In August 1987, my father, a small business entrepreneur, arrived home after work, and announced that we were moving to Australia.
This announcement served as my first exposure to risk management from an entrepreneur's perspective.
My father was regarded as crazy for uprooting the family and leaving apartheid South Africa Why put your family at risk?'
He replied with equal conviction, 'I see opportunity for a better life, a better future and equal opportunity'.
Entrepreneurs focus on opportunity and then consider risk.
This mantra has formed my values in risk management, and one that I have tried to instil in all those with whom I come into contact.
I have moved my career from federal government to large corporate, across financial services, energy and transport, to telecommunications in a start-up.
This article outlines my observations as a risk management practitioner, and shares insights from a career transition from chief risk officer to chief executive officer.
PERSONAL INSIGHTS OF MOVING FROM CRO TO CEO
I spent a lot of my career wondering how corporates survive in changing times.
I believe that some large corporates don't survive due to a lack of leadership and risk taking.
I contend that leadership can be over complicated and lack regard for, and application of, basic human values.
Unfortunately some CEOs focus on how the entity can serve them, rather than being the servant of the company, its customers and its people.
I have witnessed instances where risk aversion is the norm, strategy is not understood, and boards do not fully understand the way to guide an organisation towards its stated vision.
So how did I go about developing these two core capabilities, leadership and risk taking?
One of the most important and non-negotiable discussions I have with every one of my leaders and team members relates to ensuring that we understand each other's 'core values'.
This discussion sets a foundation for building effective relationships, and is the quickest way to establish mutual respect and trust, if done sincerely.
It also gives the truest insight into the other person if you listen.
So what happens in practice? some leaders don't have values based discussions, don't demonstrate acceptable behaviours, don't call out inappropriate behaviours, remaining in the ivory tower and are more concerned with salaries, travel perks and benefits, than the wellbeing of their people.
Leadership does not have to be complicated what a team expects from a leader is aligned values, clear expectations and support.
People prefer to work with those that they trust and respect. The key role of the leader is to earn the trust and respect, and set the environment for that to spread.
RISK TAKING CULTURE
I developed risk management capability through early adoption of the Australian Standard on risk management, which is recognised internationally, through the subsequent release as ISO 9001.
The true innovation in risk management came from employing risk taking behaviours that I gleaned from talking to some of Australia's leading entrepreneurs not large corporate leaders.
While I value my large corporate experience, I found the key elements of leadership and risk management behaviour were lacking. I have spent a considerable time training people on risk management.
The ISO definition of risk is the 'effect of uncertainty on objectives' and I maintain that 'without objectives, you have no risk'.
RISK MANAGEMENT FUNDAMENTALS
Foster a risk taking 'entrepreneurial culture' simply get people focused on objectives that support the execution of strategy, first and foremost.
Do not assess risk until commercial objectives are understood this is the single biggest failing in risk management.
Do not consider risk out of context. I have seen too many risk management discussions focus on risk, while the objective is not yet defined. As an example, I was contacted by a senior leader asking for risk management assistance at a corporate entity, after he had secured $10M seed capital for a project and wanted to do a risk assessment although he had not yet determined the objective of the project.
Another mistake occurs when undertaking a risk workshop, the focus should be on getting the team to understand the outcome that must be delivered to create customer or shareholder value instead of asking what is the risk. Setting the context is critical before considering risk.
Risk workshops are becoming 'inaction sessions' where the focus is on reasons why 'we can't do it', versus defining clear goals, and working on options towards achieving the goal first. I encourage people to spend 70 per cent of the time defining the value case, and 30 per cent on the risk management process.
Board approved risk appetite
A cornerstone for effective risk management is to guide the board in articulating its risk appetite.
Do boards know the organisation's risk appetite? Honest boards will acknowledge that they don't know how to define risk appetite.
It requires a structured approach that extracts risk/ return scenarios that reflect strategic objectives and then solicits a risk/ return trade-off that directors must select.
In my experience, this simple exercise consistently demonstrates that directors choose options that contradict the stated strategy, and highlights the lack of a common understanding of strategy.
Strategy informs risk appetite and vice versa, so it is important that risk appetite is revised to align with strategy formulation.
I am passionate about this component and work with boards on a pro-bono basis to assist.
Educate and apply
Educate and train stakeholders in risk taking behaviours/mindset.
A structured three-hour training program administered by the CRO builds risk management capability, relationships, gains business insight and intelligence, and positions the risk function to assist on a prioritised basis.
Many believe they understand risk management, what I have found across the 1,500 people that 1 have worked with in my training sessions, is that the overwhelming majority of people have never started with objectives.
When we work through a syndicate style case study method, most people walk away with a changed mindset and behaviours of how to manage risk.
This is a key leadership capability that is not understood, nor applied, without proper training.
I have run volunteer sessions for interested stakeholders to address the lack of proper training in risk management.
Ditch the checklist approach and software investment, and focus on culture checklists stop people thinking, and software makes risk management bureaucratic.
I always say, encourage independent thinking and design systems that achieve objectives.
Do not get lost in a risk management system an all too common occurrence.
ENTREPRENEURIAL RISK TAKING
The key difference between entrepreneurial and corporate risk is best conveyed in the following themes, as I have experienced:
- Entrepreneurs focus on customer outcomes/objectives, and only then on risk-taking behaviours
- Large corporates focus on risk management, rather than risk taking
- Entrepreneurs focus on achieving objectives, corporates focus on managing risk
- Entrepreneurs encourage opportunity seeking behaviour, while corporates encourage risk averse behaviours not withstanding the above, it is important to note that startups represent the entrepreneurial spirit that can be dampened by large corporate mentality, specifically, my gap analysis shows where the divide is greatest.
ADVICE I IGNORED AND WHERE IT TOOK ME
- 'You will never amount to anything based on the colour of your skin' South African apartheid regime
- 'Without banking experience you will never get into the financial services industry' recruitment agent advice before I landed a job with Suncorp.
- 'You are too nice to be CEO' various colleagues who perceive that to be CEO you need to be a 'bully'
I am inspired by entrepreneurs who go about providing customer solutions. I promote proper risk management behaviours across all business people and share my intellectual property for the benefit of the practice of risk management.
Similarly, I champion merit based ethnic diversity in leadership positions across Australia.
Education has allowed me to benefit from standing in some of Australia's leading boardrooms and be given a voice.
I have worked in a volunteer capacity with CPA Australia to encourage students to consider the merits of studying a career in finance, business and accounting.
The dynamic energy and enthusiasm evident in startups is something that I would like to see replicated in corporate Australia. Australia has an amazing opportunity to position itself as a hub for entrepreneurial activity.
To that end, I recommend startups adopt a large corporate and help them reinvent their strategy and execution, including their leadership, risk taking and focus on customer. I believe that corporate Australia can learn from startups and improved their leadership and risk management.
This can be achieved through seeking mentoring support from a startup and even spending a day in a startup.
My father would be proud to know that his legacy (opportunity versus risk) lives, and resulted in me listing a startup on the Australian Stock Exchange (ASX) on 4 June, 2015, his birthday.