Many organisations espouse a culture of compliance - which is good, I’m not taking anything away from that. However, simply following the rules isn't enough. While compliance is necessary, leaning into risk culture can bring benefits compliance alone cannot offer. Think of risk culture as “risk-aware culture”. Leaders in risk culture don't just meet regulatory requirements; they anticipate and leverage risks proactively. This proactive approach sets them apart from what a typical culture by compliance offers.

If you don’t read any further, the one thing I want you to take away is to move from a culture of:

“Can we do it?”

To

“Should we do it?”

Understanding Risk Culture vs. Compliance Culture

Risk culture and compliance culture are often confused but they are different. Compliance culture is about following laws and regulations to the letter. It is normally reactive and often limited to what is legally required. It is rule based and simply defined as a culture of yes or no.

Risk culture, on the other hand, is proactive. It's about anticipating potential consequences before they become problems. It fixes the root cause of probelms so they do not reappear. It's built into the decision-making process. It asks the question, should we be doing this within our risk appetite.

(Note: Great compliance culture can be proactive demonstrated by regulatory change anticipation however, regulatory change risk would always be part of risk culture anyway.)

Benefits of a Strong Risk Culture

1. Proactive Problem-Solving: Companies with a strong risk culture identify and address risks early. This minimises uncertainty in achieving the organisation’s objectives.

2. Better Decision-Making: A risk-aware mindset leads to more informed decisions. Leaders consider potential risks and benefits, leading to balanced and strategic choices.

3. Speed: Companies known for their strong risk culture can enable decision makers to move at speed knowing necessary due diligence and alignment with organisational goals is always considered. This trust translates into better customer outcomes and higher investor confidence.

Challenges of Compliance Culture

1. Reactive Approach: Compliance-focused organisations may only act when a rule is violated. This reactive stance can lead to missed opportunities and greater vulnerabilities.

2. Limited Scope: Compliance is often limited to what regulations dictate. It doesn't encourage thinking beyond. Typically small Compliance departments operate like this.

3. Employee Disengagement: When the focus is solely on compliance, employees may feel like they're being watched for the moment they make a mistake. This disengagement can lead to fear in decision making and both lower morale and productivity.

Actionable Steps:

1. Embed Risk Awareness: Make risk awareness a core part of your company culture. Provide training and resources to help employees at all levels understand and manage risks. Drive home the importance of asking the question - Is this within my risk appetite?

2. Encourage Open Communication: Foster an environment where employees feel comfortable discussing potential risks and benefits and reward innovative thinking. Open dialogue can uncover hidden issues and lead to innovative solutions.

3. Lead by Example: Leaders should model risk-aware behaviour. When top management prioritise risk culture, it sets the tone for the entire organisation. Don’t forget to support the tune from the middle management as this maintains the rage.

4. Integrate Risk Management into Decision-Making: Be deliberate in setting the conditions including the appropriate frameworks, tools and education to ensure risk is considered in all decision making. Explain with real world examples the benefits of this.

5. Reward Proactive Behavior: Recognise and reward employees who identify and mitigate risks. Use these examples as stories to be shared across the organisation.

Mistakes to Avoid:

1. Just Reacting: Compliance culture focuses on adhering to established rules. It's about meeting the minimum requirements to stay out of trouble. But a risk culture encourages employees to think ahead and identify potential problems before they occur.

2. Lack of Continuous Improvement: Risk culture is not a one-time effort. Regularly engage the business educating them and upskilling their ability to make better decisions.

3. Ignoring Employee Input: Don’t dismiss employees' suggestions about potential risks. They often have valuable insights.

4. Punishing Mistakes: Avoid a punitive approach to risk-taking. Encourage learning from mistakes instead.

Conclusion

Risk culture offers benefits that compliance culture can't. It promotes proactive problem-solving, innovation, employee engagement, and an ability to drive decision making aligned to strategic objectives. Move beyond mere compliance and foster a risk-aware mindset across your company.

Closing Thoughts

Compliance is extremely important but don’t stop there as the focus. Worst thing I’ve seen is people being afraid to make decisions in case they get it wrong. Drive a culture that empowers people and has them regularly asking one of two questions:

“Is this within risk appetite?”

“Should we be doing this?”

Now, what would you do differently and what help do you need to get there?