The Only Thing to Fear Is Unproductive Fear

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Much of the fear that often characterizes a workplace may be categorized as irrational, Harvard’s Amy Edmondson observes.

The distinction between productive and problematic fear is conceptually straightforward but practically challenging. Productive fear pertains to real threats, physical or economic, and provokes action that leads to useful responses. In contrast, problematic fear is the kind of fear that, if challenged – shows itself to be unfounded. Nevertheless, our physiological response to problematic fear mimics that to genuinely life-threatening stimuli.

Evolutionary psychologists note that our brains are endowed with ‘prepared fears’: fears that are easily activated because of cognitive wiring from our evolutionary history. This has several management implications.

For early humans, ostracism was a truly life-threatening condition: peer rejection meant that one risked being kicked out of the tribe, typically resulting death through in starvation or exposure to predators and the elements. Today, this ‘prepared fear’ of ostracism leaves us vulnerable to being ineffective at work.

Workplace fears that go undiscussed – and which, indeed, are often believed to be “undiscussable” – is counterproductive and problematic. This stymies innovation, productivity, employee engagement and retention, and often results in a range of operational risks that lurk unrecognized until crisis strikes.

Since the benefits of recognizing and responding appropriately to workplace fears are so substantial, leaders must intentionally seek to surface and manage them, and to inculcate a culture of what Edmonson terms “psychological safety.” In the financial sector, regulators are increasingly testing for this company attribute with a view to supervising risk.

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Singapore Has to Raise Auditing Standards, Says MAS Chief

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Singapore needs to raise its auditing and accounting standards to boost the nation’s environmental, social and governance (ESG) credibility following a series of corporate scandals, according to the country’s top central banker. “There have been several failures that are due to lapses in accounting, auditing and some fraudulent activities are not as easily detected,” said Mr. Ravi Menon, head of the Monetary Authority of Singapore (MAS).

While Singapore’s corporate disclosure regime improved this year, some argue that it lags behind those of neighboring countries, such as Malaysia and Thailand.  Singapore has  had several high-profile corporate scandals in recent years and it is argued that inadequate audit standards were partly permissive of such. “When an auditor says this is in line with accounting standards, there is still a fairly wide range of what is acceptable,” Mr. Menon said, referring to the recognition in many places that audit quality needs to be raised. 

The Accounting and Corporate Regulatory Authority is working on amendments to the Companies Act to review these issues. The Singapore Exchange’s regulatory arm is also set to beef up its enforcement powers to deter corporate misconduct.

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Poor Risk Governance leads to Scathing Rebuke for Westpac

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In an excoriating nine-page Enforceable Undertaking (EU), signed by Westpac chairman John McFarlane and chief executive Peter King, the Australian Prudential Regulation Authority (APRA) said it was concerned about weaknesses in the lender’s risk governance and management’s pace of rectification.

APRA said that the culture, governance and accountability program started by Westpac in January 2019 had only delivered “incremental” progress.” Deputy chair John Lonsdale said the regulator’s concerns had been communicated directly to the bank’s board and senior management, with the message that a deep commitment to change was required at all levels of the organization.

“As one of the country’s largest and most important financial institutions, Westpac should be a leader in risk management,” Mr. Lonsdale said. “Although the bank has made progress in some areas over the past year, it is not good enough.”

Westpac said an integrated remediation plan would be submitted in writing to APRA within 90 days of the commencement of the EU. In the recent full-year results, Westpac’s underlying costs had risen 6%, with risk and compliance expenditure continuing to accelerate from $278m in the 2016 financial year to a current $806m.

In a statement to the ASX, Westpac CEO Peter King acknowledged APRA’s findings and said the bank was determined to complete risk remediation activities. “My top priority is to ensure the bank’s risk culture and management of risk meet the high standards expected of us.”

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Managing Complexity: Ed and Peter Schein on Culture

Starling Team

In a recent interview, the renowned organizational psychologists Ed and Peter Schein discussed their thoughts on leadership and corporate culture.

Ed made the point that use of the word culture has become problematic. “Instead, say, ‘Let’s look at our history and see what we’ve become and how we’ve gotten to this place’. That is what’s necessary to identify places for improvement.”  And it is that history of ‘how we got here’ that reveals culture at work.

The Scheins — father and son — argue that leadership must always be seen as being relational in nature. There are two different levels of relationships. Level 1 relationships are defined as civil and transactional. But it’s kind of a one-and-done context.  By contrast, Level 2 is more whole-person to whole-person. It’s about close working relationships and partnerships. This sharp distinction is essential given the global shift in the way business works, says Peter, and particularly so today. 

The traditional model of organizations hails from an earlier era, ill suited to the modern enterprise (and, we would note, very ill suited to the Work From Home context of business that has resulted from the Covid-pandemic). 

The Scheins warn that merely tweaking the prevailing organizational model to remove a few barriers to collaboration will be insufficient.  Instead, leaders need to perceive the challenge of management itself as relational in context, asking: how do we build stronger bonds and levels of trust and openness, to match the complexity we are in?

“As it turns out, the world is not a machine. The world is a mixture of cultures and people with different values, and at the same time the science establishment and business community has begun to show us how enormously interdependent everything is. You can’t get anything important done anymore in the modern technological world without dealing with enormous amounts of interdependency and much greater levels of collaboration.”

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Former Director of FinCEN, James H. Freis, Jr. Joins Starling’s Risk & Governance Advisory Board

Starling Team

Washington, DC – Starling, a globally recognized RegTech pioneer, has announced the appointment of James H. Freis, Jr. to its Risk & Governance Advisory Board.

Jim was the longest serving Director (2007-12) of the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), the lead U.S. Government official for AML/CFT requirements. He served concurrently as head of the U.S. Financial Intelligence Unit (FIU).

In these roles, Jim distinguished himself through his stewardship of anti-money laundering regulations, their expansion across new industry sectors, and by spearheading data-driven approaches to combatting fraud uncovered during the Global Financial Crisis.

In June 2020, within a day of joining the Management Board of German FinTech darling, Wirecard, Jim exposed and reported on a massive fraud that later led to the collapse of the once high-flying global digital payments provider. Brought in to shepherd Wirecard as it moved into increasingly regulated business areas, once the fraud scandal became better understood, the Board appointed Jim CEO and he initiated a global restructuring effort.

From 2014-20, Jim was Managing Director, Chief Compliance Officer, and Group Anti-Money Laundering Officer for the Deutsche Börse Group in Frankfurt, where he oversaw global regulatory requirements for Europe’s leading provider of systemically significant financial market infrastructures. In the first decade of his career, Jim worked with the Federal Reserve Bank of New York and the Bank for International Settlements in Basel.

“To promote the integrity of financial institutions and markets, three things are critical: appropriate governance structures, the right people, and a readiness to leverage insights made available through evolving technologies,” Freis said. “Starling is spearheading new capabilities that allow firms to evaluate how these components interact to produce specific
performance outcomes. This permits for proactive risk identification and mitigation – and in real-time,” he added. “The adoption of such capabilities will allow firms to differentiate themselves in a way that will appeal to customers, employees and investors worldwide, as they place increasing value on the sustainability of business models,” Freis argued.

“It is hard to overstate how valuable Jim’s perspective is to Starling, and to our customers, as we work to satisfy heightened concern for non-financial risk management capabilities – which have been made all the more critical by work-from-home protocols during the Covid-pandemic,” said Starling CEO Stephen Scott. “Very few possess Jim’s depth of global experience in policy and practice, and fewer still have such a demonstrated enthusiasm for what new technologies like ours make possible,” Scott added. “It will be both a pleasure and a privilege to work with Jim alongside.”