Pub. 2 2014 Issue 4

www.uba.org 8 Cure for the Common Culture: How to Build a Healthy Risk Culture By Ryan Dent, Partner, PwC US T he challenge of building a corporate culture that prioritizes risk manage- ment, ethical behavior, and smart decision-making continues to weigh on banks. Banks have invested significant resources into multiple programs to foster a healthy risk culture. Despite this, allegations of misconduct, regulatory challenges, and fines have persisted. Why are their efforts falling short? How can they inspire true behavioral change and cultural health? To find out, we tapped global banking executives to bet- ter understand their views on the severity of risk culture shortcomings, what’s causing them, and how they can be addressed. Their views were expressed in PwC’s 2014 Global Banking Risk Culture Survey, which draws on insights from 504 executives and managers across the Unit- ed States, the United Kingdom, Hong Kong/Singapore, Brazil, and Australia. A large number of C-suite leaders have placed risk culture squarely on the agenda in response to the regulatory environment, recent highly publicized missteps, and subsequent reputational and brand damage. Yet, we were alarmed to find that, on average, participants in PwC’s Global Banking Risk Culture Sur- vey graded themselves the equivalent of a C+ on their risk cultures. We would have expected at least an A-, given the effort and investment committed to date. Banking leaders have an opportunity to shape a healthy risk culture that will help them proactively identify and mitigate risks, protect their brand, and unlock new growth options. Based on our analysis of survey results, we’ve identified five themes for banks to focus on in this effort: 1. Create a true seat at the table for the risk function. 2. Establish a walk-the-talk risk cul- ture—from top to bottom. 3. Make change stick through better incentives and consequences. 4. Create more integrated, real-time reporting. 5. Develop a consistent global approach to risk management across regions. Create a true seat at the table for the risk function Our survey indicates an overwhelming recognition by respondents that risk culture is a critical part of a successful, competitive financial institution. More than 70% of survey respondents recog- nize risk assessment as integral to key business decisions in their organization. Leading institutions are elevating the standing, credibility, and authority of the risk management function to protect the business from unacceptable levels of risk. They are taking these practical steps: Changing the risk-business part- nership dynamic. Leading banks are working to change how the business sees the risk function, shifting it away from a policing role toward a risk advisory role.