Opinion: On Corporate Culture Risk

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Opinion: On Corporate Culture Risk

So why did Credit Suisse ultimately fall? Was this a cautionary tale that serves as a reminder for business leaders to be alert and able to react to corporate culture risk?

In its delayed annual report, Credit Suisse wrote: “Management did not design and maintain an effective risk assessment to identify and analyse the risk of material misstatements in its financial statements.” The short version of a long saga was summarised by FT journalist, Patrick Jenkins, as follows: "Much of the blame for Credit Suisse's problems must clearly be levelled at the bank itself - its aggressive culture, poor risk management, and fudged decision-making."

Effective risk-management processes must recognise that a) there is not always an optimal unified response and b) individual and organisational biases can lead to risk being overlooked or misread. A good rule of thumb is to question how a decision is approached - or how it is framed. Indeed, business leaders are vulnerable to make dubious decisions if they ignore the dynamics of decision making within their organisation. As Jenkins notes: "If complacency was a factor, that is a lesson not just for the country but elsewhere in the finance world."

To be sure, what is defined as “strong corporate culture” and "prudent corporate governance" varies according to economic conditions. The bottom line, however, is: humility. As Knut N. Kjaer, founding CEO of Norges Bank Investment Management, noted in his presentation to the Finance Society of Norway (March 2023):

“Anchoring in theoretic and advanced models comes often with the cognitive bias of overconfidence while the sensible approach when confronted with uncertainty is humility.”

The road from certainty to uncertainty (and from strong culture identity to groupthink) can be perilous. Every leader and manager is aware of the traps of groupthink and confirmation bias, but being open to different perspectives can be challenging. As Kjaer counsel-ed: “Another pitfall is that we approach complicated problems with silo-mentality. Interdisciplinary work is required.”

Collaborative working cultures need to invite dissenting views (or "devil's advocates") into thinking, learning, and leadership. Remote working might have made challenging conversations and debate even harder, but business leaders must enable their colleagues to speak up whether on Zoom, Teams, or in-person.

London, March 26th, 2023 - This article was originally published as a post in the Asset Circle members-only discussion group on LinkedIn.