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EmbeddingaRisk
Culture:
Behavioural
AspectsofManagingRisk
Niamh Brennan, Michael MacCormac Professorof Management, University College Dublin
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1. Perspectiveoncorporategovernance
2. Influenceofculture
3.
Featuresofboardroomsconduciveto
psychologicalandbehaviouralelements
4. Behaviourofboardchairmen
5. Cognitivebiases
MakingYour
Board
Effective
Prof.
Niamh
Brennan,UCD 3
Ov
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r
v
ie
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WalkerReport(2009)AReviewofCorporateGovernanceinUKBanksand
OtherFinancialIndustryEntities.Annex4:PsychologicalandBehavioural
ElementsinBoardPerformance
Lloyds(2010)
Behaviour
Bear,
Bull
or
Lemming,
Lloyds,
London.
Sources
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Bloomfield,Stephen
(2013)
Theory
and
Practice
of
Corporate
Governance:
An
Integrated
Approach,
CambridgeUniversityPress,Cambridge
1. View of Corporate Governance
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Bloomfield,Stephen
(2013)
Theory
and
Practice
of
Corporate
Governance:
An
Integrated
Approach,
CambridgeUniversityPress,Cambridge
1. View of Corporate Governance
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Bloomfield,Stephen
(2013)
Theory
and
Practice
of
Corporate
Governance:
An
Integrated
Approach,
CambridgeUniversityPress,Cambridge
1. View of Corporate Governance
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2.InfluenceofCulture
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Officialpoliciesspecifywhatmanagementwantstohappen
(laws
/
rules
on
the
books)
CorporateculturedetermineswhatACTUALLYhappens,and
whichrulesareobeyed,bentorignored(laws/rulesin
practice)
CommitteeofSponsoringOrganisationsfortheTreadway Commission(1992)
InternalControlIntegratedFramework,AmericanInstituteofCertifiedPublicAccountants,p.19.)
2.InfluenceofCulture
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JusticeOwensreportonHIHandculture
Acauseforseriousconcernarisesfromthegroupscorporate
culture.By
corporate
culture
Imean
the
charism or
personalitysometimesovertbutoftenunstatedthat
guidesthedecisionmakingprocessatalllevelsofan
organisation.InthecaseofHIH,theculturethatdeveloped
wasinimical
to
sound
management
practices.
It
resulted
in
decisionmakingthatfellwellshortoftherequired
standards.
HIHRoyalCommission2003,TheFailureofHIHInsurance,CommonwealthofAustralia,Canberra.
2.InfluenceofCulture
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Collegiate
Clashofcultures
Passive,Disengaged,
Resigned
Aggressive
Competitive
Materialistic
Confused,lacksdirection,leadership
Chaotic,over
trading
Secretive
Riskaverse
Likesrisk
Managerialist
2.InfluenceofCulture
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Collegiate
Clashofcultures
Passive,Disengaged,
Resigned
Aggressive
Competitive
Materialistic
Confused,lacksdirection,leadership
Chaotic,over
trading
Secretive
Riskaverse
Managerialist
What is missingfrom this list?
Likesrisk
2.InfluenceofCulture
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CEOborninIreland,raisedinEngland,PhDCambridge
SignondoorAuthorisedpersonnelonly behindthe
doorhushhushprojects itwasabroomcupboard!
ConferenceroomsnamedaftervillainsinJamesBond
movies GoldenEye,Goldfinger,DrNo
CEOdrovequintessentialBondcar AstonMartin
Stockedpiranhasinofficefishtank
Ben Worthen, Paul Sonne, Justin Scheck
Long before the H-P Deal, Autonomys Red Flags
W S J, 27 November 2012
2.InfluenceofCulture
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2.InfluenceofCulture
Question:
How would you describe
the culture of thisorganisation?
Ben Worthen, Paul Sonne, Justin Scheck
Long before the H-P Deal, Autonomys Red Flags
W S J, 27 November 2012
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2.InfluenceofCulture
Competitive
Secretive
Sense of humour
Boyish
Disconnect fromreality/fantasist
Likes risk
Ben Worthen, Paul Sonne, Justin Scheck
Long before the H-P Deal, Autonomys Red Flags
W S J, 27 November 2012
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Friendly,supportive,warm,trusting
Unfriendly,cold
Loyal
Domineering,aggressive,
bullying
Competitive
Polarising:in
group
out
group
polarisation,
sneering
Narcissistic
Hubristic
2.InfluenceofCulture(interpersonalrelations)
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Friendly,supportive,warm,trusting
Unfriendly,cold
Loyal
Domineering,aggressive,
bullying
Competitive
Polarising:in
group
out
group
polarisation,
sneering
Narcissistic
Hubristic
2.InfluenceofCulture(interpersonalrelations)
What is missingfrom this list?
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SpeakingupFull,frankopencommunication
Silence
Informationoverload/obfuscation
Weaselwords
Whistleblowing
2.InfluenceofCulture(communicationinorganisations)
Guarded,superficial
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SpeakingupFull,frankopencommunication
Silence
Informationoverload/obfuscation
Weaselwords
Whistleblowing
2.InfluenceofCulture(communicationinorganisations)
Guarded,superficial What is missing
from this list?
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TheRockTSEliot
TheEaglesoarsinthesummitofHeaven,
The
Hunter
with
his
dogs
pursues
his
circuit.Operpetualrevolutionofconfiguredstars,
Operpetualrecurrenceofdeterminedseasons,
Oworldofspringandautumn,birthanddying
Theendlesscycleofideaandaction,
Endlessinvention,
endless
experiment,
Bringsknowledgeofmotion,butnotofstillness;
Knowledgeofspeech,butnotofsilence;
Knowledgeofwords,andignoranceoftheWord.
All
our
knowledge
brings
us
nearer
to
our
ignorance,Allourignorancebringsusnearertodeath,
ButnearnesstodeathnonearertoGOD.
WhereistheLifewehavelostinliving?
Whereisthewisdomwehavelostinknowledge?
Whereis
the
knowledge
we
have
lost
in
information?
ThecyclesofHeavenintwentycenturies
BringusfartherfromGODandnearertotheDust.
2.Influenceof
Culture
(communication
in
organisations)
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Thechairman,
EDs
and
NEDs
need
to
be
experts
on
the
ability
toobserve,interpretanddrawconclusionsfromwhatpeople
aregivingcluesabout,butnottalkingabout:thatit,
interpretingwhatliesjustbelowthesurface.
(Source:Walker
Report
(2009:
142))
2.InfluenceofCulture(communicationinorganisations)
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Forme,
it
is
ared
flag
when
Isee
communication
linesbeingcontrolledinanorganisation
(Source:HPExecutive,TheIntoxicationofPower LeadershipandHubris,
CambridgeJudgeBusinessSchoolandDeadalus TrustConference19
September2013)
2.InfluenceofCulture(communicationinorganisations)
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Studies of disasters often show thatthe problem was not with the
processes but [that the processes]were ignored or over-ruled.
Internal communications andbehaviour of senior managers iscritical in setting the tone
Busyfool
Learn to
pick yourbattles
2. Influence of Culture
(Communication in organisations)
Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London,p.5.
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God grant me the serenity
to accept the things I cannot change;
courage to change the things I can;
and wisdom to know the difference.
(Source: Reinhold Niebuhr's "Serenity Prayer)
OR
Whats everyones problem is no ones problem(Bystander theory)
2. Influence of Culture
(Communication in organisations)
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Question
Whomostinfluencescultureinorganisations?
Question:
Howdoyouchangethecultureof
organisations?
Question:
Doboards
have
arole
in
the
culture
of
organisations?
2. Influence of Culture in organisations
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3.Featuresofboardroomsconducive
topsychologicalandbehavioural
elements
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Boardsandboardbehaviourcannotberegulated1.
Boardsandboardbehaviourcannotbemanagedby
structure
and
controls2. Behaviourisdynamic,evolves3.
Dependsonsituation,strategiccontextandgroup
dynamics4.
Desiresstronglyinfluencebehaviour5.
Human
beings
are
susceptible
to
social
influence6.
3.Featuresofboardroomsconducivetopsychological
andbehaviouralinfluences
WalkerReport(2009)AReviewofCorporateGovernanceinUKBanksandOtherFinancialIndustryEntities.
Annex4:PsychologicalandBehaviouralElementsinBoardPerformance,p.137
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Susceptibilityto
social
influence
is
not
atraitofthosewholackwillpower;
itishardwiredintoallofus
4.Featuresofboardroomsconducivetopsychological
andbehaviouralelements
WalkerReport(2009)AReviewofCorporateGovernanceinUKBanksandOtherFinancialIndustryEntities.
Annex4:PsychologicalandBehaviouralElementsinBoardPerformance,p.137
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Question
Whatarethegreatestinfluences
onbehaviour
on
boards?
3.Featuresofboardroomsconducivetopsychological
andbehaviouralelements
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4.CognitiveBias
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Question
Whatisthepurposeofa
company?
Question
Giventhepurposeofacompany,whatisthecentral
purposeof
aboard
of
directors
4.Cognitivebiases
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Subconsciousthoughtscloudjudgements.
Behaviouraltheorytellsustherearemany
unintendedfilterswhichdistortthewaywethinkaboutrisk.Beingawareofthesebiases
will
lead
to
clearer
thinking
and
a
better
managementofrisk.
.
4.Cognitivebiases
Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London,p.4
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Perceptionsdrivebehaviour
Moreattentionisgivento:
Events
which
people
dread
Eventswhichaffectalotofpeople
Unfamiliarevents
4.Cognitivebiases
Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London,p.4
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Humanbeingsmisjudgerisk
Representationbias
Availabilitybias
Anchoring
Hindsightbias
Cognitivedissonance
Confirmation
bias
4.Cognitivebiases
Lloyds(2010)BehaviourBear,BullorLemming,Lloyds,London,p.4
S
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Summary1. Corporate
governance
as
geology
not
geography
2. Influenceofculture
3. Featuresofboardroomsconducivetopsychologicaland
behaviouralelements
4. Cognitivebiases
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QUESTIONS?
THANKYOU!