Senior Management The Federal Reserve published a proposal on corporate governance that states that senior management is responsible for the execution of strategy and day-to-day operations consistent with the firm’s stated risk appetite, ensuring safety and soundness, overseeing business lines and risk management, and ensuring compliance with internal policy, procedures, regulations and laws.8 Development of a firm’s cultural capital links directly to these core responsibilities and is evidenced by behavior throughout the firm. To address these concerns and build cultural capital, some firms have established culture and conduct committees or groups that meet regularly to review cultural indicators and assessment efforts. Providing these groups with sufficient stature, developing the proper infrastructure to support them, and defining clear roles and responsibilities are essential for success. It is critical that there is alignment between the board, senior management, and middle and lower management on issues of conduct and culture, as employees take cues from their direct managers even more than the tone from the top. The performance management framework established by senior management sets powerful incentives to influence conduct and culture within a firm.9 Financial incentives, however, are not the only drivers of culture and conduct. Employees alter their behavior based on a variety of formal and informal, intrinsic and extrinsic motivations. Intrinsic motivations could include growth opportunities, independence, power, and social factors, while extrinsic motivations could include pay, benefits, profit sharing, or other forms of awards.

Kevin Stiroh: Reform of culture in finance from multiple perspectives Remarks by Mr Kevin Stiroh, Executive Vice President of the Financial Institution Supervision Group of the Federal Reserve Bank of New York, at the GARP Risk Convention, New York City, 26 February 2019. * * * As prepared for delivery  Introduction I would like to begin by thanking the Global Association of Risk Professionals for the opportunity to speak at this Risk Convention.1 As a bank supervisor, I am obviously very interested in the topics of risk management and risk measurement. An important part of my job is to interact with the financial industry to better understand the issues you face and how we can work collaboratively toward our shared objective of promoting sustainable financial intermediation and a safe, sound, and stable banking and financial system. As risk professionals, you are all steeped in the intricacies of risk management and risk measurement. Value-at-risk, the three-lines-of-defense model, and controls and testing frameworks are second nature. This is particularly true when we talk about the most familiar and well-studied financial risks such as credit, market, and liquidity risk, and even non-financial risks such as operational, compliance, and legal risk. We all acknowledge the critical importance of these issues, but today I will talk about misconduct risk and the need to develop a healthy corporate culture to mitigate it. I’ll focus on the importance of addressing these issues from multiple perspectives including those of boards of directors, senior management, industry groups, and the official sector.