Corporate Culture
The Problem
Richman & Thames is an investment bank in the City of London. The company was established in 1898 and has a reputation for having a rather conservative risk culture, as its investment strategy is rather conventional compared with those of its rivals. The strategy has led to sustainable growth and has provided investors with an average of 12% return on investment over the last decade.
Richman & Thames currently employs 200 equities traders and 100 currency traders. The company expects its traders to beat the market average but demands that they do so in keeping with the limits of the organisation’s expressed risk appetite.
Due to the nature of the industry, there is a considerable turnover of traders. One reason is that traders leave for employment at rival firms. Another is poor performance. Of particular concern to Richman & Thames are traders who exhibit confidence bias by taking risks that are too great in relation to the company’s expressed risk appetite. They are also concerned with equities traders who demonstrate a risk-prone bias. More often than not, traders with these characteristics are fired. As a result, the company needs to replace 30% of its traders each year. The industry average for trader turnover is 21%.
The company would like to align its turnover ratio with the industry average. Richman & Thames believes it can reduce its annual turnover by recruiting people who fit within the conservative risk culture of the organisation. The problem is that the company cannot narrow the gap because it does not have a tool to identify trading candidates who are a good match.
The Solution
The solution lies in Richman & Thames having the ability to evaluate the risk profile of each individual job candidate. Obviously, the company wants to hire top performers – just like all other firms. But it also wants to select candidates who share the bank’s risk appetite when making trading decisions. Oxford Risk developed a customised Oxford Risk Rating solution for Richman & Thames to identify candidates whose risk profile is a good match for the company’s distinct risk culture.
The Result
Richman & Thames is now able to evaluate the risk profiles of all job candidates and select those who best fit within the risk culture of the bank. By reducing trader turnover to the industry average in this way, it is estimated that the company will save £13,175,000 over the next five years.*
* This figure is derived from an RBS study, which indicates that a wrong hire costs the equivalent of one year’s salary. The figure does not even take into consideration the cost of the lost opportunity had the company made the right hire and employed a high calibre trader – which could reach into the multi-millions.