Humanistic Management, Operational Risk, and Employee Behaviour

Management can provide leadership in terms of either poor or good behaviour. The role of principled management in bringing out the best performance of the individual seems to be intuitively obvious as management influences the way in which things are done in the organization on both formal and informal levels. One particular area of concern is the impact of senior management's ethical behaviour on the risk of employee's fraudulent behaviour. Operational risk, resulting from procedures within the firm, is often neglected in firms, despite the obvious costs. Enterprises, however, have great difficulty in effectively dealing with such issues. This chapter suggests that humanistic management is an important element in addressing operational risk, and the risk of fraud in particular.Recent evidence on employee deviance and fraud suggests that reduction of these risks creation of a culture which encourages fairness and transparency, enables individuals to raise problems as they are identified, and encourages learning. This ‘transparency' approach should help by creating a pattern of behaviour that is honest and that is sufficiently informed to engineer appropriate change in the organisation as challenges arise. Although competitive pressures increasingly encourage firms to reduce the rights of employees, fair treatment of employees may potentially reduce fraud costs to the firm, and increase its ability to adapt to change. This is of particular significance in times of economic volatility where threats to global businesses can change in nature, and in magnitude, very rapidly