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Purpose – The purpose of this paper is to test the effect of psychological safety and participative leadership style on risk performance as well as its interaction with enterprise risk management (ERM) processes to evaluate if a decentralisation in the form of a safe environment and participative leadership style enhances or crowds out the effect of a centralised-ERM process. Design/methodology/approach – Based on a survey among top-500 Danish companies, the paper tests in SEM the relationships between ERM, participative leadership style and psychological safety on risk performance Findings – The paper finds that not only do both ERM and participative leadership style enhance risk performance but a positive interaction effect is also found. In addition, the findings suggest that a safe environment precede participative leadership style indicating this as a prerequisite for management to introduce participative leadership style. These findings underpin that an effective risk management system should include both a holistic, formalised ERM system and organisational initiatives that enhance a strategic responsiveness through employee involvement. Originality/value – The current study provides new empirical insights about the effect of a formal ERM process on risk performance as well as cultural factors for ERM success. As something new to the risk management literature, it draws on leadership and employee voice theory and investigates participative leadership style and psychological safety for employee voice as contextual influences on the effect of a formal ERM process on risk performance.
Sax et al. (Mon,) studied this question.