In focus: Risk, resilience and leadership

21 Jul 2014

Risks are becoming ever more interconnected. How can leaders make their organisations truly resilient while also grabbing opportunities?

Versions of this article appeared in the Institute of Directors publication, ‘Responding to Global Risks’.

The World Economic Forum’s annual paper on global risks makes for scary reading. Its pages describe a world where risks are strongly connected and pose threats that have deep, systemic impacts. It also outlines gaps and uncertainties in companies’ ability to respond. At best, many companies can simply put out the fire. They can’t always prevent it from starting, and they certainly can’t press ahead, confident in their ability to continue performing, all the while dousing the flames.

The paper says that to begin building a resilient organisation, leaders should ask themselves four questions: what are the top five risks facing my organisation? Which of our assets are exposed and how vulnerable are they? What actions can address these risks relative to what is being done currently? What support is needed and from whom?

As a starting point, coming up with the top five risks that your company faces is likely to leave you with a list of specific events that could wreak havoc: cyber attacks, floods, fiscal crises. But the effects of one overarching risk will linger long after the others have run their course: reputational risk. What happens to a company’s reputation when risks become reality? And what can companies do to protect themselves?

A company’s reputation is built on trust. An undermining of that trust that can destroy your business model. Customers might flock to other providers; suppliers suddenly don’t want to be seen standing next to you; no-one trusts you with their data or their money. Reputation goes right to the heart of the organisation.

The ability to deliver on promises to customers, employees, investors, regulators and the media is the foundation of that trust and consequently of the organisation. It’s hugely important for the board to make sure that the company’s purpose, vision and values align with current societal values and are carried out by their employees. It’s no good having a corporate purpose that isn’t aligned with cultural norms, even if it is followed by your employees. And the opposite is true too. It’s admirable to have an ethical vision for your company but useless if your employees don’t ‘get it’ or aren’t invested in implementing it.

But these are less concrete things that we’re talking about here. Some would argue that it’s hard to know exactly what society believes is within the bounds of decency until you cross the line. And how can you set clear behavioural expectations so that your people can espouse your purpose and values?

More and more organisations – especially banks – are opting for ‘cultural assessments’. Diving into the cultural reality of the day-to-day operations of a company allows you to build address areas of concern. Behavioural change programmes will have a stronger impact if you know your audience. For example, a common concern is leadership visibility – so reinforcing to leadership the need for their presence both face-to-face and on social media is important. And one size won’t fit all: obviously you need to focus on the behaviours that most resonate with the organisation.

Having a look at history can tell you how values have changed and might offer a few lessons as to how they might shift in the future. A ‘yesterday, today and tomorrow’ lens can help companies remain aligned to their own and society’s values.

But it isn’t all introspection and worry: those who look at risks and build resilience can grab opportunities. Planning for the opportunity as part of the risk management might mean you cannot only adapt and survive, but thrive too.

It’s important to take a broad approach to enhancing the long-term sustainability of the organisation. Designing solutions on a risk-by-risk basis won’t help companies prepare for the unexpected.

Resilience is a quality – much more than the sum of the risk management parts. It can be created and depleted by everyday decisions and behaviours, as well as strategies. But how can a company promote resilient behaviours that percolate through the whole organisation?

Leadership is the starting point. A good leader understands the business best – what networks it relies on and under what circumstances it thrives or struggles. A good leader can also empower staff to take ownership of their actions. And a good leader can empower the employees carry out the purpose, while the public, regulators and investors allow its continued operation.

Measurement is also key. It’s hard to quantify the less tangible qualities associated with corporate culture or vision. But striving to understand culture means that companies can assess where their greatest risks are, address them and judge what the impacts might be.

Tackling the possibility of individual risks is important, but a broader approach that looks at agility and adaptability can present great opportunities.