Financial world online 2010

At risk of sidelining personality February 2010 There was a time when the misbehaviour of the occasional rogue banker was the exception that confirmed the more general case; that the banking profession was careful, responsible and of high integrity. Following recent events the balance seems to have been reversed, at least in the public eye. The emphasis now is on regulating the rogues, although there is little confidence that regulators are capable of achieving the necessary balance between ‘light touch’ and ‘ham fist’.

The FT reports a list of thirty global financial institutions that regulators have identified for crossborder monitoring of systemic risk. Does anyone at all view this elaborate and costly strategy with any optimism? To the uninitiated it looks like the task of a sheriff in a gold rush frontier town, but without the gun or the John Wayne swagger.

Surely an alternative, or at least complementary, strategy is for financial institutions to look at themselves. The culture of any organisation is the sum total of the contributions made by its members. So, tax accountants, PR consultancies, civil engineering companies, the media and medical practices are all permeated with distinctive cultures that attract and retain like-minded personnel.

Amongst the high profile individuals that played a prominent part in destabilising our economies, there are some pretty extreme personalities. The intoxication of success undoubtedly fueled the exaggeration of dysfunctional traits in some cases but, for something to be exaggerated, there had to be something there in the first place. Can anyone seriously doubt the role of personality in all this?

The problem may be that discussion about risk has focused on risk management topics; credit, solvency, operational risk, actuarial skills and governance. This is not to criticise the skill set of actuarial risk assessment, or the talents of the professions that utilise those techniques, but it is a very different matter to focus on the personalities of individuals and their relevance to corporate financial probity.

It is possible to identify eight different Risk Types based on personality profiles, an approach that is particularly promising because it provides top management with the vocabulary to get to grips with these issues. Dealing with a culture of systemic risk is ultimately a 'people assessment' thing, however you go about it. Of course, its not a matter of trying to eliminate risk taking; but it may well be a matter of horses for courses, and if you can’t tell one horse from another, that’s an impossible task. Neither am I suggesting that everyone walks around with their Risk Type emblazoned on their T-shirt. But to be completely blind to these well researched differences between individuals at a time of global anxiety about risk seems like yet another form of recklessness!

See below for the eight Risk Type descriptors: Spontaneous Type Impulsive and excitable, the Spontaneous Type enjoys the spontaneity of unplanned decisions. They are attracted to risk like moths to a flame, but are distraught when things go wrong. Their passion and imprudence make them exciting but unpredictable.

Intense Type Highly-strung, anxious, alert to any risk and fearful of any threat to their precarious equilibrium, the Intense Type invest a lot emotionally in people and projects and are nervous about failure.

Passionate and self-critical by nature, they take it personally when things don’t work out.

Wary Type Self-disciplined and wary of risk, the Wary Type is organised but unadventurous and puts security at the top of the agenda. They will be drawn to the idea of securing their future but anxious that, however well it has worked for others, something may go wrong in their case.

Prudent Type Very self-controlled and detailed in their planning, the Prudent Type is organised, systematic, conservative and conforming. Conventional in their approach, they prefer continuity to variety and feel most comfortable sticking to what they know.

Deliberate Type Self-confident, systematic and compliant, the Deliberate Type tends to be unusually calm and optimistic. They experience little anxiety and tackle risk and uncertainty in a business like and unemotional way. They never walk into anything unprepared.

Composed Type The Composed Type is cool-headed, calm and unemotional, but at the extreme they may seem almost oblivious to risk and unaware of its effect on others. They take everything confidently in their stride, seem quite imperturbable and appear to manage stress very well.

Adventurous Type The Adventurous Type is both impulsive and fearless. At the extreme, they combine a deeply constitutional calmness with impulsivity and a disregard for tradition or convention. They seem imperturbable and unconcerned about risk.

Carefree Type Impulsive and unconventional, the Carefree Type are adventurous, excitement seeking and, in extreme cases, reckless. Not being good at detail or careful preparation, they often seem vague about their intentions. Their impatience and impulsiveness exposes them to making hasty and imprudent decisions.

Geoff Trickey, Managing Director, Psychological Consultancy Ltd. This is a print-friendly version of the article: "At risk of sidelining personality" from the February 2010 edition of Financial World online.