Hot feelings can reshape companies’ risk management

Anita Meidell, Associate Professor at the Department of Accounting, Auditing and Law at NHH and an expert in management accounting and control.
Anita Meidell, Associate Professor at the Department of Accounting, Auditing and Law at NHH and an expert in management accounting and control.
By Sigrid Folkestad

8 March 2024 06:10

Hot feelings can reshape companies’ risk management

`Emotional responses to crises can profoundly reshape a company's approach to risk management in several ways´, Associate Professor Anita Meidell says.

`The evolution of risk management practices within a company is not just a rational, calculated decision-making process. It is also deeply intertwined with the human element´.

Anita Meidell,Associate Professor, NHH.
Anita Meidell,Associate Professor, NHH.

Emotional engagement of the staff

Anita Meidell is a researcher at the Department of Accounting, Auditing and Law at NHH and an expert in management accounting and control. She has published the study Risk Management as Passionate Imitation: The Interconnections Among Emotions, Performance Metrics, and Risk in a Global Technology Firm together with NHH Professor Katarina Kaarbøe and two professors at Stockholm School of Economics, Kalle Kraus and Martin Carlsson-Wall.

By risk management as passionate imitation, they refer to the process where an organization's approach to managing risks is significantly influenced by the emotional engagement of its staff, leading them to enthusiastically adopt and adapt practices they observe to be successful elsewhere.

`We studied on how emotions, performance metrics, and risk management intertwined, driving changes in the company's approach. We found that the company´s journey from 2000 to 2015 was marked by passionate imitation, where emotions played a critical role in shaping risk management practices.´

Passionate imitation

`Passionate imitation sounds intriguing. What does that mean in the context of your study?´

`It is about how individuals or groups within an organization mimic behavior or practices they admire in others, driven by emotional engagement´.

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In GlobeTech's case, this imitation was not merely about copying competitors but was a passionate, emotionally charged process.

`It began with a desire to improve risk management after recognizing their shortcomings, especially following a fire at a supplier's factory,´ Meidell explains.

An initial fire

Emotions were pivotal, the researchers found.

Initially, a fire caused guilt and fear, which spurred the first phase of passionate imitation: recognizing the need to imitate successful risk management practices. Later, positive emotions, like relief and pride from implementing new strategies or overcoming natural disasters, fueled further evolution.

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These emotional responses created a strong attachment to risk management across GlobeTech's teams.

Risk mapping

`Could you give an example of how these emotions translated into concrete risk management actions?´

`After the initial fire, the company embarked on extensive risk mapping, driven by a mix of guilt and the fear of future incidents. Then, the introduction of a new sourcing strategy, aimed at reducing reliance on single-source suppliers, elicited relief and was seen as a validation of their risk management efforts. This led to more sophisticated risk measurement practices. Finally, pride from successfully navigating natural disasters motivated a shift towards proactive risk avoidance, influencing product development decisions.´

`Your research also touches on the broader implications for accounting and risk management. What are your thoughts on that?´

`Our findings suggest that understanding risk management's evolution requires considering emotional dynamics alongside structural and political factors. This has significant implications for how we think about risk management and accounting practices´ the NHH researcher elaborates.

Valuable insights

The study challenges the traditional view of these fields as purely rational or objective, highlighting the importance of emotional engagement and passionate interest in driving change.

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`What future research directions do you see based on your study?´

`Our study opens questions about how these elements combine to shape risk management practices over time. Additionally, considering the global context in which companies like GlobeTech operate, examining cultural influences on emotional responses and imitation behaviors could provide valuable insights´, Meidell concludes.