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Finding the accountability balance

Latest EIU survey show accountability expectations and risk attitudes differ widely across financial services

David Rogers

David Rogers, SAS Global Product Marketing Manager for Risk

Ever stopped to think about who you are accountable to in your everyday life, work, home,  etc..? In my case, I often think the answer is obvious – boss and  wife – although not necessarily in that order.

In an increasingly complex and digitized world, the opportunity to interact and be globally aware of impacting events drives more people to ask questions of leaders for governments and major businesses. Social media helps drive this conversation and makes you wonder who is listening and what’s the influence. I know my wife often questions my ability to listen, or simply answer my Blackberry (unless its work). But when people at the highest level are dealing with increasingly complex issues at a faster rate, who do they see themselves accountable to?

To understand how C-level executives view accountability across a variety of stakeholders, SAS sponsored the fifth annual study by the Economist Business Unit (EIU), Society, Shareholders and Self-Interest: Accountability of Business Leaders in the Financial Services where 387 C-level executives globally were interviewed in April and May 2012 on key industry and risk management issues. 

Two-thirds of responding companies reported annual revenues of more than US$500 million. Seventy-eight percent of respondents were from the financial services sector and the remainder from energy and utilities.

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 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 as 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 impacts an organisation’s risk management universe.  A valuable management tool expressing leadership view on risk is known as the risk appetite statement.

Granted firms have varying approaches when creating, measuring and managing risk appetite, I am intrigued to see how much consideration is given to the impact 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 business-impacting risks, setting better risk strategy and monitoring progress.

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, a 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 themselves, …. 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 behaviour.”

Also, Charles Garthwaite, chief risk officer of the insurance company Aegon UK noted, “The rapid growth of social media is a hugely significant social phenomenon which 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 EIU survey results 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.

Learn more about the need for a balance between risk management and the needs of financial organizations to make a profit and keep their commitments to shareholders while protecting their customers. The Art of Balancing Risk and Reward and Society, Shareholders and Self-Interest: Accountability of Business Leaders in the Financial Services. Download both of these free white papers and let me know what you think.

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