Are you being a reckless leader without realising it?
Can you lead a risk or assurance function if you don’t have access to a good futurist? Can you be a prudent leader or Director of an organisation if you don’t have deep insight on the next round of evolutionary change?
Evolutions in corporate governance tend to follow waves of corporate collapses. The Savings and Loan Crisis in the US spawned the Treadway Commission and some great thinking in internal control models. (1)
The next round of collapses pushed this beyond the banking sector, and then over time as thinking evolved and organisational distress continued to occur the risk management game started to take hold.
In the late 90’s I was one of the leaders of a global movement to introduce risk based thinking into assurance processes, working with some of the world’s largest corporates and their advisory teams in 40+ countries around the world. At the time the thinking was considered evolutionary, and today is the global norm, but in my mind always fell quite a way short other than waking up a number of sleeping giants in assurance and board advisory roles.
In fact, studies now tell us that large causes of value destruction are rarely what people in assurance functions were focusing on, and seemingly came out of left field. The disturbing thing about this is that people in assurance functions have been drawing largely on the organisation’s risk management processes and risk management models, which means those organisational risk intelligence systems are deeply flawed in providing advance warning on discontinuous change and the potential for large scale value destruction.
I’ve come the the conclusion that connecting assurance to risk was only the first step and there is a long way to go. Assurance and risk must be tied to strategy, and all three processes must be driven based on strategic insight. Alas, this seems to rarely occur in practice:
- Business planners still develop business plans based on incremental margin enhancement, expansion into someone else’s verticals, or buying someone else’s market share
- Risk ‘experts’ still use insurance based actuarial models, outdated econometric models or run around doing risk workshops to summarise the issues which are already known and being managed
- Assurance professionals try to move up the value chain and then somehow end up checking up on the accounting departments and IT systems
One of the early steps in developing a resilient organisaton is to make sure your risk intelligence is very solid and feeding into each of these functions as well as the thinking of senior management and the board, which is of course where we come in. To find out more, click here.
(1) - in particular my old friend and mentor Jack Rose’s work with CoCo in Canada.
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May 28th, 2008 at 10:47 pm
Having just completed the Company Directors’ course (AICD), it was interesting to see the same guy that covered the risk module was covering strategy, and the perspective was that they were very much interlinked.
Having been in one of Larry’s workshops, I liked the immediate and emergent conditions thinking which forced up to separate the immediate issues from the the ones that were coming to kill us in 2 or 3 years.
I met Professor Bob Garrett earlier this year and really liked his thinking on governance. Whilst he doesn’t refer to it as resilience, he does believe in board and management keeping a scan on what is going on in the markets and how it affects your business. See my post for more the conversation I had with him http://justindavies.com.au/2008/03/19/the-fish-rots-from-the-head/
Look forward to more from you guys on this…
Kind regards
Justin
May 29th, 2008 at 12:53 pm
It seems Bernie Fraser, former Governor of the Reserve Bank of Australia agrees with us in today’s edition of the Age (Melbourne’s leading broadsheet). He calls for a re-think on inflation and points out possible secular shifts in financial markets.
What is particularly pleasing is he makes a number of the same arguments that we’ve made in our piece on Strategic Risk Intelligence. It’s almost as if he heard our call “does anyone really believe that increasing interest rates will fix inflation which is driven by underlying issues in energy, infrastructure, food, oil and water? ”
The piece in the Age can be found here.
October 26th, 2008 at 11:19 pm
[...] Now we can’t say we foresaw what happened, nor that we have the solutions, but what we can say is that winners and losers will be determined by those with strong knowledge of conditions and aspects of the resilience model baked into their business or cause. If you haven’t assessed the resilience of your organisation or cause, you may be a putting them at risk, and perhaps joining the list of leaders being held to account as being reckless. [...]