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Aligning organisational culture with Enterprise Risk Management Krishna Nagar & Mark Hayes Actuarial Society 2015 Convention 17 18 November 2015 Agenda 1. Introduction 2. Enterprise Risk Management (ERM) 3. Organisational culture

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Actuarial Society 2015 Convention 17 – 18 November 2015

Aligning organisational culture with Enterprise Risk Management

Krishna Nagar & Mark Hayes

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Actuarial Society 2015 Convention 17 – 18 November 2015

Agenda

1. Introduction 2. Enterprise Risk Management (ERM) 3. Organisational culture 4. Linking organisational culture to ERM 5. Survey findings 6. Conclusion

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Actuarial Society 2015 Convention 17 – 18 November 2015

Introduction

  • SAM: organisational culture should embed risk

management policies and procedures

  • link between organisational culture and ERM

implementation

  • provide Chief Risk Officers an initial framework to

categorise an organisation’s culture…

  • … to allow them to practically link culture

characteristics and ERM principles

  • broad investigation into organisational culture and the SA

insurance industry

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Actuarial Society 2015 Convention 17 – 18 November 2015

Enterprise Risk Management (ERM)

Committee of Sponsoring Organizations (COSO) of the Treadway Commission defines ERM as:

a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

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Actuarial Society 2015 Convention 17 – 18 November 2015

Enterprise Risk Management (ERM)

SAM defines the Own Risk and Solvency Assessment (ORSA) as:

the entirety of the processes and procedures employed to identify, assess, monitor, manage, and report the short and long term risks an insurance undertaking (and insurance group) faces or may face and to determine the own funds necessary to ensure that insurers (and groups) overall solvency needs are met at all times and are sufficient to achieve its business strategy.

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Enterprise Risk Management (ERM)

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Enterprise Risk Management (ERM)

7 Entity Division Operating Unit Function

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Enterprise Risk Management (ERM)

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Control Environment Entity Division Operating Unit Function

  • 2. the board of directors

demonstrates independence and

  • versight

… to achieve the organization’s

  • bjectives
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Enterprise Risk Management (ERM)

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Risk Assessment Entity Division Operating Unit Function

  • 7. the organization identifies,

analyzes and manages risks appropriately … to achieve the organization’s

  • bjectives
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Enterprise Risk Management (ERM)

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Control Activities Entity Division Operating Unit Function

  • 10. the organization develops risk

control activities … to achieve the organization’s

  • bjectives
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Enterprise Risk Management (ERM)

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Information & Communication Entity Division Operating Unit Function

  • 13. the organization uses relevant,

quality information … to achieve the organization’s

  • bjectives
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Enterprise Risk Management (ERM)

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Monitoring Activities Entity Division Operating Unit Function

  • 16. the organization performs

appropriate evaluations … to achieve the organization’s

  • bjectives
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Enterprise Risk Management (ERM)

13 Control Environment Risk Assessment Control Activities Information & Communication Monitoring Activities Entity Division Operating Unit Function

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Organisational Culture

  • rganisational culture is defined as

the values, beliefs, knowledge and customs that are shared by a group of people in an organisation (Schein, 2010).

  • freedom of personal expression
  • decision making and developing ideas
  • the flow of power and information through the
  • rganisation’s hierarchy
  • the commitment of the group towards achieving

collective objectives

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Culture Components

Sociability

  • encouragement of teamwork
  • frequent communication, both formal and informal
  • an open platform for innovation, criticism and discussion
  • shared ideas, attitudes, interests and values
  • evidence of informal relationships between employees

Solidarity

  • task-orientated and output-based
  • single-minded dedication to the organization's objectives
  • work roles are clearly defined and understood
  • everyone is held to high standards
  • communication is very formal
  • quick response to changes in the environment

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The Four Cultures

  • Networked
  • high in sociability and low in solidarity
  • the talkers
  • Mercenary
  • high in solidarity and low in sociability
  • the walkers
  • Fragmented
  • low in both components
  • the odd balls
  • Communal
  • high in both components
  • the talkative walkers

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The Double S Cube

17 Negative Positive Low High

Solidarity

Low High

Sociability

Networked Mercenary Fragmented Communal

The Double S Cube (Goffee & Jones, 1998)

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Linking Organisational Culture to ERM

  • Example
  • ERM Principle:

The organisation selects and develops control activities that contribute to the mitigation of risks to the achievement of

  • bjectives to acceptable levels.
  • Two phases
  • 1. Assess the two components of the Double S framework

independently of each other

  • 2. Combine the two to determine the culture

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Actuarial Society 2015 Convention 17 – 18 November 2015

Linking Organisational Culture to ERM

  • Phase 1
  • a. Choose the first organisational culture component
  • b. Consider the extent to which each of the key

characteristics of the component is vital to meet the ERM principle and allocate a mark out of five for each characteristic

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Linking Organisational Culture to ERM

The organisation selects and develops control activities that contribute to the mitigation of risks to the achievement of

  • bjectives to acceptable levels.

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Sociability Solidarity Encouragement of teamwork Task-orientated and output- based Frequent communication Single-minded dedication An open platform Clearly defined work roles Shared ideas, attitudes, interests and values Everyone is held to high standards Informal relationships Communication is very formal Quick response to environmental changes Members compete to meet

  • bjectives
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Linking Organisational Culture to ERM

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Sociability Solidarity Encouragement of teamwork 3 Task-orientated and output- based 4 Frequent communication 4 Single-minded dedication 5 An open platform 5 Clearly defined work roles 3 Shared ideas, attitudes, interests and values 2 Everyone is held to high standards 3 Informal relationships 2 Communication is very formal 1 Quick response to environmental changes 3 Members compete to meet

  • bjectives

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Linking Organisational Culture to ERM

Phase 1 (continued)

c. Find the average score

  • d. Repeat the process for the remaining component

Sociability - 3.2 Solidarity - 3

Phase 2

  • Plot the average values to the Double S Cube framework

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Linking Organisational Culture to ERM

23 Solidarity Sociability Communal Mercenary Fragmented Networked

1 2 3 4 5 1 2 4 5

Authors’ Score

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Survey Findings

  • 23 South African insurers and reinsurers participated
  • represented 89% of market share
  • nly 1 primary market leader did not respond
  • CRO or similar standing
  • FRAMING ISSUES!

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Survey Findings

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Insurance Industry’s Organisational Culture

Solidarity Sociability Networked Communal Fragmented Mercenary 1 2 3 4 5 1 2 4 5

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Survey Findings

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Solidarity Sociability Less than 100 100 to 500 500 to 1000 1000 to 5000 More than 5000

1 2 3 4 5 1 2 4 5

Communal Networked Mercenary Fragmented 1 2 3 4 5 1 2 4 5 Communal Networked Mercenary Fragmented

Solidarity Sociability

Organisational Culture and Number of Employees

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Survey Findings

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1 2 3 4 5 1 2 4 5

Communal Networked Mercenary Fragmented

Solidarity Sociability

General Insurance Life Insurance Reinsurance Life and General insurance Linked and market licence

Solidarity Sociability

1 2 3 4 5 1 2 4 5 Communal Networked Mercenary Fragmented

Organisational Culture and Type of Insurer

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Survey Findings

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Organisational Culture and ORSA Implementation

1 2 3 4 5 1 2 4 5

Communal Networked Mercenary Fragmented

Solidarity Sociability

We have not started implementing ORSA We are in the process of designing an ORSA process We have been monitoring the ORSA process for some time and are improving the strategy We have an operational ORSA process We have completed the design of an ORSA process and started monitoring its progress

Solidarity Sociability

1 2 3 4 5 1 2 4 5 Communal Networked Mercenary Fragmented

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Survey Findings

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Linking ERM Principles to Organisational Culture

External environment: control environment 1 = commitment to integrity and ethical values 2 = Board independence and oversight 3 = management establishes structures in pursuit of objectives Develop the solution: control activities 10 = selection and development of controls to mitigate risks 11 = selection and development of controls

  • ver IT

Professionalism: information and communication 13 = obtains, generates and uses quality information

1 2 3 10 11 13 Solidarity Sociability

Networked Communal Fragmented Mercenary

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Conclusion

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  • Goffee & Jones’ (1998) Double S Cube framework

practically maps organisational culture

  • Derived a process to link to COSO’s ERM principles
  • Resulting in Communal Culture as generally most

appropriate to nurture

  • As reflected in the SA insurance industry
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Questions? Thank You

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