Managing the whole firm's risk


All firms develop a business culture and there is no doubt that a healthy culture can be a huge asset to a firm, making it stand out among its rivals. Indeed, a well-managed firm with a culture tuned to risk management can benefit through reduced errors, claims and circumstances.



There can unfortunately be a darker side to cultural issues. On occasions, the culture of doing business can ingrain high-risk behaviour because 'it's the way we've always done it' or 'it's what the market expects'. This type of behaviour can sometimes be seen in diversified practices where one department puts its own perceived business needs before the needs of the whole practice.



Let's illustrate the risk through an example. Take a hypothetical firm with high standards of practice management and well-established risk management procedures. The firm introduces new money laundering procedures across the whole practice to meet the demands of regulation, including strict client identification procedures. One, highly profitable department of the firm, dealing with international litigation, opts out of the new regime. Its clients frequently require anonymity and use vehicles such as offshore companies to achieve it. As it is the 'culture' of business in this market, the lawyers in the litigation department do not feel a need to concern themselves with the reasons why anonymity is standard practice in their field. They also fail to consider whether this type of client or risk is acceptable to other partners of the firm.


The reality is, of course, that by viewing anonymity as an important part of its service, the department is putting its own needs ahead of the needs of the practice as a whole. The reputation and commercial success of the whole firm is jeopardised because one department is unable or unwilling to take into account the bigger picture.


The lesson is that it is not a question of blaming individual members of staff, or even individual departments; it is a matter of getting the culture right so that staff feel rewarded for their efforts when they put the firm's interests first.


Risk management is intimately linked to a firm's culture, not an optional extra which can be discarded when it is inconvenient or apparently uncommercial. All the aspects which make a firm a commercial success contribute to successful risk management. Good leadership gives the staff a strong sense of direction and purpose. Effective team development helps people to identify with others and support their efforts, and a good human resources policy rewards those who make the most contribution to the whole business. The lesson is that no risk strategy can ever succeed if the firm's culture is ignored.



This column was prepared by the Alexander Forbes Professions risk management team