IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v11y2018i3p40-d157742.html
   My bibliography  Save this article

Risk Culture and the Role Model of the Honorable Merchant

Author

Listed:
  • Jürgen Bott

    (University of Applied Sciences, Kaiserslautern—Zweibrücken, Amerikastrasse 1, 66482 Zweibrücken, Germany)

  • Udo Milkau

    (DZ BANK, 60265 Frankfurt, Germany and House of Finance, Goethe University, Theodor-W.-Adorno-Platz 3, 60323 Frankfurt, Germany)

Abstract

The current discussion about a “risk culture” in financial services was triggered by the recent series of financial crises. The last decade saw a long list of hubris, misconduct and criminal activities by human beings on a single or even a collective basis in banks, in the industry or in the whole economy. As a counter-reaction, financial authorities called for a guidance by a “new” risk culture in financial institutions based on a set of abstract, formal, and normative governance processes. While traditional risk research in economics and in banking was focused on the statistical aspects of risk as the probability of loss multiplied by the amount of loss, culture is a paraphrase for the behavior in collectives and dynamics of organization found in human societies. Therefore, a “risk culture” should link the normative concepts of risk with the positive “real-world” decision-making in financial services. This paper will describe a novel view on “risk culture” from the perspective of human beings interacting in dynamical and intertemporal commercial relations. In this context “risk” is perceived by economic agents ex−ante as the consequence of the time lag between the present and the uncertain future development (compared to a probability distribution calculated by observers ex−post). For all those individual decisions—to be made under uncertainty—future “risk” includes the so-called “normal accidents”, i.e., failures that will happen at some uncertain point in time but are inevitable, and the only questions are when failure will happen and how to maintain function in the first line of defense. Finally, the shift from an abstract definition of “risk” as a probability distribution to a role model of “honorable merchants” as a benchmark for significant individual decision-making with individual responsibilities for the uncertain future outcome provides a new framework to discuss the responsibilities in the financial industry.

Suggested Citation

  • Jürgen Bott & Udo Milkau, 2018. "Risk Culture and the Role Model of the Honorable Merchant," JRFM, MDPI, vol. 11(3), pages 1-11, July.
  • Handle: RePEc:gam:jjrfmx:v:11:y:2018:i:3:p:40-:d:157742
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/11/3/40/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/1911-8074/11/3/40/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Zingales, Luigi & Shapira, Roy, 2017. "Is Pollution Value-Maximizing? The DuPont Case," CEPR Discussion Papers 12323, C.E.P.R. Discussion Papers.
    2. Graham, John R. & Grennan, Jillian & Harvey, Campbell R. & Rajgopal, Shivaram, 2022. "Corporate culture: Evidence from the field," Journal of Financial Economics, Elsevier, vol. 146(2), pages 552-593.
    3. Manapat, Michael L. & Nowak, Martin A. & Rand, David G., 2013. "Information, irrationality, and the evolution of trust," Journal of Economic Behavior & Organization, Elsevier, vol. 90(S), pages 57-75.
    4. Udo Milkau, 2017. "Risk Culture during the Last 2000 Years—From an Aleatory Society to the Illusion of Risk Control," IJFS, MDPI, vol. 5(4), pages 1-20, December.
    5. Diego Puga & Daniel Trefler, 2014. "International Trade and Institutional Change: Medieval Venice’s Response to Globalization," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 753-821.
    6. Robert E. Quinn & John Rohrbaugh, 1983. "A Spatial Model of Effectiveness Criteria: Towards a Competing Values Approach to Organizational Analysis," Management Science, INFORMS, vol. 29(3), pages 363-377, March.
    7. Taylor, Frederick Winslow, 1911. "The Principles of Scientific Management," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number taylor1911.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mohamed Santigie Kanu, 2021. "The Role of Risk Culture in Enterprise Risk Management Implementation," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(11), pages 1-13, July.
    2. Joanna Moczydłowska & Joanna Sadkowska & Beata Żelazko & Carmen Nadia Ciocoiu & Ewa Stawicka, 2023. "Understanding Risk Culture in the Context of a Sustainable Project: A Preliminary Study," Sustainability, MDPI, vol. 15(6), pages 1-16, March.
    3. Jennifer Kunz & Mathias Heitz, 2021. "Banks’ risk culture and management control systems: A systematic literature review," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 32(4), pages 439-493, December.
    4. Mohamed Santigie Kanu, 2021. "A Theoretical Framework for Enterprise Risk Management and Organizational Performance," International Business Research, Canadian Center of Science and Education, vol. 14(5), pages 1-63, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Udo Milkau, 2017. "Risk Culture during the Last 2000 Years—From an Aleatory Society to the Illusion of Risk Control," IJFS, MDPI, vol. 5(4), pages 1-20, December.
    2. Barth, Andreas & Mansouri, Sasan, 2021. "Corporate culture and banking," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 46-75.
    3. Fang, Yiwei & Fiordelisi, Franco & Hasan, Iftekhar & Leung, Woon Sau & Wong, Gabriel, 2023. "Corporate culture and firm value: Evidence from crisis," Journal of Banking & Finance, Elsevier, vol. 146(C).
    4. Chung-Fah Huang & Jieh-Jiuh Wang & Tai-Jun Lin, 2011. "Resource sufficiency, organizational cohesion, and organizational effectiveness of emergency response," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 58(1), pages 221-234, July.
    5. Hasan, Tahseen & John, Kose & Teng, Haimeng & Wu, Qiang, 2024. "Creative corporate culture and corporate tax avoidance," The British Accounting Review, Elsevier, vol. 56(3).
    6. Hiep Ngoc Luu & Lan Thi Mai Nguyen & Kieu Trang Vu & Loan Quynh Thi Nguyen, 2023. "The impact of organizational culture on bank stability," Review of Quantitative Finance and Accounting, Springer, vol. 61(2), pages 501-533, August.
    7. Madsen, Mona Toft, 2001. "Leadership and Management Theories Revisited," Working Papers 2001-5, University of Aarhus, Aarhus School of Business, Department of Management.
    8. Song, Fenghua & Thakor, Anjan V., 2019. "Bank culture," Journal of Financial Intermediation, Elsevier, vol. 39(C), pages 59-79.
    9. Glunk, U. & Wilderom, C.P.M., 1996. "Organizational Effectiveness = Corporate Performance? Why and How Two Research Traditions Need to be Merged," Research Memorandum 715, Tilburg University, School of Economics and Management.
    10. Linnenluecke, Martina K. & Griffiths, Andrew, 2010. "Corporate sustainability and organizational culture," Journal of World Business, Elsevier, vol. 45(4), pages 357-366, October.
    11. Glunk, U. & Wilderom, C.P.M., 1996. "Organizational Effectiveness = Corporate Performance? Why and How Two Research Traditions Need to be Merged," Other publications TiSEM e5cdb0ed-7086-4502-8c90-1, Tilburg University, School of Economics and Management.
    12. Alona Goloborodko, 2022. "Theoretical and Methodological Principles of Managing the Enterprise's Integrative Development," Oblik i finansi, Institute of Accounting and Finance, issue 4, pages 139-146, December.
    13. Jeremy Atack & Robert A. Margo & Paul Rhode, 2020. "‘Mechanization Takes Command’: Inanimate Power and Labor Productivity in Late Nineteenth Century American Manufacturing," NBER Working Papers 27436, National Bureau of Economic Research, Inc.
    14. A. Emre Demirci, 2013. "Strategic Representation of an Abstract Reality: Spiraling Relations between Organizational Culture and Innovativeness," Journal of Management and Strategy, Journal of Management and Strategy, Sciedu Press, vol. 4(3), pages 39-55, August.
    15. N. I. Fisher & V. N. Nair, 2009. "Quality management and quality practice: Perspectives on their history and their future," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 25(1), pages 1-28, January.
    16. Diwas Singh KC & Bradley R. Staats, 2012. "Accumulating a Portfolio of Experience: The Effect of Focal and Related Experience on Surgeon Performance," Manufacturing & Service Operations Management, INFORMS, vol. 14(4), pages 618-633, October.
    17. Lise Arena & Anthony Hussenot, 2021. "From Innovations at Work to Innovative Ways of Conceptualizing Organization: A Brief History of Organization Studies," Post-Print hal-03290300, HAL.
    18. repec:awi:wpaper:0421 is not listed on IDEAS
    19. Bloom, Nick & Manova, Kalina & Teng Sun, Stephen & Van Reenen, John & Yu, Zhihong, 2018. "Managing trade: evidence from China and the US," LSE Research Online Documents on Economics 88703, London School of Economics and Political Science, LSE Library.
    20. Julia Naranjo-Valencia & Ricardo Vidal-Patiño & Gregorio Calderón-Hernández, 2019. "Characterization of Innovation Research Published in Latin American Journals Indexed in WoS," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 16(07), pages 1-38, November.
    21. Robert J. Bennett & Harry Smith & Piero Montebruno & Carry van Lieshout, 2022. "Changes in Victorian entrepreneurship in England and Wales 1851-1911: Methodology and business population estimates," Business History, Taylor & Francis Journals, vol. 64(7), pages 1211-1243, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:11:y:2018:i:3:p:40-:d:157742. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.