How does your scheme culture affect your risk profile?

This is not surprising given that the requirements to operate an Effective System of Governance, have a Risk Management Function, and complete an Own Risk Assessment mean trustees have to think about risk in more depth, and more frequently, than they might have done before. They also need to document their arrangements for managing risk more carefully.

We discuss things like risk appetites, risk assessments, controls, monitoring, reporting, processes, assurances, and continuity and incident response plans. All of which are important parts of an effective risk management framework. But in these discussions, we so often find ourselves having to acknowledge "the human factor". Pension schemes are, after all, run by people and people are, after all, only human.

As many other sectors (such as medicine and construction) have long known, the human factor means that an organisation's culture and working relationships have a big impact on risk. As a result, they can (and probably should) be a vital part of an organisation's approach to risk management.

Many schemes will already think about scheme culture and ways of working in other areas of governance. For example, as part of how they approach ED&I, or when looking at trustee effectiveness and/or how to select new trustees and advisers – all areas which form part of compliance with the General Code. However, with so much to do, and so little time and resources to do it, some struggle to see these sorts of topics as a strategic priority. Let's face it, they might also be seen as a bit "touchy-feely", or as just a "nice to have".

But if investing time and effort in your culture and working relationships could help to reduce your scheme's overall risk profile – or at least not investing enough in it, could increase the risks – shouldn't pension schemes also be talking about culture and working relationships specifically in the context of risk management?

What if you could make it more likely that:

• Your procedures and controls are right for your scheme?

• Your risk assessments are accurate and robust?

• Your procedures and controls are followed carefully and consistently?

• You identify new/increasing risks or changes in the effectiveness of your controls in advance?

• Your controls keep improving and stay in line with best practice?

• You are notified straightaway if something has gone wrong (or, better still, that it might be about to)?

• You get all the information you need so you can fix issues quickly and reduce the chance of them happening again?

Lessons from other sectors tell us that you can see big improvements in these areas if your people:

• know each other,

• are personally invested in making things work (and so take more care),

• have avenues to speak up to raise concerns and make suggestions, and are actively encouraged to do so, and

• feel comfortable to be open when something has gone wrong or isn't working (rather than instinctively being guarded and defensive).

They also tell us that, even where you think your culture and working relationships are pretty good, you can't just take these things for granted. They need positive action. 

Now, does this bump a discussion around scheme culture and working relationships up the priorities list?

Naomi Brown is senior counsel at Sackers