How diversity in the workplace can enhance risk management practices

In the first of a series of short thought leadership articles, I am going to attempt to explain the business and social well-being benefits of promoting diversity in the workplace, and how I believe it can enhance the risk culture of an organisation.

I want to start by exploring the concept of risk attitude. First and foremost, risk management is undertaken by people, either acting as individuals or acting as a larger group of individuals. It is from the collective output of those individuals that an organisation’s risk culture is defined. There are complex human and behavioural aspects that play an intrinsic part in the development of risk management activities, that have significant influence on the successful implementation of an effective risk management framework. The definition of ‘attitude’ serves to reinforce the importance of recognising and understanding the impact of risk attitudes in the wider context of defining a risk management process. According to Oxford Languages, ‘attitude’ is defined as “a settled way of thinking or feeling about something”. In psychology, an ‘attitude’ refers to a set of emotions, beliefs and behaviours towards a particular object, person, thing, or event, and are often the result of a previous experience or upbringing. Social roles and norms, observing the behaviours of others and operant conditioning all play a part in helping to shape an individual’s attitude. There are 3 components of attitude, the first is an affective component, this controls how an object, person, issue, or event makes you feel. The second is the cognitive component, this affects our thoughts and beliefs about a subject. Finally, the behavioral component explains how our attitude influences our behavior. Attitudes can be both implicit and explicit, some aspects of our attitude we will be consciously aware of how it impacts our behaviors, however other aspects of our attitude are unconscious, meaning that they still influence our beliefs and behaviours but without us realising.

Our attitude to risk is therefore naturally defined by our previous experiences and the outcomes attached to those experiences. To try break this concept down as simply as possible, I will use a common example. My attitude to crossing a road is very risk tolerant, I look both ways, listen for cars, and take a quick step out into the road from the pavement with the aim of reaching the other side. Now consider what my attitude might be like if I had previously suffered a traffic accident as a pedestrian who was hit by a car and injured. Would I be so tolerant and cross the road without too much thought? Would I be prepared to cross the road without the use of a pedestrian crossing? Would I stay on the same side of the road and completely avoid the risk of crossing it again to mitigate the chance of potentially being subject to another accident? One everyday common scenario, but two very different outlooks towards the level of risk involved, and the extent of potential mitigants (controls) that need to be deployed to make it ‘safe’ to cross the road. Once you understand this concept, you can start to see why it becomes an integral part of developing an organisation’s risk strategy, appetite, and protocols. Everyone involved in setting the risk management strategy is going to have a certain degree of bias which will likely have an influence on the risk process.  Too much bias within the setting of risk appetite may lead to ineffectiveness of the risk management strategy, resulting in either too much appetite to risk that exposes the business to intolerable levels of harm, or being too risk adverse that results in missed opportunities and a lack of competitiveness that impacts the achievement of business objectives.

I like to use a very simple analogy when explaining the difference between risk attitude and risk appetite. Think of it in the context of food. Our attitude towards food defines the type of nutrition we are prepared to put into our bodies. We consider things like whether it is healthy or not, the impact it has on our well-being, our taste preferences, our experiences with old recipes, the memories associated with the meals we may have grown up with etc. All these considerations inform our preferences. Our appetite is the rumbling in our belly, it is the setting of how much food we are prepared to eat to satisfy ourselves and achieve our objective of not being hungry. Too little food, we may feel weak and lack strength, too much of it (particularly the wrong type of food) and it may impact our health and our long-term wellbeing. Just the right amount, we can fire on all cylinders and achieve our goals.  

Now view this in the context of risk management. The collective attitude to risk initially informs the types of risk we are prepared to take, our appetite to risk defines how much of those risks we are prepared to take to meet our objectives. The setting of risk appetite, risk tolerances and risk capacity is complex and beyond the purpose of this text, however the point I am trying to make is clear – organisations are managed by people, people are influenced by their experiences, backgrounds, culture and previous social conditioning, and all this feeds into the development of a risk culture.

So, what does this have to do with diversity in the workplace? Well, consider this. If past experiences and upbringing are the primary driver of attitude to risk, then what benefit does it serve to have a room full of people, all with the same background and same experiences? One of the primary objectives of risk management is to promote effective challenge within the business, to consider the potential impact uncertainties may have on business objectives, to provide alternative views and opinions that give a 360 degrees view of a situation, to encourage constructive debate in the interest of improving decision making capabilities. If you have a diverse range of collective mindsets, the risk of bias within the risk management process is mitigated, providing a more balanced and mature approach to the setting of risk appetite. Having a range of people with various racial, ethnic, socioeconomic, cultural backgrounds, and various lifestyles, experiences, and interests, not only results in great place to work by creating an environment that truly represents wider society and promotes individuality, it is also a key driver of internal innovation and business growth. Research has shown that companies with diverse workforces are more likely to be leaders in their segments. Practically speaking, this should come as no surprise, a broader range of skills and experience within the workforce is more likely to equip an organisation to deal with the day-to-day challenges of business. In the context of risk management, having a diverse range of attitudes to risk is likely to promote adversarial views, which if harnessed in an appropriate and constructive manner will ultimately result in better situational awareness, better decision-making capabilities, and more effective risk responses.

So, whether it is in the boardroom, or on the front line, firms should start to think seriously about creating an authentic culture by revisiting their recruitment strategies. Not only will it improve employee engagement and reduce attrition, but it will also have a direct positive impact on the bottom line across all areas of the business by encouraging innovation and creativity, overcoming bias within the workforce, and driving better performance. For the risk management professional, having a diverse and talented team of individuals is the key towards the development of more robust, balanced, and practical risk management frameworks.