Abstract
Traditionally, institutional measures aimed at influencing corporate and managerial reactions in the presence of financial risk (investment options, liabilities and reputational damage) assume actors will behave rationally. This perspective is useful but partial. It is necessary to have a broader perspective regarding influences on decision-making behaviour, given the widely documented evidence of the presence of systemic biases, inconsistencies and irrationalities in individual and corporate decision-making processes (Tversky & Kahneman, 1979; Kahneman & Tversky, 1991; Bettman, Luce & Payne, 2008), and the effects of culture and climate. This research sought to explore managers’ attitudes to risk and uncertainty in decision-making through an investigation of the interplay between situational influences (climatic, cultural and structural) and cognitive factors (heuristics and biases).
Methodologically, the study had three phases. The first was exploratory (quantitative), the second and third were of a mixed (qualitative and quantitative) method to explore and characterise managers’ orientations to risk (e.g., whether managers focus on avoiding losses in risky situations). Also explored during the first two phases were the impact of individual and organisational characteristics on attitudes to risk; the methods and strategies companies use to manage risks; and the influences exerted by stakeholders. Of particular interest were the variables that sponsored risk-taking and risk aversion (MacCrimmon & Wehrung, 1986; Marsh & Shapira, 1987).
The third phase of the research aimed for a sharper focus on the effects of organisational climate on risk decision-making. Through a process of analysis, six factors were identified that respondents considered most impactful within their risk decision-making climate. Following the identification of these factors, steps were taken to develop a sample of risk measurement and a profiling tool to assist organisations in their risk profiling and risk management. Also, a comparative analysis was conducted on a sample (N=20) of senior and middle managers in three industry sectors. Although the outcomes of these initiatives were of relevance to managers, they could contribute to wider organisational learning and development as well.
A key objective during the initial phase (study 1) of the research was to gain insight into influences on risk decision-making among a sample of managers (N=170) representing a range 1 of business sectors: for example, distribution and retail, finance and insurance, oil, construction and services, manufacturing, and tourism and hospitality.
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The exploratory study (Study 1) was conducted using a survey of senior, middle and junior managers from Caribbean businesses belonging to the range of industry. These entities included multinational firms with bases in the Caribbean, businesses trading in the Caribbean, and businesses registered in and trading in the Caribbean. An exploratory survey based on a list of topics gathered from the initial literature review was piloted among a sample of ten senior, middle and junior managers before general use. The study explored the influences on managerial decision-making, and the structural and cultural components impacting managerial behaviour. Some of the conclusions include:
There was no consensus among respondent managers on a single definition of risk. However, there was strong agreement with the statement that risk is ‘an uncertainty with varied effects on organisational objectives. This agreement suggests that some managers may be willing to take risks over the short, medium or long term where potential opportunities may exist.
Respondents associated risk with both gains and losses as possible outcomes to an event. This result would indicate that managers are concerned not only about loss but also opportunities that may arise to make gains.
Where there was a culture of risk-taking in an organisation, the variables respondents cited as influencing their attitudes toward risk-taking were situational (e.g., having a risk policy or statement indicating authorised areas of risk-taking and financial limitations). Likewise, where a risk-taking culture is absent, managers are more prone to be influenced by individual biases, personal influences and individual track records.
Most respondents believed the culture of the organisation played a crucial role in determining the risks managers were willing to take. However, individual and organisational reputations were perceived to be at stake if expectations were not met. Only 36.3% of respondents’ organisations had a documented risk-management policy; of these, the overwhelming majority (81%) were in the financial services sector. Overall, 63.7% of respondents’ organisations did not have a risk policy and or a risk culture among managers.
In Study 2, a qualitative research strategy (using focus-group discussions) and thematic analysis
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were used to investigate further the findings of the exploratory quantitative survey. These approaches provided additional insights into the principal drivers of managerial behaviour and the many constraints involved.
Seven themes were identified and used to develop a quantitative questionnaire, which became Study 3 and was used to detect a finite set of underlying constructs. The principal component analysis technique was used to confirm the themes and determine a finite set of underlying constructs. Findings highlighted the salience of six factors. The potential to develop an organisational-level psychometric measure of material-risk culture based on these results is discussed in Chapter 7.
A summary of findings from the research is as follows:
a)The local organisational culture was considered to be more influential than individualdifferences.
b)Seven major variables were identified as influencing managerial decision-making in thefollowing areas: financial/investments, operations and reputation. These are:
•Equity and fairness
•Skills and competence
•Incentives and rewards
•Compliance with rules and procedures
•Autonomy
•Perceived personal implications
•Institutional blame
c)Four principal drivers of managerial behaviour were identified—board of directors,financial pressures, embedded blame culture, and shortage of competency skills in theregion—together with constraints.
d)Six finite constructs or components that characterise managers’ perspectives on variablescontributing to risk-taking and risk aversion were confirmed as fairness and equity, skillsand competencies, incentives and rewards, compliance with rules and procedures,autonomy, and institutional blame.
e)A risk culture profile measure developed based on the six finite components revealed.
Conclusions to be drawn from the overall study include:
1.The study can provide managers and other agents with a better understanding of
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Caribbean work organisations’ risk climate and the interrelatedness of the factors influencing risk- making decisions as well as their impact on organisational performance.
2.The culture of an organisation and prevailing risk climate (risk appetite) more often driverisk-taking or risk-averse behaviours in work organisations, rather than the managers’risk preference for either.
3.Organisations can benefit from the finite constructs revealed in Study 3, and the results ofthe scaling analysis of sample organisations can further help to identify and develop a riskmeasurement profile to suit their risk appetite.
| Date of Award | 14 Oct 2020 |
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| Original language | English |
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| Awarding Institution | |
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| Supervisor | Philip Jones (Supervisor) & Andrew Weyman (Supervisor) |
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