Risk TV expert Mike Power says risk management needs to go beyond procedure and regulation.
Professor Mike Power has worked in academia for more than 25 years and has served on boards and risk committees of wealth management and investment companies.
As Professor of Accounting at The London School of Economics and Political Science he is uniquely placed to understand the need for effective risk management in large organisations.
In yBC’s interview with him, he offered an interesting insight into some of the downfalls of risk management as it practiced today.
He talked about the need for risk managers and senior executives to be honest about risk and create a good risk culture on top of following standard risk protocol. This is the only way to truly prepare for uncertainty and the potential business disruptions that could come out of our fast developing world.
Power said: “Risk management as is practiced by many organisations perhaps sometimes creates illusions of control that don’t actually exist.”
He discussed the gulf between what risk management techniques can achieve and truly effective risk culture.
He observes that while regulation can drive risk management, business leaders can become preoccupied with meeting these regulations and not see the bigger picture of risk:
“They’re more worried about the regulator sometimes than they are worried about the risk to their clients and business.” Power said.
Three lines of defence
Power’s academic research has also illuminated problems with some prominent models such as the ‘three lines of defence’, which aims to separate the business front-line and a central risk management function, thus ensuring thorough risk management with independent checks. Power told yBC:
“In our research on risk culture we found that all the interesting cultural work goes on in the border territory between the first and the second line.”
More insight from Professor Mike Power is available on Risk TV. Risk TV provides food for thought on risk issues and aims to show a variety of perspectives on risk management issues, including the way the practice is evolving. yBC has filmed interviews with academics and risk professionals as well as experts with a more psychological viewpoint on risk.