As the Financial Conduct Authority announces its investigation into the affairs of Tesco, questions about how and why the Company overstated its profits earlier this year are rife. Until the outcomes of the investigation are known, the answers are speculative. Regardless of whether or not that understatement was intentional and if so, the extent to which senior executives were complicit, the damage has and continues to be done to the Company. Its value has fallen by £150bn since this issue came to light. News that the Financial Conduct Authority is to investigate Tesco over this incident wiped another 5.5p off the share value as soon as trading opened. In the fiercely competitive world of food retailing, its competitors must be rubbing their hands as a major competitor struggles. Or are they? Perhaps this will focus their own minds on the accounting practices that exist within their own companies having seen the damage that can be caused if it goes array. If it doesn’t – then they could suffer the same fate, as this is a real risk and any company that fails to learn, learns to fail.
In the first instance this is a failure of risk management – hindsight is a wonderful thing possessed by all of us. Foresight is the gift of good executives and managers who use every tool at their disposal to consider what the threats are to the organisation and put plans in place to mitigate against them. Didn’t see this coming might be the plea. Well look around. There have been numerous episodes in the recent past when the actions or inactions of people in organisations have had serious consequences. In a sector where public confidence and loyalty are vital, arrogance and ignorance must be avoided in equal measure.
Has someone set out to deceive in this case? Deliberately misleading shareholders, auditors, regulators and customers is a ‘lie’ in any language. If deception is proven in this case, committing that deception to print is a commissioned lie and indefensible. At what point in the Tesco risk and financial management systems should this have been identified? It is hard to imagine that a company the size of Tesco doesn’t have comprehensive systems in place - but still this issue occurred.
Sex, drugs, corruption, and illegal/inappropriate sexual behaviour by senior executives have all been played out in the media in recent years. Do they appear in the risk management matrices of major corporations? Who knows? If they don’t then they should and so too should the control measures to reduce their likelihood and impact. Knowing who works for you and what their relevant characteristics and behavioural traits are is therefore essential, along with any previous indiscretions that may have slipped under the normal screening radar.
Maybe this could help?
Showing posts with label Risk Management. Show all posts
Showing posts with label Risk Management. Show all posts
Monday, 6 October 2014
Friday, 5 September 2014
Risk Appetite
We all have a propensity to take risk; managing hazards on a daily base is something we all do simply evidenced by the fact that we get out of bed, leave the house, drive, walk, interact with people we don’t know - it is hard wired within us in order survive whatever life throws at us. Some of us will inherently avoid risk whilst other seek it out – governed by their ‘risk appetite’. That is why so few of the world’s population skydive, bungee jump or play the stock market. Different things both internal and external influence our risk raking behaviour.
The Financial Conduct Authority requires financial advisors to assess the risk appetite of clients before selecting products for them. For those who have experienced it, the quality and depth of that assessment is varied, and whether or not it is robust or has rigor, is debatable. After all, financial advisors are not trained psychologists and there is a degree of subjectivity in all risk assessment processes!
A key element of the relationship between the advisor and investor is trust. For many investors, there will be insufficient engagement with an advisor over time to build a relationship within which familiarity and trust develop in any meaningful way. As the saying goes – “trust takes years to develop and seconds to destroy”. One should never forget that the financial advisor is in essence a salesman, making a living out of the commission on product sales. The more they sell, the wealthier they become and whilst there may be a world of difference between a mortgage broker and a hedge fund manager both are inevitably taking risk with other people’s money. Jordan Belfort’s own view that his “debauched life of sex and drugs was ‘even worse’ than shown in the film “Wolf of Wall Street”. To what extent does reward-driven financial risk taking become more than just a way of life – an addiction – the thrill associated with higher risk higher reward? A legitimate question therefore is, who assesses and controls the risk appetite of financial advisors and how can those who manage and regulate them demonstrate their trustworthiness to the client or investor?
This could help?
The Financial Conduct Authority requires financial advisors to assess the risk appetite of clients before selecting products for them. For those who have experienced it, the quality and depth of that assessment is varied, and whether or not it is robust or has rigor, is debatable. After all, financial advisors are not trained psychologists and there is a degree of subjectivity in all risk assessment processes!
A key element of the relationship between the advisor and investor is trust. For many investors, there will be insufficient engagement with an advisor over time to build a relationship within which familiarity and trust develop in any meaningful way. As the saying goes – “trust takes years to develop and seconds to destroy”. One should never forget that the financial advisor is in essence a salesman, making a living out of the commission on product sales. The more they sell, the wealthier they become and whilst there may be a world of difference between a mortgage broker and a hedge fund manager both are inevitably taking risk with other people’s money. Jordan Belfort’s own view that his “debauched life of sex and drugs was ‘even worse’ than shown in the film “Wolf of Wall Street”. To what extent does reward-driven financial risk taking become more than just a way of life – an addiction – the thrill associated with higher risk higher reward? A legitimate question therefore is, who assesses and controls the risk appetite of financial advisors and how can those who manage and regulate them demonstrate their trustworthiness to the client or investor?
This could help?
Wednesday, 6 August 2014
Effective Screening
How can an organisation manage the hazards associated with personnel selection and appointment? Recognising that a problem exists is perhaps the starting point, followed by a good, robust business continuity, risk management and HR policies and procedures in place to address it. Whilst much attention has been focused in recent times on preventing and detecting financial impropriety at the highest level in major corporations, risk exposure occurs at every level and in each and every section of an organisation; a factor which is still apparent due to the high number of cases that have come to light retrospectively having been detected rather than prevented, suggesting many existing HR and risk management processes and finding it a challenge to effectively prevent the risk occurring in the first place. Risk is not exclusively linked to the money or the power base.
Government clearly has an interest in the risk associated with the financial world and the corporations that control it, especially when an occurrence can impact the British economy and thereby influence the outcome of an election! The Conservatives and Liberal Democrats made much of the apparent link between the financial crisis in 2007 and Labour's mis-management of the economy and lack of control over the financial institutions in the last election. It was lucky or unlucky depending on your political perspective that a Labour Government was in power at the time - would a Conservative Government have faired any better? Would it have had the necessary systems in place to prevent, detect or deter it? Hindsight is, as always, a wonderful thing!
The gift of hindsight is not exclusive to Government, every organisation has it. The trick is, having the means by which its use and subsequent 'hindsight is a wonderful thing', can be avoided. Foresight and foreseeability are by far the better means to manage risk. In relation to the financial corporations and institutions, conduct (or perhaps more appropriately misconduct) is a core and current issue, with the vast wealth having the power to sway even the strongest of minds. How does one ensure compliance with the rules, procedures, codes, and something less prescriptive but nonetheless important, societal expectations associated with good governance and transparency? After all, it is society that elects, and deselects, a government.
The first question therefore for those with responsibility for such matters is to what extent and by what means does the organisation assess risk? Employee-related risk exposure in particular (the human element of an organisation) is an area that needs to be assessed? The supplementary question is, what processes, procedures and tools are available to help manage and control it in order to reach the highest level of prevention. When it comes to fraud prevention, detection and deterrence are key expectations for those who regulate; audit and process controls can address the mechanics but what about the 'soft' hazard - those involved in the misconduct, the element open to human interoperation, interaction and often error?
How do HR professionals assess risk prior to people selection and managers during appointments when in role? Understanding the psychology and behavioural characteristics of employees is key to establishing how likely it is that an individual will break the rules, and whether or not they have an undisclosed history. The history that is not highlighted in standard screening procedures which those individuals (particularly in the finance sector) who have exposed a company to risk, have been through already?
probitasltd.co.uk
Government clearly has an interest in the risk associated with the financial world and the corporations that control it, especially when an occurrence can impact the British economy and thereby influence the outcome of an election! The Conservatives and Liberal Democrats made much of the apparent link between the financial crisis in 2007 and Labour's mis-management of the economy and lack of control over the financial institutions in the last election. It was lucky or unlucky depending on your political perspective that a Labour Government was in power at the time - would a Conservative Government have faired any better? Would it have had the necessary systems in place to prevent, detect or deter it? Hindsight is, as always, a wonderful thing!
The gift of hindsight is not exclusive to Government, every organisation has it. The trick is, having the means by which its use and subsequent 'hindsight is a wonderful thing', can be avoided. Foresight and foreseeability are by far the better means to manage risk. In relation to the financial corporations and institutions, conduct (or perhaps more appropriately misconduct) is a core and current issue, with the vast wealth having the power to sway even the strongest of minds. How does one ensure compliance with the rules, procedures, codes, and something less prescriptive but nonetheless important, societal expectations associated with good governance and transparency? After all, it is society that elects, and deselects, a government.
The first question therefore for those with responsibility for such matters is to what extent and by what means does the organisation assess risk? Employee-related risk exposure in particular (the human element of an organisation) is an area that needs to be assessed? The supplementary question is, what processes, procedures and tools are available to help manage and control it in order to reach the highest level of prevention. When it comes to fraud prevention, detection and deterrence are key expectations for those who regulate; audit and process controls can address the mechanics but what about the 'soft' hazard - those involved in the misconduct, the element open to human interoperation, interaction and often error?
How do HR professionals assess risk prior to people selection and managers during appointments when in role? Understanding the psychology and behavioural characteristics of employees is key to establishing how likely it is that an individual will break the rules, and whether or not they have an undisclosed history. The history that is not highlighted in standard screening procedures which those individuals (particularly in the finance sector) who have exposed a company to risk, have been through already?
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