FCPA & Ethics highlighted at latest Risk Series

Ethics is more relevant than ever before; In public and private entities, ethical decision making seems to have taken a back seat to short-term profitability be it monetary gain or popular opinion. Companies like Volkswagen, Wells Fargo and Equifax are seeing share prices in freefall while simultaneously dealing with a public relations nightmare.

The Risk Institute hosted its first continuing professional development session of the academic year on October 11, 2017, on the Foreign Corrupt Practices Act (FCPA) and ethical decision making. Speakers included David Freel, a professor at The Ohio State University; Eric Lebson, a vice president at the Crumpton Group; Vlad Kapustin from New York Life; and Bill Foale, an investigator from EY.

Globally, corruption accounts for more than 5 percent of the global GDP — more than $2.6 trillion. Most of that corruption occurs in developed countries with approval from senior management. Which leads us to think that the tone at the top and organizational culture need work.

Organizational culture is the shared beliefs or expectations that influence thinking and behavior; it’s the glue that holds the company together. According to Prof. Freel local companies Nationwide, Cardinal Health are best-practice examples of excellent, ethical organizational culture.

And ethics is important to consumers too. The data currently says that consumers are more likely to do business with companies they perceive to be of a high moral fiber.

Since a company’s ethics is a priority to consumers, it could be assumed that strides have been made across industries to clearly define ethical behavior for its employees, provide training, improve whistleblower policies, etc.

Unfortunately, that’s not the case.

Over the last 30 years, there’s virtually been no change in anti-corruption policies. According to Eric Lebson, “It’s difficult to get a company that has never experienced a FCPA incident to take action.”

An FCPA investigation can be crippling. On average, an FCPA investigation lasts 3.7 years, 92.42% of defendants who settle with SEC, and 76.44% of defendants who settle with DOJ.

Bill Foale encouraged executives to empower their audience to make compliance second nature. Many anti-corruption policies are dense and jargony and therefore difficult for even a native English speaker to comprehend. Foale suggests asking the following questions about your anti-corruption policies:

  • Is the material understandable?
  • Is it written in a way that the information is relatable to the audience responsibilities? As in, not just a list of “do nots” and includes examples of practical tips
  • Language? Keep in mind that many of your employees may be native English speakers.
  • Is there a resource available for questions/assistance?

Many ethical challenges like transparency, privacy, self-interest, and data protection lie ahead. But with proper prior preparation, any organization can avoid ethical conflicts.

For more on this topic and many others, visit fisher.osu.edu/risk. Risk Series V continues on November 14 with a conversation on Mergers & Acquisition Risk. M&A is a high stakes game and getting it right matters. Join The Risk Institute and our experts from academia and industry for a lively discussion about the delicate balance of risk and reward in M&A. To register, visit go.osu.edu/marisk.

Governance and culture take center stage at The Risk Institute’s Annual Conference

Conversation surrounding governance and culture recently took center stage at The Ohio State University Fisher College of Business, as The Risk Institute explored the impacts of the two key aspects of business at its Annual Conference. The two-day conference brought together Risk Institute members, business leaders, experts and faculty thought leaders from Fisher for an in-depth examination of the risk management and strategic implications of governance and culture.

Phil Renaud and Jeni Britton Bauer of Jeni's Splendid Ice Creams discuss maintaining culture through crisis.

Phil Renaud and Jeni Britton Bauer of Jeni’s Splendid Ice Creams discuss maintaining culture through crisis.

Considering the various sides of governance and culture is critical to understanding how to leverage risk management to create value for an organization. The conference featured four keynote speakers, Gordon Bethune, former CEO of Continental Airlines; Cameron Mitchell, founder and CEO of Cameron Mitchell Restaurants; Randall Kroszner, former Governor of the Federal Reserve System; and David Gebler, author of best-selling book The 3 Power Values.

Bethune opened the conference and focused on his experience turning around Continental Airlines over a decade, which is detailed in his book, From Worst to First. He emphasized the importance of building accountability between employees and the organization saying, “What gets measured and rewarded, gets done.”

Mitchell is a self-described serial entrepreneur who understands that taking risks is necessary to be successful in business saying, “I may shoot myself in the foot and walk with a limp, but I’ll never shoot myself in the head and make a fatal mistake.”

Academic Director Isil Erel speaking at Annual Conference 2016.

Academic Director Isil Erel speaking at Annual Conference 2016.

During his time with the Federal Reserve System and as a professor of economics at the University of Chicago, Kroszner never imagined he would be helping guide America’s economy through the worst financial crisis since the Great Depression. He discussed the potential ramifications of the Fed keeping interests rates at historic lows since 2008 saying, “When your short-run policy becomes a long-run policy, you will always run into unintended consequences.”

Named one of America’s top Thought Leaders in Trustworthy Business Behavior, Gebler is an innovator of new approaches that integrate culture, ethics, values and performance. His talk detailed how to know if your organization’s culture is a risk factor utilizing the three power values— integrity, transparency and commitment.

In addition to the keynotes, the third-annual conference brought together business leaders and experts for a series of RISKx presentations and panel discussions on women in risk, governance and culture related to business. The culture discussion explored  employees’ attitudes toward risk, mergers and acquisitions, maintaining culture through crisis, and emerging risks in the energy industry.

The Risk Institute’s Executive Education Series will resume November 15 with a discussion on Political Risk.

 

Risk Culture Plays a Critical Role in the Financial Services Industry

Risk Institute Portraits Fisher Hall - Third Floor Feb-02-2016 Photo by Jay LaPrete ©2016 Jay LaPrete

By  Philip S. Renaud II, MS, CPCU
Executive Director, The Risk Institute
The Ohio State University Fisher College of Business

 


The Risk Institute at The Ohio State University held the first in a series of breakfast sessions that focused on Risk Culture in the Financial Services Industry.

The session was moderated by The Risk Institute Academic Director Dr. Isil Erel who guided the discussion of the four-person panel of experts comprised of:

The session concentrated on how the financial crisis has elevated regulatory risk to a more central point in the discussion of risk management. The panel focused on how an organization’s culture is measured. Measurement can include the more traditional standard, regulatory approach with the evaluation of policies and/or process breaches to the softer side of culture that measures the “tone at the top.” The softer actions can include “raising your hand” when a process, policy and/or an ethical challenge is observed.

Panel Risk Culture Financial Institutions 3.2016

Helga Houston, Kevin Allard, Steve Chenenko, Rick Wilson

The panel went into an in-depth discourse for session attendees on how three levels of defense need to be present in an institution to evaluate the proper culture within. Those include:

  1. Business Unit oversight
  2. Risk Management oversight
  3. Auditor and/or Regulatory oversight

It is vital for all three oversights to be integrated in an organization’s risk culture. Furthermore, it is important to consistently gauge the organizational culture to evaluate if associates are doing the right thing, and whether they believe in the organization and what it stands for or if they are acting simply because they are instructed to do so.

The session proved thought-provoking and demonstrated The Risk Institute’s unique role in uniting industry thought leaders, academics and highly respected practitioners in an ongoing dialog to advance the understanding and evolution of risk management. The Risk Institute’s conversation about risk management is open and collaborative with its relevance across all industries and its potential as a tool for competitiveness and growth.


For more information about upcoming events, our students, partners or research, visit our website: fisher.osu.edu/centers/risk.

The Risk Institute 2014 Survey – Evolving the Conversation

minton bernadette 130x195By Professor Bernadette A. Minton
Academic Director, The Risk Institute
Arthur E. Shepard Endowed Professor in Insurance
The Ohio State University Fisher College of Business 

 


Last week, The Risk Institute released its first annual Survey on Integrated Risk Management.  As my colleagues and I reviewed the survey results, we agreed that they provided insights into three aspects of risk management:

  • Senior executives’ views about the role of risk management in their firms
  • The structure of risk management functions
  • How firms integrate risk management into business decisions

Yet, we also agreed that the results raised several questions, including:

  1. Are firms’ risk management approaches really integrated or are they just aspirational? On the one hand, firms say they view their risk management approach to be integrated, meaning they stress its use across the firm and recognize it to be a source of growth opportunities and not just a reactive or defensive strategy. Yet, further survey questions about how they integrate risk management into business decision-making show that such integration is piecemeal and does not extend to all functional areas or units.
  2. If a firm reports the recognition of risk management as the source of growth and as the most important catalyst for their increased risk management efforts over the last three years, why does the audit committee have the primary responsibility for risk management? The executive committee and/or strategy committee of the board understand the drivers of firm value and set the corporate objectives to enhance firm value. However, firms rarely reported that these committees are responsible for risk management at the board level.
  3. Why are business functional areas like marketing, sales, human resources or research and development not more involved in risk management processes? These functional areas have large amounts of data that can help firms understand risks to their corporate objectives as well as help identify emerging risks.
  4. If balancing risks to create value means mitigating risks at times and leveraging risks at other times, why are firms not using mechanisms to set the scope of risk taking consistent with this view?

At The Risk Institute, we are dedicated to advancing the adoption of leading risk management strategies by leveraging the collaboration between academic scholars and RiskInstitute_block Dpractitioners. As we work to provide insights into the questions raised by the survey, we look forward to continuing the conversation on the evolving role of risk management through: new areas of research; translations of completed academic research for practical business applications; and educational programs for business professionals, undergraduate and graduate level students.  Through these dialogues, we can collectively advance our knowledge of risk management and influence adoption of leading risk management practices.


To learn more and access the complete 2014 Survey on Integrated Risk Management, visit: go.osu.edu/2014RiskSurvey

A Snapshot of Risk Management in 2015

minton bernadette 130x195By Professor Bernadette A. Minton
Academic Director, The Risk Institute
Arthur E. Shepard Endowed Professor in Insurance
The Ohio State University Fisher College of Business 

 


As published on Columbus CEO’s CEO Live blog on May 20, 2015

In recent years, risk management has evolved into a more comprehensive and integrated practice.  Risk management was once viewed as only being done to meet regulatory requirements and to protect the firm against the negative effects of volatility in their business environment.  While those aspects remain leading catalysts for firms who increased risk management efforts over the last three years, a fraction of firms recognize risk management to be a source of growth.

Over the same three-year period, senior executives and the board of directors have become more involved in risk management processes. This integrated approach leverages collaboration across an organization to identify and evaluate risks and to proactively manage those risks to achieve corporate objectives and enhance shareholder value.

One of the primary goals for The Risk Institute at The Ohio State University Fisher College of Business is to create a greater understanding of how organizations can proactively leverage risk management to create value.  Given the varied roles that risk management plays in different organizations, it is important to hear from senior executives from both financial and nonfinancial industries about how they view risk management’s role in their organization. It’s also critical to understand how executives, if at all, integrate risk management into business decisions as well as structure their risk management function to support its role in the firm.

Organizations are increasingly impacted by risks that are more interconnected and ever changing. This means that the conversation about risk and risk management must continue to evolve and grow. It is with this goal in mind that The Risk Institute developed a comprehensive research initiative to survey senior risk management executives. The survey is designed to deepen the understanding of how U.S. companies structure their risk management practices.

The annual Risk Management Survey is one example of how The Risk Institute and its founding partners are committed to moving this conversation forward. In this inaugural survey, we provide a snapshot of risk management practices among a large and diverse set of U.S. firms.

As The Risk Institute unveils the findings from its inaugural 2014 Risk Institute Survey on Integrated Risk Management several things are clear.

 1) In order for firms to transition to a more integrated risk management approach, which views risk management as a source of value enhancing opportunities, it is important to choose a leader of the risk management functions who embraces this view and who does not see risk management as merely a defensive strategy. Equally important is choosing a leader who can effectively collaborate with other C-suite executives to leverage risk to enhance shareholder value.  Finally, the Board committee responsible for risk management also should share this view.

2) For firms wanting a more integrated risk management approach, it is important to include more business units/functions in the processes and not only rely on those functions related to finances and meeting mandated requirements. Aligning risk management with key organizational strategies will aid an organization to successfully develop a fully integrated risk management function that can leverage risk to achieve corporate objectives and enhance growth and shareholder value.

3) For firms to fully reap the benefits of an integrated approach, not only do they need to recognize a business process and analyze the risks of that process, they must also increase their efforts to have their analysis feeding back into the risk management of the firm itself. This “looping” process will allow firms to proactively manage the risks impacting their organizations and identify emerging risks to be leveraged or mitigated.

4) Given the changing nature of risks impacting firms, firms must continue to use a variety of techniques like best case/worse case and extreme scenario analyses, which can effectively evaluate these risks by including proprietary models and simulations.

5) As firms move from viewing risk management as a defensive strategy to a more fully integrated approach, senior executives and the Board must develop mechanisms to set the scope of risk-taking that are consistent with this latter view of risk management.

These findings afford some great insights and will enable us to investigate and address challenges in the practice of risk management so to advance the adoption of leading integrated risk management strategies.


To learn more and access the complete 2014 Survey on Integrated Risk management, visit: go.osu.edu/2014RiskSurvey