Risk and cultural differences

Understanding international differences in perceptions of management control is important to the management of risk within multinational companies (MNCs).

by European Business Forum Issue 21, spring 2005
Last Updated: 23 Jul 2013

Different perceptions of what constitutes risk, and of how risks can be managed, lead to differences of opinion about the effectiveness of control, as well as to misunderstandings that in turn can lead to the failure of management control.

Differences in perceptions of management control are also potentially important to its regulation and that of risk management. Various national and international regulations affect MNCs in their control of worldwide operational risks and there are growing demands for further management controls and for best practice, often originating in the Anglo-Saxon approach across the world.

A survey among managers working for two MNCs in the UK, the Czech Republic and China found a tendency among some Chinese managers to gain relatively little control assurance from detailed plans but to be more concerned about opportunities and pragmatic solutions than the process for achieving them.

There was also a tendency for reliance on people, their attitudes and interpersonal relationships, as opposed to reliance on control processes. By contrast, British and Czech managers were more concerned about processes, that is the means for ensuring the achievement of objectives.

These findings have the potential to broaden our understanding of what controls are seen as effective in different cultures and countries. This has implications for global control systems, transfer of control techniques between locations and adaptation to local requirements. The research also has implications for the regulation of management control and risk management. It shows how perceptions of control assurance can differ between countries.

Current proposals on capital accords for bank and market regulation illustrate the issue because they do not recognise different control perceptions between countries. MNCs that comply with the regulations might have to adapt their corporate control to local situations and cultures. In such instances, best practice within each regulatory jurisdiction is likely to embrace considerable national variety in practice, or at least in the level of local assurance that corporate systems provide.

Differences in control perceptions are also likely to add to the differences in what is seen as best practice between regulatory regimes. Further examination of the area is required in the interests of avoiding conflicts.

Source: Managing the key cultural dimensions of control and risk
Dermot Williamson, Lancaster University Business School
European Business Forum Issue 21, spring 2005

Review by Roger Trapp

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