Behavioral risk management is an emerging field that aims to understand the underlying human and cultural factors that can lead organizations into both success and failure. By digging deeper than surface-level controls and metrics, behavioral risk assessments provide valuable insights for leadership teams looking to transform their culture and bolster integrity.

Mirea Raaijmakers, a pioneering expert in the subject, has over a decade of experience applying behavioral science to regulatory oversight and internal bank programs. In our recent webinar, Mirea delved into the core principles and promising potential of this approach.

The Bright and the Dark side of companies

There are two sides, the dark side and there’s also the positive side of organizational culture, which is a very good place to be. It’s where risks are taken in a very balanced way, and we’re efficient and in control, and we know there’s trust and integrity. But there’s also this other side of culture, which is also part of our focus.

I would say it’s behavioral risk management, that’s the darker side. It’s where, inconsistencies are inefficiencies, distrust, that’s where the sharks are. And I think the question is not so much, do organizations have a dark side? I think every organization has a dark side, every organization also has bright sides. And honest management and leadership is about understanding both sides, understanding what’s going on and doing something about it when necessary, and then being able to dive deep below that waterline and also swim out to where the sharks are is absolutely part of the leadership that you know today in this rapidly changing world.

The Desire State

How does behavioral risk management connect with safety in industrial enterprises?

There’s absolutely a connection there, so if we think about safety, if we’re talking about a safety culture or a risk culture, we’re talking about this as a desired state, at that moment we’re talking about the desired behaviors we want to see and that are essential and crucial for our organization because, in the work we do, we need to ensure our people and employees are safe, we have to ensure that the products we’re producing are also safe for our customers, in banking it’s important to have a strong risk culture, which means you’re aware of the risks.

You’re identifying your risks, you’re escalating them when necessary, but all of this has to do with the desired state, the desired behavior we want to see and behavioral risk management can be very helpful in developing you toward that desired state because it gives you an insight into what’s preventing me from reaching that state, what’s preventing me from reaching that safe culture that I need.

Culture of Avoidance

Many organizations may inadvertently foster a culture of avoidance when it comes to risks. It’s like wanting to do the right thing, but unintentionally causing avoidance, which isn’t good for business. What are some signs? I think when we talk about avoiding this, and I believe in such a turbulent world, avoiding risks or staying in the safe zone is a behavior we see quite often.

Bringing it back to Darwin, you know how people respond to stress and threat in their lives—either fighting, fleeing, or freezing. I think you know how avoiding and evading risks in this turbulent world is putting things backwards; avoidance is a coping mechanism. A coping strategy for many organizations or individuals in organizations who feel overwhelmed, out of control, psychologically threatened, and choose to simply do as little as possible and stay away from risk. I believe this is very undesirable because for organizations, we think about, small business entrepreneurs, but also corporations, taking risks is part of organizational life and being part of staying viable. And I think here again, it’s true, instead of avoiding challenges in life, you know it’s better to face them and organize yourself around them, make sure you understand them as much as possible, organize support, and face them head-on rather than avoiding them because you know you’re on the road to nowhere.

Is an Honest Mistake acceptable? 

What is your opinion on an honest mistake that could lead to a major regulatory issue or loss of lives?

People aren’t perfect, we’re not perfect, and we make mistakes, I think many things going wrong have to do with human errors and there are absolutely examples of ill intent of crossing the line, I think you have to be very clear that there’s something that’s not at all acceptable.

I think many organizations fall into the trap of not being clear about accepting unacceptable behavior, but if it boils down to human errors you have to do it. I think the obligation is to find out what really happened and then with a lot of individual behavior that you see, there’s also a connection to the culture of an organization, so the social system of the organization you know sets a social norm that people must adhere to and there’s, social reward and social rejection. If it’s unacceptable behavior, then be very clear about it, but I think most behavior is like that. It’s a much more complex story, which I think for organizations is key to uncover because they have to carry on with their organization, they have to move forward, they have to keep the organization alive.

In conclusion, behavioral risk management emerges as a transformative approach, shedding light on the intricate interplay of human behavior and organizational dynamics.

By embracing this paradigm, organizations can navigate uncertainties and foster cultures conducive to long-term success and sustainability.

Talking about the struggles and pains of leading a major restructuring is unfashionable in senior management circles. Executives call those restructuring projects “challenges” or “opportunities to transform”. Managers are supposed to be strong actors, make the impossible happen and stay energized and engaged throughout the process.

Yet, many leaders who moved up the ranks in times of growth are not fully prepared for restructuring and downsizing. Nor are they comfortable with the ambiguity and unpredictability of our increasingly complex world.

Moreover, the pressure on the role of executives is increasing. As in other parts of society, managers can no longer rely on their formal role as a source of authority. When a child was complaining about a teacher 20 years ago, the usual response of parents was “behave and try to get along with the teacher”. Today parents share the complaint with other parents online. The role of the teacher, or doctor, or manager evokes less and less trust. Combined with constant business change, this leads to an obvious but often unsaid truth:

Being a leader increasingly means to deal with major crisis situations whilst under pressure in your own role. Many executives therefore see less and less meaning in what they do, moreover as today’s tightly controlled corporate structures limit their own room for action. This can turn into a downward spiral for leaders, reducing their effectiveness, their identification with the role, their engagement and ultimately their mental and physical health.

A lot of tools have been recommended for leaders to master any type of crisis. We assume that our readers are already sufficiently equipped with the usual management instruments. Instead, we invite a short reflection on a very ancient story which can help us gain a complementary perspective.

The sea was calm when Ulysses and his sailors approached the island of the Sirens. All men had plugged their ears with wax to avoid hearing the deadly song of the Sirens. Only Ulysses dared to confront the danger and kept his ears open. However, he made sure that he would not be swallowed by the song of the Sirens by asking his men to bind him to the mast and not let him loose under any circumstance.

When we hear heroic stories, like the one of Ulysses, or watch more recent heroes going through life threatening challenges in movies, we experience in some short moments the angst of confrontation with the unknown and the dangerous. In those moments, together with our hero, we neither run away, nor are we swallowed and destroyed by the experience. We stay confronted by the danger, and we are relieved when the hero comes out of the experience. He is not only safe now, but he is stronger and surer of himself and of what he stands for.

Leading through downsizing, restructuring and other forms of major organizational crisis, there could be moments where leaders admit that they are not strong and all-knowing. They could become aware of their limitations and ask for help instead, as Ulysses did when asking his team to secure him.
They could, at the same time, avoid closing their ears and looking away from the threats and issues. They could avoid isolating themselves from their teams when times get rough, as many executives tend to do. They could instead stay connected to their people and the organization, while keeping their ears open and keeping their own voice.

During times of restructuring and crisis there could be moments where leaders become more aware about their role and about themselves and make sense of what they do and who they are. The crisis is a great moment in time to get in touch with, and express, one’s own true beliefs.

It is possible to go through a crisis and stay true to who you are and express it authentically and skillfully.

If leadership is executed like that, chances are that leaders and their teams will weather the storm. More than that, they are more likely to benefit from it and grow as professionals as well as personally. Ultimately, in leading through the crisis in that way, they will have the privilege to leave a meaningful legacy. This legacy is not only the targets they met, but also the maturity they have gained as human beings and the stronger and healthier organization they have built. We encourage leaders to look for the support they need to deal with restructuring and other major crisis in a meaningful way. Leaders face great challenges today; however, the opportunities are equally as great.