Risky behaviour more common amongst middle managers than in C-suite

The senior executives often are the ones who make headlines when they act in ways that damage their companies.

But behavioural risk to organisations actually decreases as seniority increases at the manager and professional level, according to new international research performed by talent measurement solutions provider SHL.

Executives in the C-suite don’t pose half the risk that some of their lower-level managers do. Just 6.7% of executives pose a high risk to their companies, according to the study.

Employees identified as “individual contributors” at the bottom of the professional and managerial organisational chart exhibited high behavioural risk at a rate of 14.2%. In ascending order in terms of organisations’ hierarchy, a high incidence of risky behaviours was observed from 14.7% of “team leaders,” 13.2% of middle managers and 10.4% of senior managers.

The research determines whether employees pose a high risk to their organisation based on scores on certain risk benchmarks identified in 1.3 million assessments of employees’ talents. Those benchmarks include decision quality and communication quality for managers and professionals, and compliance, quality, commitment and teamwork for production and frontline employees.

In addition to finding less risky behaviour among executives, the research shows that there is virtually no difference between the behavioural risk posed by managers and that posed by employees at the bottom of the company ladder. Although their salaries or prestige may not be as high, the workers who assemble companies’ products pose virtually the same amount of risk as their superiors.

Production and frontline workers displayed a 12.5% incidence of high-risk behaviours, just a bit more than the 12.2% observed in managers and professionals. Low-level professionals and low-level managers displayed risky behaviours most often.

“There have been significant cases in recent years where frontline staff have been criticised for company crises or accidents,” Eugene Burke, SHL’s chief science and analytics officer, said in a news release. “Yet SHL’s risk research finds that in certain sectors it is actually senior management who lack crucial decision-making and communication skills and create risk for their organisations. By ignoring whistle-blowers or not taking into account viewpoints from across the business, leaders can be missing vital clues to manage risk which can have devastating consequences as we’ve seen from recent news developments.”

The Association of Certified Fraud Examiners (ACFE) 2012 Report to the Nations on Occupational Fraud and Abuse showed similar results. Global fraud incidents in that report were committed 42% of the time by non-management employees, 38% of the time by managers and 18% of the time by executives.

Fraud perpetrated by executives was far more costly, though, at an average of $573,000 per incident, compared with $182,000 for managers and $60,000 for non-management employees.

In the SHL research, telecoms had the highest level of risky employees, while the public sector had the lowest level in 15 sectors identified in the survey. The results by industry, with percentages of overall behavioural risk for all job levels, were as follows:

• Telecom, 17.2%
• Consumer goods (heavy goods), 16.1%
• Travel and leisure, 15.6%
• Technology, 15.1%
• Oil and gas, 13.7%
• Engineering, 13.4%
• Business services, 13.2%
• Banking, 13%
• Insurance and financial services, 12.6%
• Food, beverages and tobacco, 12.4%
• Utilities, 12%
• Health care, 11.6%
• Mining, 10.9%
• Retail, 10.4%
• Public sector, 8.5%

Regionally, the Middle East showed the highest level of behavioural risk at 18.4%, followed by Africa (17.5%); North America and Eastern Europe (tied at 16%); Asia (15.3%); Australia and New Zealand (13.5%); and Western Europe (12.4%). Comparable figures for Latin America were not available in the report.

Senior managers can reduce behavioural risks by enforcing ethical standards and providing an effective channel for employees to communicate infractions, according to Ronnie Kann, managing director of Corporate Executive Board, SHL’s parent company.

“Both rely on senior managers to work closely with frontline managers to help develop a culture of risk awareness and encourage ethical behaviour,” Kann said in a news release.

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.