KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY, KUMASI

INSTITUTE OF DISTANCE LEARNING

Mphil in Business Consulting and Enterprise Risk Management

The Effects of Risk Culture on Organisational Performance -

The Cases of Some Selected Financial Institutions in Ghana

Candidate: Benjamin Kpodo(PG8714812)

B.A. (Hons.) Geography and Resource Development Supervisor: Dr. Kofi Agyekum

Content1. Background of study 2. Problem statement 3. Objectives and research questions4. Theoretical framework5. Empirical review and summary6. Conceptual framework7. Research methodology8. Findings of the research9. Recommendations

Background The aftermath of the Global Financial Crisis

(GFC, 2008) is the emphasis on risk management as a holistic business management practice (Walker, 2009; EC, 2010).

According to the Institute of Risk Management, IRM (2012), this holistic approach to risk management in businesses is referred to as Enterprise Risk Management (ERM).

The success of an ERM programme is how well it builds risk culture - organisational behaviours and processes (PwC, 2009).

Ashby et al. (2012) suggested that an organisations performance is affected by its risk culture. Indeed the failures were attributed to weak risk cultures.

Problem statement The absence of healthy risk management culture

was seen as the cause of the organisational failures witnessed during the GFC 2008, (EC, 2010).

The GFC brought to the fore shortcomings in underlying risk cultures in affected organisations.

Prior to the GFC, Waddock (2005) noted that the collapse of companies across the world can be attributed to weak risk cultures.

Improvement in risk culture therefore is likely to ensure business resilience and enhance business performance.

Unfortunately studies on the effects of risk culture on organisation performance were concentrated in the developed world. (EC, 2010; Ashby, 2011)

Objectives and research questionsObjectives Research questions1. To identify the key components or determinants of risk culture and organisational performance;

What are the key components or determinants of risk culture and organisational performance?

2. To explore the underlying challenges to developing effective risk cultures in Ghanaian companies;

What are the underlying challenges to developing effective risk cultures in Ghanaian companies?

3. To establish the relationship between risk culture and organisational performance and

What is the relationship between risk culture and organisational performance?

4. To develop a generic framework to improve risk culture in businesses in Ghana.

What generic framework could be developed to improve risk culture in businesses in Ghana?

Theoretical frameworkTheory

Construct Implication

Culture theory

Organisational practices and behaviours that are expected, valued and supported through its operations.(Röschmann, 2014) Sheedy & Griffin (2014)

Risk culture can be defined in the light of the organisation’s operations.

Organisa-tional theory

Culture influences all aspects of organisational life. (Schein, 2012)

This influence could help establish the relationship between risk culture and performance of the organisation.

Agency theory

Agency relation comes into being because of the separation of ownership and control.(Jensen & Meckling, 1976)

This control environment could be equated to the organisation’s risk culture.

Systems theory

The organisation is a living organism with many interdependent parts which have specific functions and interconnected responsibilities.(O’Hair et al., 2005)

Risk culture and organisational performance can be said to be related parts.

The concept of risk culture has grown steadily since the GFC of 2008 Ashby et al. (2012).

Following the crisis, several studies suggested that culture played a major role. (EC, 2010; Walker, 2009; House of Commons Treasury Committee, 2009; UK Parliamentary Commission on Banking Standards, 2013).

Indeed several researchers have established a relationship between organisational culture and performance. (Denison and Fey, 2013; Petty et al., 1995; Kotter and Heskett, 1992; Denison, 1990; and Zakari et al., 2013)

Drawing on studies on the failures the IRM (2012) and Farrel and Hoon (2015) concluded that a company’s performance is affected by its risk culture.

The research therefore sought to establish this in Ghana.

Empirical review and summary

Risk Culture

Tone at the top

AccountabilityEffective

ChallengeCompensation

Business Performance

Financial Indicators

Non financial Indicators

Conceptual framework

(Financial Stability Board, 2013; Salz, 2013; Walker 2009; & Eccles, 1991)

Research methodology

Philosophy & approach

Post-positivist - (Patton, 1988), Exploratory and Analytical research approaches

Research design

Correlational field survey research (Tharenou et al., 2007) - measure the relationship between dependent variable and independent variables, Qualitative and Quantitative research methods Study

populationStudy population - Ghana Club 100, Targeted population – Banks, Assessable population – RM executives

Sampling techniques

Reliable sampling frame – research population is finite, Purposive Sampling, Actual respondents were key risk management or related executive

Data collection instruments

Questionnaire, Interviews

Data analysis Five point likert scale, Content Analysis, Descriptive Statistics, Pearson Bivariate Correlational Technique

Findings of the researchDeterminants of risk culture

No significant differences in risk culture determinants

Effective Challenge

Findings of the research Both financial and non financial measures

were fairly the same across surveyed banks Financial measures included:

- Profitability - Efficiency- Cost - Market share- Return to shareholders

Non-financial measures included:- Assets quality - Customer perception- Internal processes - Learning and development- Ability to innovate and agile with change- Staff moral and resultant output

Findings of the research

Relationship between risk culture and organisational performanceThe study revealed a high positive correlation between risk culture and all aspects of organisational performance, ranging from financial performance to non-financial performance.

Findings of the researchUnique relationships identified

Tone at the top is strongly correlated (0.60) with firm’s profitability whiles accountability is strongly correlated with efficiency (0.59) and return to shareholders (0.53).

There is a positively strong correlation between tone at the top and customers/clients performance (0.54) and firm’s operational processes performance (0.6).

Accountability is also strongly positively correlated with staff performance (0.68) and also strong positively correlated with the firm’s operational processes (0.6).

Findings of the researchChallenges to developing effective risk culture Corresponding with the mean scores on the Determinants of Risk Culture, leadership action and inaction was mentioned as the most important challenge to developing an effective risk culture.

Schein (1992)

Findings of the research

Risk culture framework

Recommendations Business leadership must play an active role in

the development of an effective risk culture; In examining the performance of businesses

care must be taken not to exclude non-financial measures;

Developing an effective risk culture must always be done taking into account strategic value proposition of the business in question;

Performance strategies should be developed on the basis of the company’s risk culture;

Investigate the dynamics of risk culture determinants and their effect on performance across other fields;

Investigate the RCF further, considering lessons learned from other cultural change initiatives.

Thank you!