Risk governance principles

Lessons Learnt: Looking optimistically, we hope the the incident will be a lesson to students to on how to make more secure global banking system. This would help the students on how to manage issues when confronted with same problem and how to approach about making things in bank so that these events never happen again. A culture of caution will prevail. Technology will prevent, not enable, fraud. Processes will ensure that traders take appropriate risks, guided by sound risk governance principles.

But before that day comes, there is work to be done. Responding to the SocGen incident requires financial institutions to move beyond knee-jerk remediation and fire drills. It requires a financial institution to take a more comprehensive approach toward managing operational risk, beginning with a focus on building an internal controls culture that permeates the organization from top to bottom and across businesses. Building such a culture is not an overnight exercise. However, aligning and empowering diverse risk management functions within the institution will lay a foundation for improvement.

Managing these types of risks also requires investments in automation that enforce rules, ensure auditability, and free risk managers and compliance officers to focus on deeper and more complex issues. SocGen also revealed the critical importance of strong authentication as well as automation of IT access/entitlement controls, especially for high-risk trading and banking systems. Organizations should take this opportunity to perform a rapid and objective risk assessment, to identify major control gaps, prioritize new and ongoing efforts, and establish an integrated risk and control governance function at executive levels within the organization. In addition, the entire transaction value chain should be reviewed for the risk of fraud.

Should that assessment reveal security weaknesses, executive leadership should establish criteria for prioritizing various remediation efforts. That prioritization is essential; complex technological and process interdependencies must be considered to ensure that the right things are done for the right reasons-without disrupting current operations. On the surface, my recommendations may appear deceptively simple.

However, banks can make considerable strides toward preventing future frauds by focusing on solid and sustained execution with an emphasis on detail. For example, managing which employees have access to a particular system may sound like a straightforward exercise; but in practice, environmental intricacies, varied businesses, and outlying organizations complicate the picture. Leaders who grasp the business and technology details will be able to deliver solutions that enable improved governance. The institutions that take these steps will create and maintain their own legacy- a legacy of reliable management controls, trusted business relationships, and sustained profitability

Ford's Pinto Fires: The Retrospective view of Ford's field Recall Coordinator 1. The Ford Pinto met federal safety standards, yet it had a design flaw that resulted in serious injuries and deaths. Is simply meeting safety standards a sufficient product design goal of ethical companies? Ford Pinto met all federal safety standards; however, the engineers had compromised on the safety while designing the car. The company should have conducted all kinds of robust test on the cars before launching it in the market. Due to the design flaw, many individuals lost their lives which could have been prevented if a proper mechanism was in place.

The major design flaw in the car was that the fuel tank was prone to rupturing with moderate-speed rear-end collisions. The car was recalled after six individuals lost their lives due to the faulty design. Any company whose main objective is to sell products to consumers and earn profit have a duty and obligation to ensure that the product they sell are meeting standards set by regulating bodies and also go that extra step to ensure comfort and more importantly safety.

A company like Ford, whose name instils quality and trust in the minds of the individuals, should have taken necessary steps to prevent any design faults in their models. They have necessary budgets and technology to run tests on new launches to test for product effectiveness and safety. Even if there might have been an oversight on part of the testing team, the company should have preventive mechanisms in place to deal with such exigencies. Gioia uses the notion of script schemas to help explain why he voted to not initiate a recall of the Ford Pinto. In your opinion, is this a justifiable explanation?

To an extent Gioia's explanation seems plausible. It happens very often that the gravity of the situation becomes evident only after a seemingly small issue swells into a major problem. When such a situation occurs, the most often reason for this occurrence is the structured analysis approach that we follow. An individual creates some kind of a mental map on the basis of which one analyses the situation.

This kind of set pattern of classification into problematic and non-problematic makes us overlook certain potent aspects that could grow into something unpleasant in the future. Thus, in this respect, Gioia's explanation seems justifiable however one can't negate the fact that individuals in important decision making positions should have the acumen to identify such problems. They have to go beyond the blocks and black-white approach to a more puzzle solving and grey areas approach. They need to consider and look at uncertainties which define "business risk".

3. How can organizational context influence the decision made by organizational members? Organisational context influences the decisions made by organisational members to a large extent. As Gioia points out, the socialisation process and and the overriding influence of organisational culture provide a strong context for defining an individual's outlook and personality. It also defines appropriate ways of seeing and understanding a situation. It is true that organisational settings provide a potent context in developing schemas and aids scripted information processing. Thus, having aligned oneself to the organistaion, one tends to take decisions based on these schemas in the best interest of the organisation.

As the individual's organisational position defines his/her identity there is a tendency to associate oneself more strongly with the organisation and believe that the organisation per se is not at fault and issues might actually be a misrepresentation by the outside world. There is a strong tendency to blame the external and non controllable environment rather than internal causes which ultimately raise a doubt and question and individual's leadership and quality of performance. Thus, decision making on the part of the employee becomes more and more dependent on the organisational context.

4. If you had been in Dennis Gioia's position, what would you have done? Why? In this case, Gioia had two occasions where he could have initiated the recall process but did not. If not at the first instance I think the second time would be sufficient for me to garner from the situation that a danger could be in the offing. In addition, human life is far more valuable than any monetary consideration and even over and above the image of the company. Thinking about the betterment of the company indirectly trickles down to thinking about the safety and caring about human life as they are the consumers. 5. Describe the four key decision making lessons that Dennis Gioia identifies for neophyte decision makers. Discuss how you expect or intend to use these four lessons in your own career.

1. Develop your ethical base. Too many people do not give serious attention to assessing and articulating their own values. People simply do not know what they stand for because they haven't thought about it seriously. Even the ethical scenarios presented in classes or executive programs are treated as interesting little games without apparent implications for deciding how you intend to think or act. These exercises should be used to develop a principled, personal code that you will try to live by. Consciously decide your values. If you don't decide your values now, you are easy prey for others who will gladly decide them for you or influence you implicitly to accept theirs.

2. Recognise that everyone in an unwitting victim of his or her cognitive structuring. Many people are surprised and fascinated to learn that they use schemas and scripts to understand and act in the organizational world. 3. Scripts are context bound and organizations are potent contexts, we must be aware of how strongly and how subtly, our job role and our organizational culture affect the ways we interpret and make sense of information (and thus affect the ways we develop the scripts that will guide us in unguarded moments). Organizational culture has a much greater effect on individual cognition that we would ever suspect.

6. What are the facts? Ford motor Company in order to compete with fuel efficient Volkswagen and Japanese imports introduced the subcompact Pinto in 1971. Pinto weighed 2000 pounds and was charged 2000$. Pinto was discontinued in the year 1980. Two million units were sold of Pinto in its 10 year life. The car had a major design flaw i.e. the fuel tank was prone to rupturing with moderate speed rear end collisions. Therefore, in 1974, the Center for Auto Safety petitioned the National Highway Traffic Safety Administration (NHTSA) to recall all the Ford Pintos. NHTSA did not act on this petition until 1977.

In 1978, due to extraordinary amount of publicity generated and the tests performed for the NHTSA, the Ford Company recalled 1.5 million 1971-1976 Ford Pintos and 30,000 1975-1976 Mercury Bobcat Sedan and hatchback Models for modifications to the fuel tank. Between June 9, 1978 and September 15, 1978 six people (3 of these were Indiana teenage girls) died in Pinto fires after a rear impact. The fiery deaths of the Indiana teenage girls led to the criminal prosecution of the Ford Motor Company on the charges of reckless homicide, marking the first time an American Corporation was prosecuted on criminal charges. However, on March 13, 1980 the jury found Ford innocent of the charges. Dennis Gioia was the field coordinator at Ford Company when the fuel tank defect began unfolding.

7. What are the issues or problems you noticed in this case? In order to compete with fuel efficient car making companies, Ford launched Pinto in 1971. Even as Ford Pinto met federal safety standards, strict adherence to the restrictions (such as 2000 pounds weight and cost 2000$) led Ford engineers to compromise on safety. The main problem was the design flaw of the car i.e. the fuel tank was prone to rupturing with moderate speed rear end collisions. This led to three deaths and four serious injuries by 1974. However, when Ford Pinto recalled the cars in 1980, six more people had already lost their lives in rear end collision accidents. The company almost took 10 tens to discontinue the production of the cars.

Ford's recall co-ordinator Dennis Gioia tracked all the incoming information to identify developing problems and reviewed field reports of alleged component failures that led to accidents and co-ordinated all the current recall campaigns. Also, Gioia structured the information into cognitive schemas or script schemas in order to simplify the overwhelming amount of information he had to deal with. These scripts helped him to act unconsciously and automatically, and thus permitting him to handle situations without being paralyzed by needing to think consciously about every little thing.

These scripts also enabled him to discern the characteristic hallmarks of problem cases likely to result in recall and to execute a series of steps required to initiate a recall. Even when Gioia received infrequent reports of cars erupting into horrendous fireball in very low speed crashes, he did not do an in-depth analysis of the problem and analyse that whether a recall was necessary or not. The accidents were relatively rare by recall standards and were not initially traceable to a specific component failure is the reason given by Gioia for not recalling the cars. Also as the accidents did not fit into the scripts, action was not taken inspite of the unusual nature of the accidents. The fact that decision to recall a product was based on the scripts cost some individuals their lives which was unethical.

8. What are the suggestions/ solutions on how it could have been done differently/ effectively? The main problem was the design of the car which was subject to restrictions in order to fit the criteria that it should weigh 2000 pounds and cost no more than 2000$. The company should have taken proper safety precautions and should have conducted all the necessary tests. Once the company learnt about the unusual nature of the accidents which occurred mostly at low speeds, they should have done an in-depth and root cause analysis of the problem. They should have not followed the scripts process in this case as it required special treatment. The company should have followed a different process for such accidents in order to understand the root cause (as the company almost took 10 years to discontinue the operations).