United Kingdom

Details

  • Type: Business and industry issue
  • Date: 25/04/2012

Rogue behaviours - The role of HR in managing risk 

Rogue traders
The morning after a ‘rogue trader’ is discovered can be a charged and emotional time. The press eagerly tries to paint a picture of the individual by speaking to surprised colleagues and the general public, with reactions ranging from surprise to outright anger that so much damage could be done by a single person.

 

Unfortunately, we know quite a bit about those who have gone ‘rogue’ but very little about those who might.

 

As it is difficult to establish a distinctive, normative profile of these individuals, colleagues may feel betrayed and confused after these events because these traders who do go ‘rogue’ don’t look remarkably different from those who don’t.

 

Therefore, given the difficulty in identifying who will be the next headline grabber, perhaps the organisations should turn their sights inward. Rather than looking for rogue people, organisations need to identify and stop patterns of rogue behaviours that emerge and are inadvertently condoned by the organisations themselves.

 

Leadership has a critical role in ensuring that the tone from the top – in both words and actions – communicates what is expected, valued and rewarded in the business. Human Resources can play a pivotal role in facilitating this.

 

We have noticed the following themes in the cultures of organisations that have experienced a rogue trading incident:

 

  • Schism between top and bottom of organisation on the importance of risk management
  • Roles and responsibilities were unclear of poorly defined
  • Consequently, process and controls were disjointed and failed to provide a holistic view of the organisation
  • Individuals lacked capability to understand the business and provide appropriate challenge
  • The performance and reward processes did not have the teeth to reinforce risk messages

 

To tackle these cultural problems, organisations need to address the following people issues:

 

Make sure managers actually manage –Strong management and supervision can prevent rogue trading.

 

Create a culture of challenge – For control functions to do their jobs effectively, they must have the capability to challenge.

 

Capture the small things before they commit the crime – Long before a breach reached a formal disciplinary process, there is a significant amount of ‘noise’ in the organisation that can suggest patterns of behaviour. Untaken holiday leave, incomplete compliance training, abuse of personal dealing policies and breaches of intra-day limits.

 

Individually, these incidents are rarely severe enough to trigger formal sanctions but, taken together, they can paint a picture of where serious patterns of conduct and capability issues are starting to form.

 

Fortunately, Human Resources leaders can play a key role in addressing these issues.

 

  • HR needs to challenge the business on the principles of good organisation design that ensures clear lines of accountability and escalation as well as segregation of duties.
  • HR needs to take a strategic approach to increasing the capability of control functions from designing the right structures, to sourcing capable candidates, to devising a reward and career development strategy that attracts and retains individuals who are able to understand the technical and commercial fundamentals of the product set.
  • HR should work with the business to create an environment where front office management and control functions alike are encouraged and rewarded for escalating ‘up the line’.
  • HR needs to help define what ‘noise’ needs to be measured and synthesised and target training or policy interventions at the root cause(s) of issues. HR is also instrumental in incorporating a ‘zero tolerance’ approach into performance appraisal and reward considerations.  That is where consequences have teeth in these environments.

 

Although fingers are generally pointed at system failings or control weaknesses in the immediate aftermath of a rogue trading incident, we have seen that a closer examination of the contributing factors almost always points to culture and people-related root cause.

 

The test for a strong, business-minded HR function is its ability to work with the business to shape an environment where behaviours and ultimately people, don’t go ‘rogue’.

 

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Contact

Bill Michael

Bill Michael

Head of Markets

(Financial Services)

KPMG in the UK

+44 (0) 20 73115292

bill.michael@kpmg.co.uk