Wednesday, June 22, 2011

Risk management lessons from engineers

By Stephen McPhie, CA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com 

 

Engineers have a duty of safety and welfare of the public.  This duty overrides duties to clients, employers and confidentiality obligations.  Consequent to such duty, an engineer must strive to ensure that any dangers of which he or she is aware must be rectified.  If this cannot be done, the facts must be reported to the relevant authorities; i.e. whistle blowing.

 

Should whistle blowing be encouraged more widely, especially in relation to risk management?  Whistle blowers still seem to be generally regarded as traitors and not team players.  However, shareholders and boards may do well to view them as a valuable control and protection.

 

There are probably numerous corporate disasters that could have been averted if people in the know had been listened to more and action taken.  For example, in an earlier blog, I noted that in 2005, Paul Moore, the Head of Regulatory Risk at HBOS, warned that the bank was becoming too risky and recommended it should go into an emergency mode to rectify the situation. Shortly after that he was forced out of the bank.  HBOS, one of the UK’s largest banks at the time and the largest mortgage lender subsequently became a massive banking wreck.

 

Clearly processes must be instituted such that whistle blowers can blow in a direction where they will be taken seriously and protected against any form of reprisal.  The CEO is often the person who sets the tone and consequent risk profile of a bank and may be tone deaf to whistling.  Therefore some sort of independent, strong and senior person should be tuned into whistling.  Perhaps there should also be some sort of award system, or factoring into year-end bonuses, to recognise such protection of a firm’s assets.

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