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“Many of the costliest risk and integrity failures have cultural weaknesses at their core. Here is how leading institutions are strengthening their culture and sustaining the change.”

A Dynamic Approach to Seeking Real Returns

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Pioneer Flexible Opportunities Fund

We believe building wealth and enhancing purchasing power can be accomplished through a flexible, top down, global multi-asset approach that seeks to generate real returns over time.



Strategically Seeking Global Opportunities

Pioneer Flexible Opportunities Fund is a global macro world allocation fund that seeks to take advantage of attractive, long-term investment opportunities, while managing risk through global diversification)


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Total Return

The fund seeks to deliver a total return that enhances true purchasing power over time

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Theme-Driven Asset Allocation

The Fund deploys a theme-driven approach that provides holistic views of the global economy, designed to lead to more robust investment insights.

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Global Diversification

The Fund seeks to manage risk through a global, diversified portfolio by allocating across a variety of asset classes, sectors, countries and currencies.

Risk and integrity culture refers to the mindsets and behavioral norms that determine how an organization identifies and manages risk. In this challenging and highly uncertain moment, risk culture is more important than ever. Companies cannot rely on reflexive muscles for predicting and controlling risks. A good risk culture allows an organization to move with speed without breaking things. It is an organization’s best cross-cutting.

Beyond today’s travails, strong risk culture is a critical element to institutional resilience in the face of any challenge. In our experience, those organizations that have developed a mature risk and integrity culture outperform peers through economic cycles and in the face of challenging external shocks.

At the same time, companies with strong risk cultures are less likely to suffer from self-inflicted wounds, in the form of operational mistakes or reputational difficulties, and have more engaged and satisfied customers and employees. This article explores the steps involved in setting up an effective risk-culture program when to launch such a program, and the factors we have found to be critical for long-term success.

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Understanding and Measuring Risk Culture

The starting point for most organizations looking to improve their risk culture is to diagnose the current state. Organizations that have built strong risk and integrity cultures seek to understand (and then address) three mutually reinforcing drivers: risk mindsets, risk practices, and contributing behavior. Risk mindsets can be understood as the set of assumptions about the risk that individuals hold within the organization; Risk practices are the daily actions that determine the effectiveness of risk management; Contributing behavior comprises the collective actions that build risk attitudes. Ideally, these actions will be systematic and deliberately intended to strengthen individuals’ risk attitudes, with desired risk behavior built into everyday functioning.

Concrete Definition

Companies that seek to understand risk culture can best begin by establishing concrete, detailed definitions. They should clearly spell out the specific elements of risk culture to set aspirations and measure progress. For example, we define ten dimensions of risk culture, based on a wide range of experiences with companies across all major industries, and incorporating the close study of a range of real-world risk-culture failings.

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Systematic measurement

Once risk and integrity culture is defined, measurement can begin. Leading companies assess themselves systematically, looking at mindsets, practices, and behavior.

“Companies with strong risk cultures have more engaged and satisfied customers and employees.”

This assessment is often based on interviews among units and functions, then followed by a more comprehensive organization-wide survey. The survey will typically include 20 to 30 questions that measure performance against the elements of risk culture (covering mindsets, practices, and behavior) and will set the organization-wide baseline. The team can complement results with qualitative insights gleaned from follow-up interviews to provide further detail on the particular strengths or weaknesses revealed, and help uncover their root causes.

Risk culture can be understood as having ten dimensions, covered under four topics.



Acknowledgement

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Confidence

An assured understanding of an organization's exposure to risk without any false sense of security

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Openness

The degree to which management and employees exchange bad news or learnings from mistakes

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Challenge

Scrutiny of the quality, appropriateness, and accuracy of other's attitudes ideas, and actions

Responsiveness

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Speed of response

Perception of external changes and reaction speed to innovation or change

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Level of care

Responsibility to care about the outcome of actions and decisions



Transparency

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Communication

The degree to which warning signs of both internal and external risks are shared

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Tolerance

Understanding of risk appetite and its linkage to overall strategy and decision making

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Level of insight

Indetification and inderstanding of risk present in the business

Respect

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Adherence of rules

Alignment of individuals's appetites to the organozation's

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Cooperation

Consideration of broader organizational consequences and impact on overall risk appetite when any one team acts or makes decision

“Leading companies take proactive steps to maintain strong risk cultures in normal times, in times of stress, and when they are undergoing transformations.”

Instead of using a dedicated risk and integrity survey, many organizations falter by relying on a combination of employee-engagement surveys, focus groups, and analyses of incidents and near-misses to measure their risk culture. Each of these tools can bring useful results when used with sufficient rigor. However, typical employee-engagement surveys contain only a few relevant questions and therefore do not usually uncover enough insight to create an effective measure.

These approaches, furthermore, do not provide a view over time or ready comparisons between organizational units. We believe that a dedicated survey is an indispensable tool for obtaining a broad measure of a company’s risk culture. It is the only way to set a true initial baseline. A comprehensive survey creates hard data, comparable across divisions, geographies, and roles; with repeated use, it traces trends through time. The results allow fact-based conversations about risk culture, fostering engagement while deepening executive-level understanding.

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Once an initial baseline is developed, the results should be shared with leadership teams and the broader organization. Transparent results are an important first step in increasing the focus on risk culture. While maturity levels across different dimensions matter, outliers (both strengths and weaknesses) or areas of change where a survey is repeated over time tend to drive the greatest insights for an organization. Differences among units, functions, geographies and tenure levels can also be illuminating. In one example of this process, a government-owned corporation held a series of town-hall meetings to share the results of its risk-culture survey. The town halls were the first active communications on risk culture and demonstrated to employees a new openness. The comparative data shared showed divergent strengths and weaknesses, which stimulated strong interdepartmental conversations in what was a traditionally siloed organization.

With the help of measured risk-culture results, companies can act to address weaknesses in risk culture. The leadership team, with support from the team coordinating risk-culture efforts, can use the strengths, weaknesses, and cultural differences identified to agree on a set of prioritized interventions or intervention areas based on enterprise-wide and divisional aspirations. Some interventions will affect the entire organization—for example, certain compensation or recruiting changes. These warrant group-led approaches and a dedicated team should be created or assigned to take charge of them. Many, however, will be specific to and driven by particular parts of the organization. For instance, affected business units would take charge of work to redesign problematic product-approval processes; likewise, business-unit leaders might “localize” a groupwide focus on a topic like accountability.

To lift risk culture, organizations move from measuring and planning to taking action. A broad range of techniques can be summoned to inspire change. Successful efforts are usually the result of several kinds of actions taken together. In thinking about how to generate meaningfully, lasting changes in risk and integrity culture, leaders can be guided by the “influence model” schematized in Exhibit 2. This model has proven useful in ensuring that change programs draw upon a breadth of approaches, and its use increases the chance of success for a transformation by three or four times.

The 'Influence model' defines four dimensions of risk-culture-change programs, ensuring that a breath of approaches are used


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"I have the skills to behave in the new way"
  • Employees are coached to consider client needs plus other business concerns
  • Employees receive training on available communication channels, both formal and informal, to identify and escalate risks
  • Top management is coached on communication methods for discussing risks
"Systems reinforce desired change"
  • The organization appoints senior leaders with the right expertise to understand and manage risks
  • Systems and processes are in place to quickly identify potential policy or guideline breaches
  • The organization compensates and promotes people to encourage them to act in the organization's best long-term interests
"I know what I need to change, and I want to do it"
  • When things go wrong at a competitor's, the company considers how to change its approach
  • Internal communications prominently feature success stories of change across different employee tenures
  • Workshops with a cross section of staff are used to brainstorm improvement opportunities around risk
"I see my leaders behaving differently"
  • Leaders share risk knowledge that supports decisions and actions
  • Leaders demonstrate appreciation when employees raise mistakes, rather than avoiding the issue or penalizing the employee
  • Leaders expect and encourage people to challenge their views and decisions
  • Leaders systematically and effectively communicate key risks faced by the business as well as mitigation approaches

The effort to address risk-culture gaps usually involves a balance of short- and long-term interventions. Targeted short-term interventions allow organizations to respond flexibly to changing needs while longer-term programs constantly reinforce core elements of desired risk culture. Long-term interventions are often formal programs like speak-up hotlines or training and compensation standards (based on risk criteria) that continually reinforce desired behaviors.

In an effective example of a long-term intervention, one bank developed a program that both encouraged employees to speak up on risk issues and increased the level of responsive actions. The program includes an externally managed channel for employees to register concerns, with the option of confidential help from internal speak-up champions on navigating the process. The board receives regular reports on both internal and external complaints, with resolution rates and common themes and trends. The following short-term initiatives are just a few examples of how organizations have addressed gaps in risk culture:

A bank discovered weaknesses in its approval process for new products. Its investigation led to the creation of a dedicated challenger role, filled by rotating members of the approval committee. The role is charged with taking deliberately contrarian positions and pressure-testing proposed products on how well they served the long-term interests of the customer and the bank.

A bank discovered weaknesses in its approval process for new products. Its investigation led to the creation of a dedicated challenger role, filled by rotating members of the approval committee. The role is charged with taking deliberately contrarian positions and pressure-testing proposed products on how well they served the long-term interests of the customer and the bank.

A pharmaceutical company sought to address a weak culture of challenge by training new and junior colleagues on how to constructively question leadership decisions. To encourage the best results, senior leaders acted as role models, visibly promoting non-hierarchical decision-making.

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Launching a Risk-Culture Program

Risk-culture programs can have multiple triggers. Leading companies take proactive steps to maintain strong risk cultures in normal times, in times of stress (such as under the COVID-19 crisis), and when they are undergoing transformations.

Proactively Shaping Risk Culture

Building and sustaining strong risk culture requires proactive attention. In normal times, this means addressing risk culture before issues arise. Under the stress of the COVID-19 pandemic, which has disrupted the traditional mechanisms that reinforce an organization’s risk culture, this includes understanding how risk culture is evolving and then taking action to protect or improve it. Because of the pandemic, people are working together differently, often from home. In addition, many individuals and organizations are under added stress (including financial stress), increasing the risk of nearsighted decision-making and cultural problems.

Once a crisis with roots in risk culture hits, existing leadership, including boards, will find it difficult to lead change as they themselves become increasingly associated with the cultural problems. The problems tend to be seen as leadership failings in the eyes of the public, investors, and regulators.

Maintaining Risk Culture Under Company Transformation

Many organizations are transforming their operations, particularly to become more digital and more efficient. The COVID-19 crisis has served to accelerate many planned change programs. Large transformations can themselves raise risk levels, as risk-management practices are disrupted, core processes are redesigned, and teams and organizational structures shift. “Change fatigue,” a species of anxiety that comes with a transformation, can contribute its own share of risk. But transformations also afford organizations the opportunity to reset their model to their desired risk-management culture.

They must include programs to promote desired behaviors, in transparent, organization-wide efforts, as opposed to siloed, business-as-usual approaches. For example, one global manufacturing company undertook a major transformation in response to a series of product- and regulatory-compliance incidents. Front and center were issues of culture, integrity, and compliance, which became the core focus of the groupwide transformation.

Getting started

Whatever the original motivation for a risk-culture program, a one- or two-year plan covering a range of intervention types can begin with a small set of priority initiatives targeting key weaknesses. In addition to achieving progress in important areas, these initiatives will create visibility and momentum for the entire plan. An example campaign would be one to encourage employees to speak up where they see risk concerns. The initiative might include a confidential speak-up line, communications from the top to set the tone on the importance of speaking up, and, for a dedicated period, an explicit focus on speaking up in team meetings. Results would be conveyed to the board, in a report covering internal and external complaints, whistleblower activity, overarching themes, and resolutions. This would serve as a first step and a gesture of commitment to the larger effort of changing risk culture.

Setting Yourself Up for Risk-Culture Success

Careful risk-culture definition, measurement, and initiative work plans are not enough. Successful risk-culture programs share five essential characteristics that leaders should put in place as part of their focus on risk culture:

To be truly lived, culture must be linked with the day-to-day business activities and outcomes of an institution. First-line leaders must feel accountable for their role in supporting the company’s risk culture.

These responsibilities should sit centrally—either within enterprise risk management, with a risk chief operating officer or an enterprise chief operating officer, or within HR. It is helpful to have a central point, as too often varying language is used to discuss culture within a bank. Without an enterprise-wide view and vocabulary, it is not possible to effect true, coordinated cultural change.

The strengths and weaknesses of the prevailing risk and integrity culture need to be spelled out, supported by data. The vision for an enhanced culture and how it will benefit the organization and individuals can then be articulated.

Cultural change takes time, and gains must be regularly reinforced. Successful programs combine periodic measurement of organizational risk culture with a multiyear change program encompassing short- and long-term initiatives. Too often organizations bring a burst of energy to the initial diagnostic but then fail to implement initiatives or sustain the changes needed to drive long-term improvement.

Risk-culture programs need someone to provide overarching direction and drive, but to succeed, leadership across the organization should be actively engaged. Business-unit owners, in particular, should champion initiatives. Leaders need to show they are serious about change if they want their people to adopt new risk behaviors, which may themselves be perceived as risky—for example, speaking up.
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'Based on the percentage of the word "uncertain" (or its variant) in the Economist Intelligence Unit country reports. 2Automated text-search results from the electronic archives of 11 newspapers: Boston Globe, Chicago Tribune, Daily Telegraph, Financial Times, Globe and Mail, Guardian, Los Angeles Times, New York Times, Times, Wall Street Journal, and Washington Post. Index was calculated by counting the number of articles related to geopolitical risk in each newspaper for each month (as a share of the total number of news articles). Source: CyberEdge; Swiss Re

Strengthening Institutional Resilience Has Never Been More Important.

2020 was a wake-up call. To thrive in the coming decade, companies must develop resilience—the ability to withstand unpredictable threats or change and then to emerge stronger. This perspective piece introduces our approach to resilience. “Develop resilience” is easy to say but hard to define, and yet harder to do. In this article, we reiterate the imperative, define the components of resilience, and introduce the approaches companies can take to become more resilient. In the coming months, we will publish a series of more detailed articles on the topic, focused on the actions that institutions of different types can take to measure and improve their resilience.

The Road Ahead- Opportunities in 2021


Transitioning Markets: Where to now?


After a tumultuous 2020 that had many eager to ring in a new year, in our view early indications suggest that we have reason for cautious optimism. What do we expect to see for equity markets, cyclical value and growth, fixed income and the US dollar?


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The Resilience Imperative.

The world is undergoing increasingly rapid, unpredictable, and unprecedented change. But across industries, most companies have remained persistently focused on near- and medium-term earnings, typically assuming ongoing smooth business conditions. The COVID-19 pandemic heralds the need for a new approach. Catastrophic events will grow more frequently but less predictable. They will unfold faster but in more varied ways. The digital and technology revolution, climate change, and geopolitical uncertainty will all play major roles.

Philosophy

Poineer Strategic Income fund adheres to three core investments tenets: value, diversification and downside risks focus


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Value-Driven

The Fund seeks to invest in sectors that offer attractive relative value, based on fundamentals and on spread relationships to long-term averages. Value investing seeks to capitalize on the benefits of rebalancing through dynamic allocation, which can make a significant contribution to portfolio returns over time.

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Broad Diversification

The Fund's diversification level seeks to benefit from incorporating a broad range of factors and sectors, which helps it pursue attractive risk-adjusted returns. Diversification available from asset classes with lower correlationl to core sectors can help reduce volatility and downside risk.

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Downside Risk Focus

The Fund has been successful in limiting downside risk and avoiding permanent impairment of capital has reflected its disciplined approach to limiting issuer concentrations combined with strong fundamental credit research, avoiding at-risk sectors and avoiding market value loss in rising interest rate environments.