What happened to accountability?
Latest EIU survey shows accountability expectations and risk attitudes differ widely across financial services
In an increasingly complex and digitized world, the opportunity to interact and be globally aware of events causes more people to ask questions of government and businesses leaders. When people at the highest level are dealing with increasingly complex issues at a faster rate, to whom do they see themselves accountable?
To understand how C-level executives view accountability across a variety of stakeholders, SAS sponsored the fifth annual study by the Economist Intelligence Unit (EIU), Society, Shareholders and Self-Interest: Accountability of Business Leaders in the Financial Services, in which 387 C-level executives across the globe were interviewed about key industry and risk management issues.
Reaching for stability
According to the survey, even after the financial crisis, accountability expectations and risk attitudes differ widely across financial services. The latest survey found that 73 percent of financial leaders are improving the information shared with external stakeholders to increase transparency and reduce risk.
Yet respondents are still trying to find the right balance between internal and external accountability. Surprisingly, 84 percent of financial leaders rank short-term performance as a high priority, yet only 62 percent believe being "socially responsible" is equally important. Only one in four C-level executives in financial services wanted to be more accountable to society.
I am interested in how accountability relates to risk management and the risk culture in firms. I believe that a firm's approach to accountability affects an organization's risk management universe. The risk appetite statement is a valuable management tool used for expressing the leadership's view on risk.
Granted, firms have varying approaches when creating, measuring and managing risk appetite. However, I am intrigued to see how much consideration is given to the effects of the risks on society within future risk appetite statements, alongside the drive to maintain and improve business performance. Advances in information technology – such as high-performance analytics – help a firm's leadership team gain greater insight into the risks that affect business, so they can set better risk strategy and monitor the progress.
Confronting the problem
The EIU report interviewed a number of senior figures across the financial world to further understand the key drivers around accountability. An interview with Michael F. Silva, Senior Vice President at the Federal Reserve Bank of New York, who is responsible for supervising systemically important financial institutions, included this statement:
"While laws and regulations are indispensable with respect to capital, liquidity and risk management, the stability of the financial system is equally dependent on the
sound judgment and responsible conduct of financial leaders ... Holding financial leaders accountable – by regulators, shareholders and boards of directors – for the impact of their
judgments and conduct on the stability of their firms, and thus on the stability of the broader financial system, is the most powerful way to encourage the right behavior.”
Charles Garthwaite, Chief Risk Officer of the insurance company Aegon UK, noted, "The rapid growth of social media is a hugely significant social phenomenon that had started several years before the financial crisis … Consumers can set up user groups, and complaints about products are discussed broadly. This is a major contributor to increased accountability."
With the current economic and regulatory flux, business leaders are challenged by shareholders, regulators and society to better manage the risks while meeting their strategic business goals. The results of the EIU survey reveal a financial services industry still struggling to balance short-term and bottom-line results with longer-term and wider societal goals. Better risk management systems and even more transparency in pursuit of corporate goals can help these firms be more accountable to both society and shareholders.