Professional Postgraduate Diploma in GRC – Masterclass Evaluation template for Executive Summary
Just likeany other organization involved in the provision of financial services, Generali Group requires high-quality governance, risk, and compliance (GRC) leadership. There is no doubt that in modern GRC contexts, even the best policies and procedures cannot function effectively without a positive GRC leadership (Blythe & Machold 2011). Many character traits are defining a leader; however, not all of them are conducive to the creation of an effective GRC environment. Therefore, GRC practitioners have to recognize leadership character attributes that are necessary for strengthening a company’s GRC culture.
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In addition to choosing a proper model for leadership development, in which “each individual can contribute to the leadership whole” (Sowcik et al. 2015, p. 160), organizations have to ensure that their GRC culture thrives by aligning their vision, mission, and objectives with their ethical codes of conduct. The necessity to avoid GRC leadership failures is underscored by the fact that the world is heading in the direction of ever-increasing geopolitical, social, and economic interconnectedness, which is associated with a wide range of compliance risks (Sowcik et al. 2015). By promoting good governance, financial services organizations will be capable of quickly changing their regulatory focus and ensuring that they survive in the modern market landscape.
This reflective journal entry aims to explore the essence of effective GRC leadership and highlight the importance of personal characteristics that enable the creation of a thriving compliance culture. The topic is of high relevance to me because of the integration of compliance policies and procedures in a management structure of Generali Group hinges on the effectiveness of its leadership.
Key principles and issues raised within the Masterclass
GRC Effectiveness and Leadership Characteristics
The first key learning point that has to be taken away from the Masterclass is that effectiveness of GRC hinges upon personal characteristics of a company’s GRC leaders. According to Blythe and Machold (2011), GRC practitioners in companies such as Enron and BP recognize that deficiencies in control culture of an organization can be ascribed to the character traits of its leaders. The scholars argue that the following general traits produce the strongest GRC environment: reachability, empathy, and humility (Blythe & Machold 2011). Self-promotion and complacency, on the other hand, can destroy GRC effectiveness.
Given the increasingly negative perception of corporate leaders and institutions they lead, it is necessary to ensure that GRC practitioners of financial services organizations strive to engender trust. To this end, a strengths inventory developed by Tom Rath can be used. The inventory contains the following items representing core leadership attributes: analyst, communicator, arranger, developer, connector, learner, and strategist (Blythe & Machold 2011). This fundamental competency can be only exercised if a leader is willing to include them in an overarching GRC strategy of a company (Weinstein & Wild 2013).
In addition to possessing core character traits, an effective GRC leader has to understand the risk profile of their organization at all levels. Periodic culture-checks are also helpful for ensuring that resource allocation decisions are aligned with a company’s GRC strategy, which is necessary for predicting, managing, and responding to a variety of both internal and external risk factors (Weinstein & Wild 2013).
The second learning point is that good corporate governance is not simply a matter of compliance; rather, it is an interplay of leadership, culture, and ethics. Taking into consideration the fact that modern financial services organizations such as Generali Group operate in a dynamic environment, “it is not possible to limit governance to a set of fixed rules or methods” (ICT 2015, p. 16). Therefore, effective GRC practitioners recognize the importance of taking a principles-based approach to governance, which is capable of providing a company with the flexibility needed to quickly adjust to new regulatory realities.
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GRC leaders are responsible for providing companies with a sense of ethical direction by incorporating principles of morality and integrity in their behavior. Furthermore, since the notions of individual and organizational integrity are closely linked together, GRC leaders’ decision-making process should be guided by ideas of fairness and justice. Poor ethical standards can result in the following detrimental effects for an organization: decrease in market confidence, deterioration of consumers’ protection, and an increase in the rate of financial crime occurrence (FSA 2002).
In addition to monitoring their behavior, an exceptional GRC leader has to develop a comprehensive system of incentives and levers for incentivizing the ethical actions of a company’s employees. Such incentives can serve as benchmarks for competing against industry peers without risking a company’s reputation and public image (Black & Anderson 2013). Furthermore, “ethical scenario analysis and stress-testing” (Black & Anderson 2013, p. 3) can be effectively used by GRC practitioners to detect ethical weaknesses and increase awareness within their organizations.
The third key learning point from the Masterclass is that a company’s board is responsible for the provision of the frame of reference for building an effective architecture for corporate governance. Therefore, the governance horizon of the future is associated with new board leadership structures that presuppose the expansion of shareholders’ authority and rights (Steinberg 2011). There are proposals for splitting responsibilities of a board into two sets: monitoring of GRC function and value-added counsel. Despite some flaws of this approach to the prevention of excessive risk-taking, such a model of board governance can eliminate many compliance issues (Steinberg 2011).
To ensure that “the board and senior executive powers operate jointly to prevent excessive risk-taking or making decisions that could hinder a firm’s capabilities or capacity in the future” (ICT 2015, p. 18), it is necessary to develop a fixed set of checks and balances. One of such balances is the introduction of independent non-executive directors (NEDs). According to the UK Corporate Governance Code issued in 2012, NEDs are necessary for monitoring management performance and reporting of performance (cited in ICT 2015).
To measure the performance of a board, effective GRC leaders rely on the following instruments: peer review, bottom-up review, review by function, completion tracking, and evaluation forms among others (ICT 2015). It has to be mentioned that many key metrics are used for tracking a board’s performance. The most conventional are asset size, goods, and services growth, capital development, and audit results (ICT 2015). The last metric is especially important for gaining a full perspective on a board’s effectiveness because by checking the veracity of a company’s depiction of its financial position, external auditors help to assess GRC success.
Another point that has to be remembered by aspiring GRC leaders is that there should be “a proper balance between management, the board of directors, and shareholders” (Steinberg 2011, p. 273). Sometimes, instead of focusing on the compliance and monitoring function, a board has to engage in the provision of value-added advice to a company’s CEO. The power of shareholders should not be discounted during decision making. In the UK, shareholders are capable of shifting a company’s compensation paradigm, by setting remuneration rates (Steinberg 2011).
Utilization and recommendations
When it comes to utilizing the learning points presented in the paper, GRC specialists of Generali Group have to adopt a strengths inventory developed by Tom Rath and transform it by their GRC framework (Blythe & Machold 2011).
When defining proper personal leadership characteristics, it is important to pay attention to a leader’s ability to create a big picture of all regulatory and risk areas by analyzing the compliance environment in which a company operates. This ability can be assessed with the help of online competency testing. Furthermore, a wide range of emerging risks call for other skills such as maintenance of productive dialogue and articulation of essential risks and driving GRC forces (Blythe & Machold 2011).
Given a strong connection between ethical leadership and effective governance practices, it is important to ensure that leaders act with integrity. Unfortunately, it is impossible to legislate ethical values. However, integrity requirements can be controlled with instruments such as GUBERNA Director’s Toolkit, which helps to guide a director’s behavior. Guidance on Board Effectiveness that has been developed by the UK’s Financial Reporting Council is another method for emphasizing the ethical behavior of a board (IBE 2013). The instrument can be used alongside codes and guidance developed by the Organization for Economic Co-operation and Development (OECD) and the UK Corporate Governance Code (ICT 2015).
When it comes to risk management and oversight in Generali Group, the company’s board has to make sure that senior management meets obligations outlined by the Financial Conduct Authority (FCA). These essential obligations include senior management arrangements, code of practice, and principles of business and threshold conditions (ICT 2015). Given that Generali Group’s directors constitute a part-time body, they should dedicate most of their time to monitoring activities and corrective actions.
The paper has outlined three learning points from the Masterclass. The research has helped me to understand that effective GRC culture can only thrive if leaders align a company’s vision, mission, and objectives with overarching GRC activities.
Black, J & Anderson, K 2013, Creating an ethical framework for the financial services industry. Web.
Blythe, B & Machold, R 2011, The human side of GRC: the essence of governance, risk, and compliance. Web.
FSA 2002, An ethical framework for financial services. Web.
IBE 2013, A review of the ethical aspects of corporate governance regulation and guidance in the EU. Web.
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ICT 2015, ICA professional postgraduate diploma in governance, risk and compliance: course manual – module 7, International Compliance Training Ltd, Birmingham. Web.
Sowcik, M, Andenoro, M, McNutt, M & Murphy, S (eds) 2015, Leadership 2050: critical challenges, key contexts, and emerging trends, Emerald, Bingley. Web.
Steinberg, R 2011, Governance, risk management, and compliance: it can’t happen to us—avoiding corporate disaster while driving success, John Wiley & Sons, Hoboken, NJ. Web.
Weinstein, S & Wild, C 2013, Legal risk management, governance and compliance: a guide to best practice from leading experts, Globe Law and Business, New York, NY. Web.