responsibility for managing conduct

How can you encourage all staff to take responsibility for managing conduct?

By The Enforcd TeamThe Enforcd Team

In this third post in our series reflecting on Megan Butler’s speech to the FT Investment Managers Summit, we look at how you can encourage all staff to take responsibility for managing conduct.

Risk management is suddenly flying up the corporate agenda. As regulators increase their expectations, the financial services are responding. Even so, many firms still have a gap in understanding between the executives in the boardroom and the professionals at the coal face. That’s a major problem because as Megan Butler of the FCA said back in September, the landscape is evolving fast.

One of her key questions to the FT Investment Management Summit Europe was:

“How do you encourage people in front, middle, back office, control and support functions to feel responsible for managing conduct?”

This is perhaps an even more important issue than it ever has been. Technology is changing the game. It is giving corporations the power to do much more and deliver outstanding services to their clients, but at the same time it leaves them open to a host of risks – and not everyone in the organisation understands them.

Professionals in the IT department may well see a risk, which others in the executive branch or elsewhere in the company will not understand. The problem is, mitigating the risk will require buy-ins from across the organisation.

For example, it’s no good implementing a comprehensive IT security program if a trader who is not fully aware of the risks then clicks on an infected email. With companies becoming more interconnected that infection can spread company-wide in seconds.

The right incentives

Staff can also feel as if they lack incentives to behave in a sustainable way. Enquiries into the explosion at the Deep Water Horizon found that staff knew of risks, but these were not communicated up to the boardroom level. Furthermore, they felt as if they were being incentivised to take risks rather than mitigate them.

Staff, then, can be both an asset and a liability. They are an asset because they are at the coal face, they know their jobs better than anyone else and the risks they face. That knowledge must be harvested and communicated to board room level.

At the same time, if they are not fully involved and incentivised with compliance management teams, actions taken here can impact the entire organisation.

A manager’s first duty, therefore, is to create an environment of positive compliance, where individuals feel incentivised to increase the sustainability and quality of conduct. For that CEOs have to be open to the messages.

Who do you work for?

A common response from some lawyers is that they can see the risk, but would not tell the CEO. That’s because they are operating with the interests of the executives rather than the company in mind. In reality, they are intertwined. The CEO may not want to hear a message, but it could prove crucial down the line.

Boardrooms need to have the right voices from across the organisation. The executive level needs to be aware of the risks and challenges – and to take full ownership of mitigation strategies. At the same time, they need to successfully devolve responsibility to lower levels. Departmental managers should have full control and responsibility for the sustainable management of their own teams.

The British Academy project seeks to address this precise issue. It points to the positive example of Swiss bank Handelsbanken where the bank delegates decision and risk taking down to branch managers.  That manager is responsible for everything including recruitment, pricing, marketing and customer selection.

It is an interconnected network of sustainability which means information is shared and so too is responsibility. Using the Enforcd platform, you can devolve that power of information to departmental managers. By doing so the entire organisation, from individuals on the front line, to C-suite executives benefits.