A financial services insider has questioned the effectivity of conventional risk management in contemporary times, and promoted the use of social risk sensing – which involves sensing social risks and their possible impact in almost real time.
Ian Laughlin, an experienced senior manager on boards and as a regulator, noted that Australian businesses seem unable to keep up with swiftly-changing social norms and attitudes, as the battle-scarred sector continue to suffer the intense heat of criticism from stakeholders and the government.
"How can it be that institutions spend huge amounts of money, resources, and intellect on managing risk, and still find themselves being castigated by the press, politicians, and social media for unacceptable attitudes and behaviour?" Laughlin wrote an Actuaries Institute dialogue paper. “The government has freely criticised the banks, subjected them to intense parliamentary scrutiny, and has announced its intention to impose new law on accountability and remuneration. And now after much political battle, there is to be a Royal Commission into misconduct in the banking, superannuation, and financial services industry."
Laughlin said institutions need a “fresh approach” to respond to the challenges brought by much “higher social expectations,” “much lower tolerance for egregious practices,” and the society's increased ability to see and call out unacceptable practices via social media platforms, such as Twitter and Facebook.
These social risks, he said, are fuelled by “ready access to information and social media in particular” and “at the same time, there is something of a paradox: more information, but also more wrong information that spreads with great speed.”
Laughlin also noted that it is not only fake news that is a danger to Australian corporations, but also what he calls “reverse fake news” – the latter being where the correctly-reported news is effectively dismissed as fake.
According to the report, titled Social Risks – for a financial services business, an accusation directed to the sector, particularly to banks, may be blown up, whether or not it has merit.
“And once trust is damaged, it is very difficult to recover," Laughlin wrote.
To mitigate social risks, both internal and external, Laughlin promoted the idea of social risk sensing, which forms include pulse checks of attitudes, or automated analysis of trends on social media, including the use of artificial intelligence; as well as the use of new technology and people, at the heart of which might be a social risk officer.
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