A Management-Control Perspective on Risk Management: The Complementarity between Risk-Focused Results Controls and Risk-Focused Information Sharing

In this study, I investigate how companies design risk-focused control systems in a way that aligns employee risk-taking behavior with overall organizational goals. To investigate how firms go about this control problem, I consider risk-focused results controls (i.e. expanding results controls by risk aspects) and risk-focused information sharing (i.e. fostering risk dialogue). When companies design risk-focused control systems, they face a dilemma. Firms on the one hand need to keep employees in line by monitoring goal attainment and risks taken, but on the other hand they also need to make sure that employees still have leeway to search for novel solutions and emerging opportunities. The difficulty to balance control and empowerment is reflected in the use of risk-focused results controls. While overly emphasizing the use of risk-focused results controls might lead to a loss of flexibility among employees, no use of risk-focused results controls might cause excessive employee risk-taking at the firm’s expense. I argue theoretically and show empirically that companies go about solving this control problem by jointly using risk-focused results controls and risk-focused information sharing. Moreover, drawing on complementarity theory I predict and empirically show that risk-focused results controls, risk-focused information sharing, and an active growth orientation form a set of complementary firm choices. This implies that two choices together reinforce each other stronger with an increasing use of the third choice variable. Using data from a survey of 202 companies, I find empirical support for my hypotheses