Recently, I spent half a day with a group of corporate directors and C-suite executives, discussing the intersection of risk management and strategy. We talked about big risks facing all organizations, sector-specific risks, and risks related to domestic and international security, the financial meltdown in Greece, cyber threats, natural catastrophes such as the drought in California, and the fight for talent, among other topics.
This led to a robust debate concerning the value of risk management in dealing with real life. The general conclusion: A reasonable amount of good risk management is better than no risk management, but too much poor risk management hurts an organization by encumbering resources, slowing decision processes and giving leaders—and the board and other stakeholders—a false sense of security. I'm confident this will sound familiar to many risk management professionals.
Nimble, meaningful risk-awareness
By the time the session ended, the “wish list” from these executive leaders and board members was pretty simple. In essence, they would like the discipline of risk management to focus on two things: one, helping organizations pursue current and planned opportunities in a nimble risk-aware fashion; and two, helping leaders see the big risks around the corner in time to do something meaningful about them, whether avoidance or mitigation, or better crisis management. This desire to focus on understanding big risks is to be expected, particularly when discussions turn to risks that could cause significant economic or physical harm.
The reality is that corporations face risks of all types and sizes every day. Whether we seek to manage these risks proactively or we just let the chips fall where they may, we will deal with the results eventually. At the organizational level, the risk management process is important and valuable when designed for efficiency, effectiveness, and fit with other corporate disciplines. Entrepreneurial spirit does not thrive in cultures that are fearful of taking manageable risk, or otherwise mired in paperwork and process.
Risk resiliency
In the broader context of corporate governance, robust commitment to the discipline of risk management and the practical aspects of risk resiliency should also enable organizations to fulfill their formal and informal corporate social responsibilities.
What might matter most at this point is the broader discussion of risk resiliency—the ability to act sensibly when presented with new information regarding a threat or an opportunity—and related aspects of decision culture and leadership, including leadership alignment and management/board alignment. When risks are complex and evolving, having a head start in understanding and responding to threats and opportunities can make a big difference in an organization's financial, human and reputational results. In the broader context of corporate governance, robust commitment to the discipline of risk management and the practical aspects of risk resiliency should also enable organizations to fulfill their formal and informal corporate social responsibilities.
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