fit a similar pattern: Apparently almost all of us think we are above average drivers! 

This is a very common behaviour.  Shrimsley mentioned confirmation bias.  He might also have mentioned the availability heuristic, optimism bias and above all superiority bias and the overconfidence effect.  All are widespread behavioural phenomena and all lead to a corresponding behavioural risk that we can summarise as complacency risk.

Add herding behaviour and the effects of social norms, and 'groupthink', a dangerous organisational risk, is the inevitable result. 

At a dinner party, the consequences are likely to be dull and self-reinforcing conversation because participants' knowledge and experiences all come from the same box.  Trapped inside, they may be unable to see they are in a box, let alone see the box from the outside; still less can they examine the beliefs and assumptions in and around the box.

Translated to leadership teams of companies, governments and other organisations,the effect of these relatively homogeneous groups (that probably see themselves as diverse) is as predictable as it is devastating.  Whilst these behavioural and organisational risks are predictable, and blindingly obvious to an ontsider given access to insiders' knowledge, they commonly lie unrecognised and untreated for long periods before they blow up.  We plan a blog with our latest research on this, but you already know why this is so.

The challenge for leaders is to understand not just how others see them but how others would see them if they had an insider's knowledge. 

Or as Robert Burns eloquently put it:

O wad some Pow'r the giftie gie us
To see oursels as others see us!
It wad frae mony a blunder free us,
An' foolish notion!
Anthony Fitzsimmons
Reputability LLP
London

Sunday, 1 February 2015

Solvency II Handbook makes Start on Reputational Risk for Insurers


As a textbook author for the Chartered Insurance Institute I am only too aware of the challenges of writing about Solvency II, the regulatory monster that hangs over the insurance industry. It has been 14 years in gestation, has continually changed, and became over- politicised and over- complicated. As a consequence publications on the subject are usually out of date, some are pitched at the wrong level and many are unintelligible to anyone who is not a qualified actuary. It therefore is refreshing to find that the new edition of The Solvency II Handbook largely avoids such problems and provides a practical reference book that merits a place on the shelves of every EU insurer. Best of all, it is well edited and very readable.

The previous edition that came out in 2009 coincided with the passing of the Solvency II Directive by the European Parliament. It was an aid to insurers as they began their preparations for the ‘imminent’ implementation of the legislation in the Member States. As we all know the EU totally under-estimated the task before it and so deadlines came and went and Solvency II does not actually come into force until 1 January 2016.

In contrast to its predecessor, the new edition focuses far more on the practical issues of implementation in insurance operations. Chapters represent the shared experiences of specialists from a range of disciplines including underwriting, actuarial, risk management, regulation, accounting and audit. They deal with all three Pillars of Solvency II and provide views from non-life, life, pensions, mutual and reinsurance sectors.

The timing of the Handbook is appropriate. It was put together in 2014 at the time of the approval of Omnibus II, the revised Solvency II legislation aimed at dealing with the shortcomings of the original. These included the impact of the Lisbon Treaty, the creation of the super-regulator EIOPA, and the numerous issues identified in the quantitative impact studies, particularly the potentially crippling effect on long term guarantees. Of course, nothing is perfect in the publishing world. The Handbook has just missed the Commission Delegated Regulation (EU) 2015/35. This has provided another 175 pages of detailed technical rules that will form the basis of a single prudential rulebook across the EU. Fortunately, the Handbook contributors generally anticipated the provisions but this new regulation and other rules in the pipeline should keep Risk Books busy for some time to come.

From my own perspective, I found that many chapters shone fresh light on the impact of Solvency II and it was useful to get a broad view of what is actually happening in insurers. I particularly valued the chapter on the comparison of insurance liabilities under IFRS 4 Phase II and Solvency II.

Finally, as a partner of Reputability LLP, I obviously welcome the chapter on reputational risk. One of the constant weaknesses of insurance regulation, even of Solvency II, particularly in the way it appears to be treated by insurers, is the lack of attention to behavioural, organisational and reputational risks. The problem is by no means new. Over decade ago William McDonnell in his report on insurance failures wrote, ‘Management problems appear to be the root cause of every failure or near failure, so more focus on underlying internal causes is needed’. It is encouraging that The Solvency II Handbook is drawing attention to the issue. But is anyone listening? 

Professor Derek Atkins
Reputability LLP
London
www.reputability.co.uk


The Solvency II Handbook: practical approaches to implementation
Ed Rene Doff,
Risk Books 2014
ISBN 978 1 78272 188 8

Tuesday, 27 January 2015

None so deaf

We are delighted to welcome a guest glog from Mark Powell and Jonathan Gifford, authors of "My Steam-Engine is Broken".  We enjoyed working with them as they researched their book; and now they have written a blog post based on one of our shared insights.


We are, it would seem, communicating more than ever, but not necessarily to greater effect. The world of business, in particular, seems to be stuck with merely faster versions of industrial era, top-down modes of directive communication that are preventing creative involvement and genuine engagement. The lack of real dialogue is increasing the likelihood of failure – and, on occasion, even disaster.

How organisations fail to encourage real dialogue

If communication is good then more communication should be better. It depends, it would seem, on the quality of the communication. 
The communication that the person walking in front of you has stopped suddenly to read on their mobile device might be a tweet (currently over 500 million per day); a text message (estimated 21 billion per day); the now more popular instant message (estimated 50 billion per day – see previous link) or even an old-fashioned email (estimated 196 billion per day).

The email is an interesting case in point. Despite the fact that the new generation views email as an overly-complicated way of delivering a simple message, the business world has got pretty much stuck with email. Of those 196 billion daily emails sent worldwide, 109 billion are estimated to be from business.

Business looks askance at text and instant messaging (with the notable exception of the marketing department) but it has always liked email. This is probably because email offers a way of sending what is effectively a memo to a lot of people without the fuss of having to have many paper copies of the latest edict made, put into internal mail envelopes and distributed by the organisation’s mailroom to ‘all desks’ – if any readers can remember such ridiculously antiquated methods.

The point about memos is that they are not even intended to be a dialogue. They are an instruction; a directive. ‘That may be so,’ business bosses might argue, ‘but of course we also have regular meetings where people can air their views.’

But most business meetings are not a form of real dialogue either: the rigid hierarchies of most businesses and the subtle but keenly-felt gradations in the status of those present make real dialogue almost impossible to achieve.

Stuck in the industrial era

In our new book, My Steam Engine is Broken: Taking the organization from the industrial era to the Age of Ideas, we argue that modern business has got stuck in a late nineteenth- or early twentieth-century industrial mode of operation; the age of ‘scientific management’ and the ‘one best way’ of doing things, and of a sharp and quite deliberate distinction between management and ‘workers’.

In the book, we identify ten core behaviours that organisations persist with, despite the fact that these behaviours are actively preventing the very outcomes that those organisations know that they need in the modern world: creative thinking, innovation, agility and adaptability, for example. Self-motivation and heartfelt commitment from the members of the organisation. That kind of thing.

These ten paradoxical behaviours have to do with old-fashioned and inappropriate issues of control, measurement and ‘efficiency’; with outmoded, hierarchic management structures; with an absence of real leadership and a lack of genuine diversity – and with a failure to communicate in any meaningful sense of the word.

Communication: the canary in the mine

While researching material for My Steam Engine is Broken, we turned to business consultants, coaches, senior executives and business thinkers for their own experiences and ideas. One of these was Reputability’s chairman, Anthony Fitzsimmons.

“We regard the effectiveness of communication as the canary in the mine as to what’s going on in the organisation,’ Anthony told us, ‘because the ability to communicate freely is influenced by all kinds of incentives – by the culture of the place, by the way the leadership behaves – and if communication is actually flowing freely, it also tells you that it’s quite likely that a lot of other things are set relatively well which permit the information to flow, and it tells you that other important things are almost certainly happening, because if they weren’t happening, the information flow would be likely to be messed up. So that’s why we think of it as the canary in the mine.”

Failures in communication are not merely unfortunate, they can be disastrous, as Fitzsimmons and others explore in Roads to Ruin, the Cass Business School report for Airmic.  Senior leadership can fail, all too easily, to communicate its real concerns about safety standards (for example) to the organisation as a whole. Breakdowns in communication between the people on the ground and management – typically because of problems of hierarchy and status, and of the existence of silos in all large organisations – can prevent the communication of known problems to the people who are in a positon to address them.

Group intelligence

The thing about good communication is that it is relational: it is a multi-dimensional process.

Recent research has shown that the ‘collective intelligence’ of any group has less to do with the individual intelligence of the group’s members than it does with the way in which ideas are shared around the group.

As Anita Woolley, assistant professor of organizational behaviour and theory at Carnegie Mellon University, told Harvard Business Review in an interview about her research: ‘What do you hear about great groups? Not that the members are all really smart but that they listen to each other. They share criticism constructively. They have open minds. They’re not autocratic. And in our study we saw pretty clearly that groups that had smart people dominating the conversation were not very intelligent groups … Our ongoing research suggests that teams need a moderate level of cognitive diversity for effectiveness. Extremely homogeneous or extremely diverse groups aren’t as intelligent.’

Yet what Woolley describes as good successful group behaviour, leading to higher collective intelligence, is quite recognisably the antithesis of most organisational behaviour. Managers and workers do not ‘listen to each other’; they don’t ‘share criticism constructively’; managers are indeed ‘autocratic’; they work hard at ‘dominating the conversation’; groups and organisations as a whole are highly ‘homogeneous’.

We all know that this is true from our daily experience. In My Steam Engine is Broken, we invite business leaders to examine the outmoded behaviours that are still embedded in their industrial era organisations, and to begin to unpick and unravel these, little by little, piece by piece. Encouraging real, constructive, non-judgemental, open-ended dialogue in every form of communication would be a good place to start.

* * *

Mark Powell is a partner at the global consulting firm A.T. Kearney and an Associate Fellow at the University of Oxford’s Saïd Business School, where he has spent 10 years directing leadership development programmes. Jonathan Gifford is a business author and a partner of the digital advertising agency, Bluequest. He was the launch publisher of BBC History Magazine.

My Steam Engine is Broken: Taking the organization from the industrial era to the Age of Ideas is available now at bookshops and online.

Is your own organisation stuck in the industrial era? This short questionnaire will give you an instant (and slightly light-hearted) analysis: How Steam Are You?

Join the debate @MySteamEngine.















Saturday, 6 December 2014

Investors Asking Questions = Better #CorpGov ?


 
We are delighted to welcome a guest blog post from Dina Medland . We hope you enjoy this investor-oriented perspective.  

We shall be adding more investor perspectives.

 




As one might expect, any institutional investor is capable of asking questions that will concentrate the mind of a publicly listed company. Would that more would do so - in a non-specific manner if preferred, but publicly. It's all about having an ongoing, relevant and timely debate around corporate governance, and better run businesses.


The innovative UK consultancy Board Intelligence  (@boardintel) held one of its regular think-tank events in London this week. This one involved a select group. Attendees in senior positions from public and private sectors agreed that there seems to be a 'bubble', a 'disconnect ' between our boardrooms and the reality out there - the way business is viewed by the society within it sits. The only way to break that 'bubble' is to have genuine, and transparent wherever possible, debate - and come up with potential new ways of doing things.

The question is what to do next. There are many potentially troubling issues around the UK's boardrooms.

This week institutional investor  Legal & General Investment  Management (LGIM) came out strongly on two of them - cybersecurity and board evaluation and review. The link will take you to some thoughts on the first issue.

Board evaluation is one of those issues that evokes comment from regulators from time to time, but is very slow to change, beyond lip service. It has taken years for anyone even to pay serious attention to the fact that executive search firms responsible for placing non-executive directors in the boardroom have also been earning fat fees 'evaluating' the same individuals. Enough said.

This blog has expressed views on evaluation from the start - the search engine does work, take a look. At the start of 2014, it got excited about the possibility of  a new code around the evaluation of boards. I got even more excited about being approached directly by Anthony Fry, a Chairman, with his thoughts.

Mr Fry has not been in the best of health, or I would have gone back to him. Would that more people in leadership positions at the top in boardrooms would reach out so naturally with their ideas, as he did.

But, despite my best efforts - with his help- to create a little kerfuffle around this issue, nothing seems to have progressed since the start of the year. Is it because there are too many vested interests at stake ?

Enter LGIM. First, the diplomacy: "Behind every successful company is an effective board. It's a message we've been spreading for many years which is why we welcomed the Financial Reporting Council's decision to officially require FTSE 350 boards to be externally reviewed every three years. However, four years after these reviews were brought in, there are still big variances in the process - namely, wide variation in the ways that reviewers work and how companies share the results with shareholders" says Sacha Sadan, its Corporate Governance Director.

Sacha Sadan, Director Corporate Governance LGIM


LGIM goes on to say that it "expects all board reviews to be rigorous and a value-adding exercise", not a 'tick-box' one. "A set code of practice should provide the necessary frameork to ensure minimum standards are upheld and that potential conflicts of interest are managed appropriately" says a press statement.

As far as I am concerned, it gets better. "LGIM has suggestions on what should be included in such a code. At the very least, minimum standards should help to ensure that the purpose of these reviews are more balanced between investors and companies, rather than tilted towards management."

What was that about 'stewardship'? And - as I take a quick peek at Twitter tonight what do I see ?
@manifestproxy: No quotas, no regulations, just S/H action: LGIM may vote down director elections on diversity from 2015 http://uk.news.yahoo.com/legal-general-im-may-vote-down-director-elections-143744321--sector.html#NnEpML8

Ah yes, diversity too - Perhaps this is one way to get quicker change when it comes to corporate governance.

Dina Medland
http://www.dinamedland.com
Original article posted October 2014 

Wednesday, 3 December 2014

Managers are Chief Bribe-Givers

The OECD has published a new report analysing 427 concluded bribery cases over the last 15 years.  The results are striking.
  • In 12% of cases, the CEO was aware of and endorsed the bribe;
  • In 41% of cases, other members of management were aware of and endorsed the bribe;
  • External intermediaries such as sales agents and distributors were involved in 41% of cases;
  • 57% of bribes were paid in relation to public procurement and
  • 41% of cases related to bribes paid in well-developed countries.

It is a surprise that bribery is a phenomenon of well-developed countries, but it is a shock that most bribery efforts are approved by mangers or the CEO.

The root causes of bribery have to do with behavioural and organisational risks such as leadership on ethos and values, actual leadership ethos and behaviour and incentives at all levels.  Organisational complexity may leave the board in a rose-tinted bubble, unaware of the extent to which operational units - which may share a language and a country or be in far-flung places - are very different from themselves. Failures in all these areas have their origins in the board, and we suspect that it will not be long before boards themselves are pursued by prosecutors.

All large firms concentrate on bribery as a risk issue.  But how many focus systematically on the root causes?

In our experience, even after the Financial Reporting Council  has made behavioural and organisational risks a board issue, too many Chairmen and Company Secretaries are reluctant to investigate the extent to which their risk management systems have a hole where behavioural and organisational risk should be.

Until they fill that gap, boards will continue to find themselves regularly surprised by the latest crisis to hit their firms.

We won't be surprised: one of the striking findings of 'Deconstructing failure' was that boards' 'inability to engage with important risks to the business' was a root cause of 85% of the crises studied. 




Anthony Fitzsimmons
Reputability LLP
London
www.reputability.co.uk