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Risk management and compliance play vital roles in ensuring the success and stability of businesses across various industries. One aspect that often arises within these functions is the presence of tension, particularly between risk management professionals and sales teams. This tension, when managed constructively, can lead to growth, innovation, and improved outcomes for both sides. In this article, we will explore the concept of constructive tension, its significance, and the steps risk managers and compliance officers can take to foster a culture that harnesses its power.

Understanding Constructive Culture and Tension

A constructive culture is one that promotes improvement, development, and positivity within an organization. It is a culture that encourages open communication, collaboration, and continuous learning. On the other hand, tension refers to the presence of friction, hostility, and potential mistrust. Acknowledging tension within an organization is crucial as it allows for its proper management and resolution.

The Significance of Constructive Tension in Risk Management and Compliance

In the realm of risk management and compliance, tension often arises between risk management professionals and sales teams. These two functions have inherently different objectives and priorities. While risk managers focus on mitigating potential risks and ensuring regulatory compliance, sales teams are driven by revenue generation and meeting targets. This fundamental difference in objectives can create a natural tension between the two groups.

Constructive tension, when properly managed, can be beneficial for both risk management and sales teams. It can lead to a more robust risk management framework, improved compliance practices, and enhanced sales strategies. By acknowledging and addressing the tension in a positive and proactive manner, both sides can work together to find mutually beneficial solutions.

Embracing Constructive Tension

To harness the power of constructive tension, risk managers and compliance officers should take the lead in creating a culture that embraces it. This involves taking the initiative and the first steps towards fostering open dialogue, collaboration, and shared goals. By setting clear objectives and facilitating discussions between risk management and sales teams, a foundation for constructive tension can be established.

Strategies for Managing Constructive Tension

Managing constructive tension requires a proactive approach from both risk management professionals and sales teams. Here are some strategies that can help in effectively managing tension and leveraging it for positive outcomes:

1. Open Communication Channels

Establishing open communication channels between risk management and sales teams is crucial. Regular meetings, joint planning sessions, and feedback sessions can facilitate better understanding and collaboration. Encouraging both sides to voice their concerns, ideas, and suggestions will help in bridging the gap and finding common ground.

2. Shared Objectives and Goals

Aligning objectives and goals between risk management and sales teams is essential for managing tension constructively. When both sides understand and appreciate each other’s objectives, they can work towards finding solutions that meet the needs of both functions. This shared sense of purpose can foster collaboration and innovation.

3. Cross-Functional Training and Education

Providing cross-functional training and education opportunities can help bridge the knowledge gap between risk management and sales teams. This can facilitate a better understanding of each other’s roles, responsibilities, and challenges. By developing a shared language and knowledge base, both sides can work together more effectively.

4. Collaborative Problem-Solving

Encouraging collaborative problem-solving can help in resolving issues and addressing tension constructively. By involving both risk management and sales teams in the decision-making process, diverse perspectives can be considered, leading to more comprehensive and effective solutions.

5. Recognizing and Rewarding Collaboration

Recognizing and rewarding collaboration between risk management and sales teams can reinforce the importance of constructive tension. This can be done through performance evaluations, team-building activities, and incentives that promote collaboration and mutual support.

The Benefits of Constructive Tension

When managed effectively, constructive tension can bring about several benefits for an organization. These include:

• Enhanced risk management practices: The presence of constructive tension encourages risk managers to think critically and consider various perspectives when assessing risks. This can lead to more robust risk management practices and better decision-making.
• Improved compliance: By fostering collaboration and communication between risk management and sales teams, compliance practices can be strengthened. Sales teams can gain a better understanding of regulatory requirements, and risk managers can provide guidance on compliant sales strategies.
• Innovation and growth: Constructive tension can fuel innovation and drive growth within an organization. By challenging the status quo and encouraging new ideas, risk management and sales teams can work together to identify opportunities for improvement and expansion.
• Stronger stakeholder relationships: When risk management and sales teams collaborate effectively, it can lead to stronger relationships with stakeholders. By addressing potential risks and compliance issues proactively, organizations can build trust and credibility with their clients, investors, and regulators.

Conclusion

Constructive tension, when managed properly, can be a powerful force in risk management and compliance. By fostering a culture of open communication, shared goals, and collaboration, risk managers and compliance officers can harness the potential of tension for the benefit of the organization as a whole. Embracing constructive tension allows for innovation, growth, and improved outcomes, ultimately leading to greater success in an increasingly complex business landscape.

Do you find that there is tension between the Risk Management department and other teams?

Introduction

In the realm of decision-making, understanding the distinction between reasoning and rationalization is crucial, especially for risk managers. While these terms may seem similar at first glance, they have significantly different connotations and implications. Reasoning involves reaching conclusions based on logical thinking and evidence, whereas rationalization involves explaining or justifying something to make it appear proper or correct, often without a solid foundation. This article explores why this difference is vital for risk managers, particularly in the context of changing workplace dynamics and the need for adaptive leadership.

The Importance of Differentiating Reasoning and Rationalization

The ongoing COVID-19 pandemic, coupled with the rise of the “great resignation” and accelerated retirements of baby boomers, has led to a transformation in the employee-employer relationship. As discussions around returning to the office and limiting remote work gain prominence, it becomes evident that many corporate leaders are rationalizing their requirements rather than basing them on well-thought-out reasoning. This trend raises concerns as it often involves presenting false justifications and threatening consequences for non-compliance.

While there is research indicating the benefits of working in an office, such as enhanced teamwork, collaborative problem-solving, and increased creativity, it is essential to distinguish between well-founded reasons and mere rationalizations. Unfortunately, finding companies with well-thought-out reasons for returning to the office appears to be a rarity, given the current dynamics of the employee-employer relationship. As a result, a hybrid work solution may become the norm, necessitating adaptability on the part of corporate leaders.

Adaptation as a Risk Manager

Risk managers must recognize that the pandemic, the great resignation, and the retirement of baby boomers have ushered in a new office order. The changing landscape calls for a shift in leadership styles to address the talent shortage that can arise from false justifications for returning to work. Risk managers play a crucial role in identifying leaders who resort to rationalization as an easy way out. They must also be vigilant in critical situations where leaders make hasty decisions without taking the time for reasoned analysis.

Furthermore, risk managers need to closely monitor these trends and evaluate their impact on the relationship between the Risk Management Department and the rest of the organization. By doing so, they can proactively address any instances of rationalization and advocate for reasoned decision-making processes.

Identifying Rationalization: A Future Perspective

Looking ahead, risk managers should be mindful of the signs that indicate rationalization rather than reasoning within their organizations. Here are some key considerations:

1. Inconsistent and Unsubstantiated Justifications

When leaders struggle to provide consistent and evidence-based justifications for their decisions, it may indicate a reliance on rationalization. Risk managers should be alert to vague or contradictory explanations and seek clarity to ensure reasoned decision-making.

2. Emotional and Biased Reasoning

Rationalization often involves emotional reasoning and biased perspectives that prioritize personal interests over objective analysis. Risk managers should be attuned to such tendencies and encourage leaders to consider a broader range of perspectives to avoid falling into the trap of rationalization.

3. Lack of Critical Thinking and Analysis

Leaders who resort to rationalization may overlook critical thinking and skip the necessary analysis required for sound decision-making. Risk managers should encourage leaders to take the time to gather relevant data, assess potential risks, and consider alternative solutions before making important decisions.

4. Resistance to Input and Feedback

A telltale sign of rationalization is a leader’s resistance to input and feedback that challenges their justifications. Risk managers should foster an environment where open dialogue and constructive criticism are encouraged, ensuring that decisions are based on reasoned analysis rather than personal biases.

5. Failure to Learn from Past Mistakes

Leaders who repeatedly justify their decisions without acknowledging past mistakes may be prone to rationalization. Risk managers should promote a culture of continuous improvement and learning, encouraging leaders to reflect on their past decisions and consider alternative approaches when necessary.

By remaining vigilant and addressing instances of rationalization proactively, risk managers can help foster a culture of reasoned decision-making within their organizations.

In conclusion, the distinction between reasoning and rationalization is paramount for risk managers. Recognizing the difference allows risk managers to identify leaders who resort to rationalization and take appropriate action. By promoting reasoned decision-making and fostering a culture of critical thinking, risk managers can navigate the challenges posed by changing workplace dynamics and contribute to the overall success of their organizations.

Remember, as a risk manager, your role goes beyond managing risks; it involves advocating for sound decision-making processes and promoting a culture of transparency and accountability. Embrace the challenge and lead the way towards a future where rationalization gives way to reasoned analysis and thoughtful decision-making.

As a Risk Manager, have you encountered decisions based on rationalization?

Introduction

The COVID-19 pandemic has brought about unprecedented changes in the way we work, with many office jobs transitioning to remote work and virtual meetings. As the situation improves and vaccinations become widespread, organizations are now faced with the decision of when and how to return to the office. However, this transition is not without its challenges. Many companies have struggled with their return to office programs, leading to questions about whether these issues stem from a leadership or management problem. In this article, we will explore the factors that contribute to the challenges faced by companies and the role of leadership and management in navigating this transition.

The Unforeseen Pandemic Disruption

The pandemic brought about an economic upheaval that no one could have anticipated or planned for. Overnight, offices closed, and employees were required to work from home. Zoom calls became the new norm for meetings, replacing the traditional face-to-face interactions. While remote work allowed businesses to continue operations, it also marked a significant departure from the office culture that can fostered creativity, problem-solving, and strategic planning.

The Changing Landscape of Office Space

With the pandemic largely under control, the return to the office raises questions about the future of office space. Headlines highlighting concerns about the impact of returning to the office on women’s careers and the mixed emotions experienced by employees reflect the struggles that companies are facing today. In some extreme cases, employees have expressed their intention to resign or retire rather than return to the office.

Leadership vs. Management: Two Perspectives

To determine whether the return to office issues are a leadership or management problem, let’s examine two contrasting examples. The first example involves companies whose leadership reacted to the disruption by comparing the current work-from-home situation with the old way of everyone being in the office. As a result, 80% of these companies regretted their initial return to office plans. It is likely that these leaders focused on the expenses and costs associated with maintaining office space and opted for a quick fix solution of getting everyone back to the office.

Contrastingly, my wife works on a mid-size team with members spread across the country. Her company has embraced remote work and understands that the past does not necessarily dictate the way forward. They prioritize hiring the best talent, regardless of their location, and make the necessary arrangements to ensure successful collaboration across time zones. While companies like this may not make headlines, they exemplify leadership that embraces change and adapts to new realities.

Exploring the Challenges and Uncertainty

Faced with the challenges and uncertainty surrounding the return to office, decisions and plans need to be developed. However, it appears that some leaders, rather than taking the time to plan an effective solution, have chosen the easier route of mandating a return to the office. This management approach fails to address the unique leadership challenges presented by the current situation and may contribute to the high percentage of companies regretting their initial plans.

Navigating the Leadership Challenges

To successfully navigate the leadership challenges associated with the return to office, leaders must adopt a forward-thinking approach. Here are some key strategies to consider:

1. Embrace Flexibility and Hybrid Models

Leadership should recognize the benefits of flexibility and consider implementing hybrid work models that combine remote and in-office work. This approach allows employees to maintain a work-life balance while still fostering collaboration and social interaction.

2. Prioritize Communication and Transparency

Open and transparent communication is crucial during times of change. Leaders should regularly communicate updates, address concerns, and provide clear guidelines for the return to office. This helps to build trust and alleviate uncertainty among employees.

3. Assess Employee Needs and Preferences

Leadership should take the time to understand the needs and preferences of their employees regarding the return to office. Surveys, focus groups, and one-on-one discussions can provide valuable insights that can inform decision-making and ensure a smoother transition.

Managing the Transition

While leadership plays a vital role in guiding the return to office, effective management is equally important. Here are some management strategies to facilitate a successful transition:

1. Develop a Comprehensive Return to Office Plan

Managers should collaborate with leadership and HR teams to develop a comprehensive plan for the return to office. This plan should address health and safety protocols, workspace adjustments, and employee support programs to ensure a smooth transition for everyone involved.

2. Provide Training and Support

Managers should offer training and support to help employees adjust to the new working environment. This could include training on new technologies, flexible work arrangements, and mental health support to address any anxieties or concerns.

3. Foster a Positive Organizational Culture

Effective management involves fostering a positive organizational culture that promotes teamwork, collaboration, and employee well-being. Managers should encourage open communication, recognize employee achievements, and provide opportunities for professional growth and development.

Conclusion

The return to office presents significant challenges for companies, requiring both effective leadership and management. While some leaders have chosen to manage the problem by mandating a return to the office, the high percentage of companies regretting their initial plans suggests a need for more thoughtful leadership approaches. By embracing flexibility, prioritizing communication, and considering employee needs, leaders can navigate the challenges and uncertainties of the return to office successfully. Effective management strategies, such as comprehensive planning, training, and fostering a positive organizational culture, are equally crucial in ensuring a smooth transition for employees. By combining strong leadership and effective management, companies can navigate the return to office and embrace the opportunities of the evolving workplace.

Introduction

In today’s complex business landscape, effective enterprise governance and risk management are crucial for organizations to thrive. The interplay between these two functions can determine the success or failure of a compliance culture within an organization. This article will delve into the key factors that influence the relationship between enterprise governance and risk management, highlighting the importance of trust and collaboration for achieving corporate performance and mitigating downside risk.

Incentives and Culture: The Foundation of Compliance

A strong compliance culture is built upon a foundation of aligned incentives, leadership styles, and transparency. These factors shape the overall compliance culture within an organization and determine its effectiveness. When enterprise governance and risk management work in harmony, they create a competitive advantage. However, inherent mistrust can arise due to conflicting incentives and goals.

To address this issue, leaders in enterprise governance and risk management must focus on building trust. By fostering an environment of trust, these leaders can leverage it to their advantage. Collaboration and engagement between enterprise governance and risk management can lead to positive outcomes such as increased corporate performance and team satisfaction. This trust also reduces downside risk, as employees are more willing to speak up and self-report errors.

“Developing unconditional trust will lead to a free exchange of knowledge and information, resulting in increased corporate performance and reduced downside risk.”

Collaboration: Bridging the Gap

Collaboration between enterprise governance and risk management is essential for several reasons. Firstly, risk management should not be seen as a mere bolt-on function of enterprise governance. It needs to move from a non-traditional leadership role with indirect reporting lines. Secondly, the rapidly changing business environment, including factors such as social media, technology, and AI, necessitates collaboration between these two functions. Additionally, as the corporate environment evolves, new leadership skills are needed, along with a focus on diversity, equity, inclusion, and changing cultural views of risk management.

Identifying and addressing toxic leaders or managers is crucial to counter the negative effects on trust, information flow, and knowledge sharing. By acknowledging and addressing these issues, organizations can make better-informed decisions, enhance productivity, and reduce downside risk.

“Collaboration between enterprise governance and risk management is essential to make informed decisions, enhance productivity, and reduce downside risk.”

Results: Unlocking Corporate Performance

Improving trust between enterprise governance and risk management can have a profound impact on corporate performance. When information and knowledge flow freely across the organization, it significantly reduces downside risk and enhances upside risk. This, in turn, contributes to a positive brand awareness and perception.

By integrating risk management as a collaborator for corporate success, rather than a perceived bolt-on function, organizations can leverage collaboration and adapt to the rapidly evolving business environment. Embracing the changing landscape and utilizing the collective expertise of enterprise governance and risk management can lead to improved corporate performance and increased competitive advantage.

In a previous post, I mentioned evidence-based management and I thought additional information would be helpful. Evidence-based management is best defined as gathering all the information possible to make an informed decision. We make decisions in our personal and work lives through a wide variety of lenses. For example, in our work lives, decisions are made based on our professional experience and training. Being trained in legal knowledge, decisions will be made through that lens of being a lawyer. Being trained as a salesperson, decisions will be made through the lens of wanting to make the next sale.

There is nothing wrong with these decision-making processes. However, they can create a conflict. The conflict could be that a risk manager who is trained as a lawyer might not agree with some of the actions and decisions a salesperson may be making.  The salesperson is under pressure to deliver sales results and can view the policies and procedures of the risk management department as a hindrance, or restrictive on their ability to make a sale. The risk manager may be uncomfortable with some of the actions a salesperson may take to close out a sale. Through using evidence-based management, this conflict can be greatly reduced and even used to develop a trusting relationship between sales and risk management.

Evidence-based management is a decision-making process based on the combination of critical thinking and the best available evidence. Critical thinking is based on the personal experience of each party involved as they look at the decision process independently of professional training. Best available evidence is the information, facts or data that support or deny assumptions or hypotheses. Using critical thinking and best available evidence results in a decision-making process that is more academic and less made of personal opinion. To be evidence-based, risk managers should be looking at the information being used to make the decisions and ask:

• Is the information from a reliable source? Is it fact or fiction?
• Is all the organizational information being used, or is there some information being omitted or held back?
• Have stakeholders and external professionals been consulted? If not, why?
• Has there been any scientific literature or empirical studies referred to? If not, why?

As risk managers, we need to be aware of the information being used to make decisions, both in the risk management department and other departments such as the sales department. By being aware and making decisions using our own professional training and others’, the conflict between risk managers and salespeople can be greatly reduced and help in the process of creating a trusting and collaborative corporate culture of compliance.   

I have a question for you. In your role as a risk manager, have you ever sat in a strategic planning session with the sales department?

Here’s a great place to get additional information:  https://cebma.org/faq/evidence-based-management/