Principled Performance Reduces Conduct Risk. How?

Chess isn't just a game--it's a strategic imperative with over 9 million possible outcomes. In a 2005 interview in the Harvard Business Review, the world chess champion Gary Kasparov was quoted as saying:

“Think about it: After just three opening moves by a chess player, more than 9 million positions are possible. And that’s when only two players are involved in the game. Now imagine all the possibilities faced by companies with a whole host of corporations responding to their new strategies, pricing, and products. The unpredictability is almost unimaginable.”

Business is no different. Similar to the myriad possibilities that arise from just a few opening moves in chess, companies grapple with numerous factors shaping their strategies, pricing, and product offerings.

It’s called conduct risk. Conduct risk involves negative outcomes from organizational actions that harm stakeholders, such as customers or investors. It includes unethical behavior, conflicts of interest, inappropriate sales practices, regulatory non-compliance, or failure to act in stakeholders' best interests.

Conduct risk management in the financial sector has seen increased focus in recent years. Regulatory bodies, including the Financial Conduct Authority (FCA), have intensified their oversight and enforcement measures to ensure compliance with conduct standards. In response to public pressure for greater accountability, financial institutions have bolstered their efforts to mitigate conduct risk.

We mitigate conduct risk by implementing Principled Performance. Leading financial institutions such as Barclays and JP Morgan have implemented comprehensive frameworks and strategies to address conduct risk. These initiatives often include enhanced training programs, stricter internal controls, and the establishment of dedicated conduct risk management teams. All of which are encompassed by achieving Principled Performance.

But, achieving Principled Performance can be challenging. Establishing a culture centered on conduct (a customer-first value system) poses a challenge for firms, especially those prioritizing profitability and shareholder returns, often masked as customer experience improvements. While enhancements in this realm are commendable from a business standpoint, they do not equate to our emphasis on fairness. To thrive, firms must implement Principled Performance as the balancer. But how?

Principled Performance is achieved through GRC. GRC is the only proven way to achieve Principled Performance in organizations. But why?

GRC allows for principled gap analysis. It’s the only way to identify the gaps between conduct-focused and profitability-focused culture reliably.

GRC establishes ethical value systems and guarantees successful implementation. Several key factors drive and strengthen a conduct-focused culture, including ethical leadership, clear values and standards, and effective training and communication.

GRC considers global perspectives. The scope of regulatory oversight has expanded beyond national borders, with regulatory authorities worldwide adopting similar approaches to address conduct risk. International cooperation and coordination efforts have intensified to harmonize regulatory standards and enhance cross-border supervision of financial institutions.

GRC balances customer experience and profitability. Because who says you can’t have both? Transparency, fairness, and accountability are central to managing conduct risk effectively and fostering long-term client relationships. In fact, they’re just as central to business growth strategies as profit and margins are. Principled Performers lead firms to have the best of both worlds.

GRC leverages modern solutions. Growth means nothing if it doesn't stand the test of time. Advancements in technology, such as artificial intelligence and machine learning, are revolutionizing conduct risk management. Automated tools and analytics platforms enable financial institutions to detect, assess, and mitigate conduct-related issues more efficiently. Principled Performers know how to leverage these things, always.

GRC creates a bulletproof strategy. Integrated and aligned risk management frameworks are essential, and Principled Performers are the gateway to achieving those outcomes. Principled Performers are certified professionals who build resilience and maintain stakeholder trust in volatile environments.

GRC establishes and upholds customer trust. Customers are more than mere pawns in a profit-driven chess game. We need to protect their interests. Upholding customer trust is indispensable for fostering market confidence and ensuring financial stability, and GRC is the only way to achieve it.

Because Principled Performance is the backbone of GRC. And everyone knows it. If your teams don’t reliably achieve objectives while addressing uncertainty and acting with integrity, then you’re at risk for conduct risk.

Become a certified GRC Professional (GRCP) and learn how to be a Principled Performer today.