Usefulness of enterprise risk management in two banks

Abstract

Purpose The purpose of this paper is to investigate how the management control system, the bank’s control package, influences opinion about the usefulness of risk measurement (RM) in different control contexts before and after a financial crisis, to understand what influences the usefulness of enterprise risk management (ERM) manifested in RM. Design/methodology/approach The study is based on semi-structured interviews in 2000-2010, with senior bank managers of two international banks (Bank A and Bank B) – both ranking among the top 100 in the world but differing structurally and culturally. Findings The two banks took opposite trajectories. Bank A went from high to low expectations of usefulness; Bank B went from low to high expectations. The different attitudes toward RM exhibited by Bank A and Bank B are explained by differences in their control packages, manifested by technocratic control and socio-ideology. Originality/value This study reveals that there are not merely different degrees of RM usage in the two banks but that they also show two diverting trajectories. Given this finding, the significance of the organization structure and its control packages (especially the alignment between these two factors) is analyzed to find a plausible explanation for the different experiences of senior managers toward the usefulness of RM. This study contributes to ERM research and to the contingency theory of management accounting.

Enterprise Risk Management: A Literature Review and Agenda for Future Research

“…To the best of our knowledge, a detailed literature review on ERM is rare. During the analyzed period, we identified four published reviews on ERM, by Bromiley et al (2015), Wu et al (2015), Tworek (2016), and Liff and Wahlstrom (2018). Among these research works, the review of Bromiley et al (2015) from Long Range Planning journal is the most cited one with 102 citations from Web of Science Core Collection.…”

Executives' perceptions of risk management disclosures and its determinants: a developing country perspective

“…Lim et al (2017) use empirical evidence to examine the banking sectors' operational dynamics and paradoxical nature of risk management systems. Liff and Wahlstrom (2018), in their study, revealed there are not merely different degrees of risk management usage in their two sample banks; they, in fact, have two diverging trajectories. Given this finding, the significance of the organisational structure and its control packages is vital to find a plausible explanation for senior managers' different experiences about the use of risk management.…”

Banks’ risk culture and management control systems: A systematic literature review

“…They argue that these findings are in sharp contrast to regulators' recommendations. Liff and Wahlström (2018) observe different trajectories from how banks initially judge risk management to how their judgement develops over time dependent on their management control systems. Particularly, organizational structure and strategic alignment have an impact on the possibility to integrate risk management ideas into the overall organization.…”