Thinking about risk culture

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In the wake of the failure of MF Global, I have seen a number of commentators attributing its failure to its culture.  The criticism is also prevalent in post mortems of bank failures in 2007 and 2008 and the ensuing period. The danger with the 'culture' explanation is that you cannot create a culture - it is, almost by definition, a naturally emergent social phenomenon. There is no 'right' culture ex ante, only a 'wrong' culture ex post. As I discuss in our submission to COSO, there are real dangers in attempting to use culture deterministically. First, it can create terribly overbearing results and secondly, it can create all manner of unintended consequences.

The real problem, though, comes through the alternative solutions that may be proposed. If every alternative is dependent upon the culture in the firm for its success and, after failure, the failure is attributed consistently to the 'wrong culture', then the underlying activities or routines in the firm can never fail - the culture 'fails'. But, if there is no right culture (as any number of anthropologists and sociologists will tell you), we are in position of complete circularity. The underlying system only works if there is the right culture but failure demonstrates the culture was wrong yet, ex ante, it is impossible to define a 'right culture' and instrumentally impossible to create it if you could.

Surely, we would be on safer ground avoid such problematic expressions. I am sure many in the risk world would recoil in horror at this suggestion but it is a blind alley, except for well-trained social scientists and logicians.

If you don't believe me, try Max Weber ('Objectivity' in social science, 1897):

"There is no absolutely "objective" scientific analysis of culture . . . All knowledge of cultural reality . . . is always knowledge from particular points of view. [A]n "objective" analysis of cultural events, which proceeds according to the thesis that the ideal of science is the reduction of empirical reality to "laws," is meaningless . . . [because] . . . the knowledge of social laws is not knowledge of social reality but is rather one of the various aids used by our minds for attaining this end."

As for the criticism "but that's just theory," if it weren't for Weber, none of this strand of thinking would have emerged (at least not in the form it did) - you cannot have it both ways. Perhaps it's time for a bit more humility about what we can achieve with 'culture'.