Pub. 5 2015 Issue 4

report to regulators detailing incentive plans that was 1,300 pages long. Even smaller banks are spending more time on risk management, and making sure their risk policies pervade their organizations. David Bilko, the chief risk officer for Union Bankshares Corp., a $7.5 billion asset institution in Richmond, Virginia, got approval this year from the board for a finalized risk appetite statement. He plans to use it as a tool in employee training programs so that everyone understands their responsibility for risk management. “The people in your organization have to understand that everyone owns risk management. It’s not owned only by the chief risk officer,’’ he says. Regulators are increasingly empha- sizing the point that a bank’s business line personnel must take ownership of their own risks as the “first line of de- fense.” Risk managers and auditors are the second and third lines of defense. Performance evaluations for business managers have begun to include scoring relating to compliance with regulations and risk management. For example, if a manager is unable to fix a problem found in an audit, this could mean not getting a bonus that year or a promo- tion. Compliance officers increasingly provide input into an individual’s per- formance evaluation. Human resource officers are considering a candidate’s compliance background and whether that person will fit into the bank’s cul- ture, rather than just evaluating his or her technical skills. Also, banks are be- ginning to offer case studies in training programs and walking through scenar- ios of potential conflicts. How should you respond when a customer wants you to do some- thing that’s a grey area ethically, and it is your com- pany’s policy to please the custom- er first? “Do your employees know how to navigate those two points?’’ Ochs says. “You make assumptions that people will know what to do.” Ultimately, whether or not the bank’s values arereflected in actual behavior is hard to see or manage. Of course, inde- pendent board members will have an even tougher time than management understanding what’s really going on in their institutions. Scherf, the OCC deputy comptroller, says independent directors are interested in learning about their bank’s culture and often ask her or her staff if they are finding situa- tions or actions that don’t seem to align with the bank’s risk appetite. “Our examiners have regular meetings with the CEO and independent board mem- bers, and the topic of culture is often a subject,’’ she says. She also encour- ages board members to communicate periodically with people two or three levels below the CEO to encourage can- did discussions about culture and risk management. Martin agrees. “If I was a board member, I would speak with the heads of risk and compliance one by one, off premises, where no one knows where you are,’’ to facilitate off-the- record conversations. Susanna Tisa, chief business officer at Treliant Risk Advisors, says that corporate culture was once thought of as something that didn’t change and was uncontrollable. “Now, people are realizing that culture is something that can be changed, but it takes a long time, and it takes a lot of effort,” she says. Stanford estimates that it probably would take five years, not a few months, to really focus on and change a bank’s culture. It’s too early in the process for the biggest banks to have decided on any winning strategies for develop- ing a great corporate culture. Many of these institutions are just now exploring how they would monitor their cultures, what metrics make sense and what practices seem to drive the best results. The biggest banks in the country are acknowledging that they have problems. Community banks may be in safer territory, but they need to pay close at- tention to their culture as well. w n Culture — continued from page 15 THE STANDARDS “MUST BE EMBEDDED IN THE VALUES OF EACH AND EVERY EMPLOYEE THROUGH CONTINUED TRAIN- ING AND REINFORCEMENT, AND MUST GUIDE AND BE EVIDENT IN OUR ACTIONS.” -JAMIE DIMON, CEO JPMORGAN Naomi Snyder is managing director at Bank Director magazine. 16 www.azbankers.org