Research purpose: The aim of the study is to describe how risk management unconsciously influences behaviour when doing business in an African country.

Motivation for the study: Operational risk management is a rational management imperative. However, this does not take cognisance of the unconscious role of risk management. A systems-psychodynamic perspective might be particularly relevant if the anxiety implied in risk management is not appropriately contained. Awareness of these dynamics may provide an opportunity for addressing them and allow for a more holistic way of managing risk.

Research design, approach and method: The researchers conducted the study as a qualitative case study in an African country. They used purposive sampling and analysed the data using qualitative content analysis.

Main findings: Viewing risk management from a systems-psychodynamic perspective allowed the researchers to identify the influence of risk management on the behaviour of people. The emerging hypothesis was that, if businesses do not address the anxiety underlying risk management, managing risk becomes a social defence against the anxiety.

Practical/managerial implications: Awareness of the anxiety involved in risk management may assist businesses to manage risk in a more realistic way, making provision for, and even capitalising on, the human element.

Contributions/value-add: The article provides a systems-psychodynamic, and hence a more complete, perspective of operational risk management when doing business in an African country.

This study viewed risk management from a systems-psychodynamic perspective. Its focus was the influence of anxiety on implementing a risk management framework in a South African financial institution that does business in an African country.

The Basel Committee (2006) defines operational risk as the risk of loss that results from inadequate or failed internal processes, people and systems or from external events. Regulators of financial companies and banks are demanding a greater awareness of the risks banks manage and the effectiveness of the controls they have in place to reduce possible losses.

Compliance regulations, like Basel II, mandate a focus on operational risks. They compel financial organisations to control and manage risk. This has led to an increased emphasis on the importance of having a sound operational risk management (ORM) framework in place. To comply with Basel II requirements, banks make significant investments to improve their internal risk processes, data infrastructures and analytical capabilities by employing the advanced measurement approach (AMA). The AMA fosters a risk-sensitive environment and promotes efficiency in managing risk from an operational point of view (Jain, 2010). However, with the focus on increasing regulatory requirements and technological innovation, the behavioural aspects related to risk management are under-researched. These aspects include explicit risk management practices. They also include those embedded in managerial tactics (Corvellec, 2009).

According to Kersten (2001), organisations outwardly manifest success. However, inwardly they conceal suppressed tension and become obsessed with rules and the compulsion to control. This highlights the need for a more holistic and balanced way of managing risk.

An awareness of the unconscious dynamics that underpin managing risk contributed to this study of risk management. Consequently, using the findings of the study, this article provides a more holistic view of risk management.

Organisations are independent external realities that have significant psychodynamic (emotional and psychological) effects on people. Cilliers and Terblanche (2010) refer to this psychodynamic experience as individual experiences and mental processes (like transference, resistance and fantasy) as well as unconscious group and social processes. Cilliers and Terblanche further explain that the main features of the psychodynamic perspective are anxieties and mobilising social defence mechanisms against them. In terms of people’s functioning in organisations, mobilising these defences either impedes or facilitates task performance and readiness for change. One can regard the ‘boundary’ construct as the key one that links the systems perspective and the use of psychodynamic constructs in groups and organisations (McCollom, 1995).

If one views organisations from a systems-psychodynamic perspective, one gets a unique insight into those dynamics that influence the functioning of systems (Cilliers, 2000; Van Eeden, 2010). An awareness of these dynamics could help organisations to improve their capacity to develop task-appropriate adaptations to manage and regulate their behaviours in more rationally appropriate ways (Gould, 2004).

The defence mechanisms that Menzies and Jacques described sound similar to those one sees in victims of trauma – depersonalisation, denial, detachment, ritualisedtask-performance, irresponsibility, idealisation and avoidance of change (Bloom & Farragher, 2010). They both built on the development theory of Melanie Klein, especially her idea of primitive anxiety and the mental mechanisms in the paranoid-schizoid position (Obholzer, 1999). They applied these concepts to working people who experienced stress as well as to groups and organisations.

Using the differentiation of Bion (1961), between a workgroup and a basic assumption group, the systems-psychodynamic literature accepts the dual function of organisations (Baum, 1987; Gould, 2004; Hirschhorn, 1988; Obholzer, 1999). On the one hand, organisations function in order to perform a primary task. They develop strategies, plans and structures to achieve their goals and motivate employees to do their jobs. Organisations seek knowledge, learn from experience and constantly reflect on the best ways to achieve their objectives. One can describe organisations as the ‘ego’, in terms of Freud’s theories, and they function in similar ways to rational, mature people (Rioch, 1975). However, organisations also function, from a systems-psychodynamic perspective, as containers of the anxiety linked to performing their primary functions (Ohman, 2000). The need to avoid anxiety largely forms the nature of organisations. Therefore, one can argue that anxiety underpins behaviour in organisations (James & Clark, 2002).

Although anxiety in the workplace is, for example, attributed to being part of a group, the environment in which organisations work and to physical and psychological hazards (Obholzer, 1999), it is primarily related to the risk involved in the nature of the work (Stein, 1996). Guerin (1997) points out that all meaningful work implies taking risk because of uncertainty and the need to exercise control.

When the anxiety employees that experience in work situations becomes too great, it triggers unconscious experiences of early infancy. This leads employees to develop defence mechanisms in order to survive (Klein, 1959). Organisations then defend themselves to such an extent that the systems-psychodynamic function of the structures comes to the fore at the expense of supporting their primary tasks. This implies a shift from ‘on-task’ to ‘off-task’ functioning (Obholzer, 1999). This is particularly evident in stressful situations, like during periods of organisational change (Cooper, Dewe & O’Driscoll, 2002). One sees organisations defending themselves against anxiety as spiralling and contagious processes. Their managers, in effect, transfer their anxiety to the organisations’ employees (Brooks, 2003).Although these defence mechanisms are necessary for coping with stress, they could prevent organisations from fulfilling their primary tasks and adapting to changing circumstances.

In applying systems-psychodynamic concepts to organisations, Kets de Vries and Miller (1984) used the term ‘compulsive organisation’ as a type of organisational neurosis to describe organisations where control is the major obsession. Based on a fear of losing control, organisations become obsessed with controlling organisational life and develop extensive formal control mechanisms, like elaborate policies, rules and procedures. Rather than relying on positive human relations, these organisations see all relationships in terms of power and organisational structure and are formalised and hierarchical. The basis of this behaviour is anxiety and it aims to reduce uncertainty. According to Kersten (2001), the structural inequities of organisational relationships in bureaucratic organisations are the basis of neurotic organisational cultures and structures.

However, Stacey (2003) argues that not all organisations that experience high levels of anxiety display social defensive behaviour. These organisations fluctuate between focusing on their primary tasks and using structures to contain anxiety. Stacey also argues that the possibility of containing the level of anxiety seems rootedin the quality of the personal relationships of managers.

Baruch and Lambert (2006) developed a model for managing anxiety in organisations. According to the model, organisations must decide on their reactions to a range of environmental events that might act as stressors, like regulatory changes or economic fluctuations. These materialise in internal changes, like implementing risk management frameworks, which stress and anxiety usually accompany. Baruch and Lambert suggest that the initial organisational appraisal system monitors events as they develop in terms of their effect on the overall functioning of the organisations and their effect on internal management and control structures.

This appraisal may force a review of the primary beliefs and commitments that organisations hold. Their challenge is whether they see events as opportunities or threats. Therefore, the resulting coping behaviour, at organisational level, could consider organisational practice, deny the influences of the events and become unresponsive to both internal and external indictors or move with the changes that the events suggest (Baruch & Lambert, 2006). A major component in the reactions of organisations is how they manage responses to events. Policies can either promote or inhibit the ability and willingness of organisations to respond to these events, both in their processes and emotional reactions, as organisations and as groups of people who make up the organisations. The complex interaction between these processes, from appraisal to the coping behaviour they adopt, will determine the progress that organisations make and the level of individual and organisational anxiety that results.

The reactions of organisations will also influence their internal and external views of trust in their effective responses to the trigger events and these can have wide-reaching effects (Luhmann, 1979). Trust is a critical variable that influences the performance, effectiveness and efficiency of organisations, whereas lack of trust would create a negative atmosphere in them (Korsgaard, Brodt & Whitener, 2002; Kramer & Tyler, 1996; Tzafrir, Harel, Baruch & Dolan, 2004).

Attempts to manage anxiety in organisations are not always successful and they are even counterproductive at times (James & Clark, 2002). Nevertheless, the literature suggests that quality relationships (Stacey, 2003), characterised by trust (Korsgaard et al., 2002; Kramer & Tyler, 1996; Tzafrir et al., 2004) may provide reliable containers of anxiety and assist organisations to focus on their primary tasks.

Taking risk is a core operation and a strategic activity. However, it is also something that the institution has to reduce. This ambiguity may contribute to the development of a social defence mechanism. Hirschhorn (1999), for instance, argued that changing strategies entails significant risk, whilst not changing strategies also creates risk. This ambiguity creates anxiety and, consequently, a defensive fantasy. If the experience of the objective anxiety parallels the unconscious primitive anxiety and related defence mechanisms, the strategies of the institution, like managing risk, will probably serve as a social defence against anxiety. Containing anxiety is a spiralling and contagious process from a systemic perspective (Brooks, 2003). Therefore, managers and employees involved in implementing a risk management framework will apply social defensive mechanisms to deal with anxiety.

James and Clark (2002) show that the benefits of implementing a policy or procedure (like a risk management framework) often look excellent on paper. However, organisations experience difficulty implementing them in practice. This may be the result of overlooking underlying anxieties and not dealing appropriately with them.

The researchers now describe the research design. A report, an interpretation and an integration of the findings follows. They will also discuss the findings, applications and recommendations for future research.

The institution conformed to the rigorous Basel II-compliant risk management frameworks. Host regulators in the African countries outside of the institution’s legal authority had not yet adopted the Basel II framework. Therefore, they placed no legal obligation on any of the subsidiaries to use the strict risk management policies that the South African institution adopted. However, the South African institution applied Basel II in its African operations as the best practice for managing risk.

In the light of the character of the dynamics this article has described, the researchers considered possible methodological issues in their decision to use at least two researchers in each interview and to have an official from the local bank present. The researchers used a number of techniques to ensure the quality, credibility, dependability and trustworthiness of the data. They included purposive sampling, protecting confidentiality, transcribing the interviews, iteratively analysing the data and reflections with participants to allow for discussion, feedback and confirmation of the study’s findings (Shah & Corley, 2006; Tracy, 2010). The researchers found that introducing the researchers as coming from a university increased the perceived impartiality and credibility. The local bank official acted as gatekeeper and was very useful in building rapport quickly.

‘... to prevent that risk, that’s why, that’s why we have to introduce several controls to prevent or to, to prevent any loss. Because risk of course goes with a loss ...’ (Respondent A, bank employee, African country)

Another respondent linked risk management directly to the safety of the bank by stating:

‘This manual says such and such a thing should be done in this way, why? … You’re being told before you open an account you must do this-this-this… It’s for the safety, it’s for the identification of your customer, we are minimising risk by doing this … this – to you and to the customer too.’ (Respondent B, bank employee, African country)

The expectations of the culture of the officials’ community also added to the experience of anxiety. For example, one of the respondents stated:

‘Actually, the culture itself is the fear that is within an individual ... He sees something which is not right being done, but he feels telling somebody that there is somebody doing something wrong, you know.’ (Respondent C, bank employee, African country)

Employees also experience anxiety because of uncertainty about their own futures. One respondent mentioned:

‘… it was really tough because staff did not know their fate – what will happen? Some people are coming to take their bank, what will be the fate of our employment? We are used to live like this, now some people are coming to take the bank – fear of the unknown. People did not know what will happen, so that one also blows the resistance and because the public itself was negative, so even the workers.’ (Respondent D, bank employee, African country)

Another respondent expressed a source of anxiety as:

‘… the older generations ... first of all, I think most of them fear – if I may use that word – they fear to be indebted to the banks and all that.’ (Respondent E, bank employee, African country)

‘… sometimes we feel that, okay, these guys don’t trust us. … then it must mean they think we are lying to them. Like we are telling this is the situation and they still saying no. So then sometimes we get to think they don’t trust us, us we not trusted, we are pulling things from the air.’ (Various respondents who participated in study, bank employees, African country)

These words echo the same sentiment:

‘When they came in, the staff treated the investor, the foreigners, like enemies. So everybody ... management treats staff as enemies and staff treat top management as enemies. People therefore feel alienated from management; now the staff they don’t feel like they are part of the bank ... what I’ve noticed that, top management is not very close to the staff and that gap is widening.’ (Various respondents who participated in study, bank employees, African country)

Some respondents even questioned the perceived excessive control:

‘They came in to run a business, ok and as a business owner you have your own ways of looking at business, putting up controls, ok. Having systems that you want and putting things the way you want is how you want your business to go and that is what happened.’ (Various respondents who participated in study, bank employees, African country)

and

‘Now, what has happened is, there’s a lot of effort being spent on risk and control – if it’s for the good and the bad we can discuss. There’s a lot of policies being implemented … ‘ (Various respondents who participated in study, bank employees, African country)

Another respondent described the experience of risk management as:

‘… you have processes and procedures that you also need to change because whatever you are doing must go in line with the system. So we went through putting up process, procedure in manuals form, in circulars, telling people of what they are required to do. What are the controls, I mean, actually need to look at. They must not do this, they must do this.’ (Respondent F, bank employee, African country)

‘First, risk management … to me it’s just paperwork at the moment. That’s why I was even telling you about; we just have a file and then we’ll just talk to the manager, your RCA’s are due for the quarter. To me, that’s how I see it, it’s just paperwork and documentation.’ (Respondent G, bank employee, African country)

Another noted, with regard to its effectiveness:

‘No, … it’s just something that you have there in the file and no-one uses it, no-one can have access to it. It’s just a document then. It just becomes a document, it’s just something that, okay fine, we’re going to be audited at some point, we have to have this, these things have to be in place, so they’re in place …’ (Respondent H, bank employee, African country)

Another respondent described the experience as:

‘So you end up being like a ... you are not running the business anymore, you are shifting to try and meet the compliance criteria. You are shifting your whole mind is trying to meet this standard.’ (Respondent I, bank employee, African country)

The words of another respondent echoed this experience:

‘No, we usually tell them how to manage such risks, for example, through procedures, to ensure procedures are in place and monitor the things that we can prevent from happening by following the procedures. And certain small things that might happen, but we can mitigate them by let’s say risk transfer, for example through insurance, things like that. So we highlight those areas and get them that ... even though we cannot control them and we cannot put in some measure to prevent them, but we can ensure that we are safeguarded by transferring the risk.’ (Respondent J, bank employee, African country)

A possible consequence of minimising the human element might be that employees avoid taking personal ownership for managing risks. For example, one respondent mentioned that:

‘… if the strategy of the bank, the top management of the bank doesn’t even know the strategy of the bank, how do you expect people to ‘own’ what they’re doing? That’s where the problem is.’ (Respondent K, bank employee, African country)

Several participants indicated that trust plays a pivotal role in the country’s culture when the institution lends money:

‘… we trust each other and as I’ve said in most cases we borrow money based on trust. So the factor there, the social cultural factor is, is influencing that borrowing … I think its trust. ‘ (Various respondents who participated in study, bank employees, African country)

One respondent expressed the anxiety about relationships as:

‘Fear about breaking down the relationship with that particular person that he have lived for quite some time. Fear about now going back to the public and him being said: Ha, you know that is the guy who went and mentioned my name to this people …. because [we] are people that have lived together, doing things together. That is the culture and that confidence of coming up front and holding one’s head and saying what is not right that is not there. And when you don’t have that in people’s mind, the risk becomes very difficult to manage.’ (Respondent L, bank employee, African country) Referring to the influence of risk management on clients, one respondent, for example, mentioned that ‘I’ve gone to customers and they’re complaining about this, why are we doing this?’

The literature substantiates this argument. It shows that, at a collective level, when objective anxiety is too high it triggers earlier unconscious anxiety and uses social defence mechanisms to contain the anxiety (Brown & Starkey, 2000; De Board, 1978; Fineman, 1996; Hirschhorn & Young, 1991; Kets de Vries & Miller, 1984; Ohman,2000). Themes two to five illustrate defensive methods of dealing with social anxiety.

One of the major sources of anxiety is the relationship between the managers in South Africa and those in the subsidiary. One way they are dealing with the anxiety isby creating a split between them. The researchers discussed this finding in theme two. According to the literature, splitting is a defence mechanism (Klein, 1959) that groups use to split the world into subgroups of friends and enemies where subgroups may gang up against the authority figure or perceived aggressor. This results in intra- and inter-group conflict (Erlich, 2001; Kets de Vries, 2006). The external risks that this institution faces then become internal threats (Hirschhorn, 1997).

Another way the institution is dealing with the anxiety is by placing too much emphasis on control. The researchers discuss the experience of risk management, as an excessive form of control, in theme three. This is consistent with the literature (Hirschhorn, 1997; Van Eeden, 2010). It shows that managers may exercise too much control over employees because the external risks of the organisation frighten them and because they cannot control the external reality. The researchers argue that, because employees experience risk management frameworks as forms of control, these frameworks are not conducive to managing risk. They are merely mechanisms to contain the anxiety. Therefore, the institution could lose much of the value that it could gain from subjective aspects, like using relationships to manage risk.Control mechanisms, like risk management frameworks, represent managers in the unconscious minds of the employees who work in the subsidiary. According to Hirschhorn (1997), threats and risks always mobilise fantasies about relationships with authority figures and their representation in rules, schedules, procedures and divisional boundaries. In this case, employees could transfer the aggression that they aimed at managers onto the framework and into rebellious behaviour against its implementation. Voyer, Gould and Ford (1997) suggest that an organisation’s overreliance on, and implementation of, defence mechanisms to control organisational anxiety often amplifies the anxiety instead of containing it.

With the emphasis on regulatory and control mechanisms, the researchers also found that the financial institution deals with anxiety by depersonalising risk management. According to Kets de Vries and Miller (1984), compulsive organisations rely on formal controls rather than on positive human relations. This causes a loss of personal involvement. If organisations depersonalise risk management, ownership of the risk management framework remains with managers. Employees will comply without question and leave no room for judgement and intuition. There is no reflection on problems and events, which stifles problem solving in organisations (Brooks, 2003; James & Clark, 2002). Furthermore, Hirschhorn (1997) argues that when organisations depersonalise decision-making, personal accountability for decisions is lost and people feel less responsible for the consequences of these decisions.

Finally, the researchers provided evidence for the belief that risk management influences relationships with clients negatively. A trusting relationship is highly valuedin the foreign country. Employees expressed the fear that risk management would negatively affect this relationship. Therefore, the split that employees experience between managers and the subsidiary provided a fertile environment for aligning with the clients against managers. One can probably ascribe this behaviour to the experience of structural inequities between the South African managers and those of the subsidiary and particularly to the differences between their experiencesof socialism and a capitalistic management style (Kersten, 2001). When splits occur, in-group out-group divisions form and mobilise aggressive forces against the ‘enemy’. This strengthens the identity of the group or subgroup (Kets de Vries, 2004; Neumann, 1999; Stokes, 1994).

The literature argues that managers drive effective risk management and employees adhere to it (Jain, 2010). One can also regard the distance between managers and employees in the African subsidiary as a managerial defence against the anxiety related to the risk of creating trusting relationships with people in the foreign country. Keeping this dynamic intact enables managers to transfer their own anxieties onto the employees in the African country. They carry it on behalf of their managers. As a spiralling process (Brooks, 2003), they then have to deal with their own anxieties and with those of their managers. Keeping this dynamic intact is also consistent with Sigmund Freud’s idea of repetition compulsion – people put themselves in stressful situations in order to regress to familiar past experiences (Stein, 2004). Therefore, the employees in the foreign country display defensive behaviour. This is clear in the themes the researchers identified.

One can also ascribe this dynamic to the fundamentally compulsive culture and structure that is typical of bureaucratic organisations. Managers working in a society that has a culture and structure pre-occupied with perceiving problems in terms of control, conflict and suspicion will probably keep this dynamic intact (Kersten,2001). This is especially true when a subsidiary with less power and a socialist background confronts its managers.

In conclusion, the premise the researchers formulated is that the objective anxiety employees experience in the banking industry triggers the unconscious anxiety and related defence mechanisms similar to those Menzies (1975) identified in the hospital. On the one hand, financial institutions have to take risks in order to do business. On the other hand, taking risks has a negative influence on the people implementing the risk management framework and their clients. This objective dynamic resembles the unconscious life and death instincts that Sigmund Freud identified and Klein (1959) applied in her development theory. Together with the anxiety that relates to the uncertainty of doing business in a foreign African country, the developing theme is that risk management serves as a social defence against anxiety.

Mechanisms to contain anxiety might put managers in a tricky position. They can deal with the unconscious dynamics by building relationships with employees as well as by capitalising on the human element and the relationships that these employees have with their clients. However, building relationships might increase anxiety because engagement is also a source of anxiety in systems-psychodynamic relationships (Krantz, 2001). This might be especially relevant during the transition phase. Therefore, organisations should introduce mechanisms to reduce the loss of established social defences and consolidate a new, more holistic and realistic way of managing risk.

Managing risk is complex. This article adds another dimension that one must consider. This is that risk management can work against the primary task of doing business by functioning as a social defence mechanism. If one views risk management from a systems-psychodynamic perspective, one could add a valuable element to managing risk. If banks do not take risks, they will go out of business. However, if they do take risks, they might also go out of business if they do not manage the risks in appropriate and holistic ways.