Wednesday, March 21, 2012

Governance,Gravity, Risk and Jack Rabbits

The word "Risk" has baggage, unless your name is Jack and you can run at a speed of  72 km/h. 

When we think of risk, we think of bad things.  But risk is not bad. Risk is risk. Sometimes you have to take a risk to reap the rewards.  That is the definition of competition, after all. Nobody ever accomplished anything sitting on the couch. Sometimes you have to take a chance. Sometimes you have to take a leap of faith.  

I was reminded of this today as I was driving down the street when a jack rabbit, in full momentum raced across the intersection as I was approaching it.  He was fully tucked, ears back and fully committed to crossing the street.  I saw him, as did the other drivers, and we gave him the right of way.  I thought, now that's what you call taking a risk and having faith.  

But in governance and business, faith doesn't always cut it.  That's where Enterprise Risk Management  comes in.  

ERM is the responsibility of the Board of Directors. It is one of the tools used to inform direction and provide oversight in the achievement of the direction.  And like all things in governance and gravity, what comes up, must come down.  The question is how.  

I implemented an integrated ERM program for a gaming organization.  I researched the industry best practices in ERM and talked to the experts both here in the business community and abroad. My goal was to implement ERM as an integrated function within the organization's governance framework. 

So I began at the board table where the responsibility for the enterprise lies.  My first step was to review the Board of Directors Terms of Reference to ensure ERM had a strategic home.  The Board approved the changes, including assigning the responsibility to a committee.  

From there, the work was focused on creating the program, including the policies, processes and tools. In doing so, I found that education and communication were the first priority because  ERM is a conversation about what could happen, how to take advantage of the opportunities, and how to minimize the threats. 

Establishing a language as part of the process helps to define the words and guide the conversation to reduce the impact of making emotional decisions, or decisions not based on the best information available. 

Inevitably, emotions enter the room with risk is on the table. At that time, it is important to step back and remember that risk is just that.  It is not fear. It is an event that could happen.  "It could rain tonight".  Fear of getting wet or of lightening is the emotional attachment that we bring to the table. 

Moving through the strategy and ERM continuum is an evolutionary process and takes practice.  If an organization's leadership team is fear based and reactionary, then fear will be a motivator.  Fear is not rational, so running an organization with fear leads to some irrational decisions. The other extreme to the fear based culture is that of empathy and arrogance.  Some times, people view the risk discussion as fear mongering, so their minds are also closed to the possibility. Neither is good. 

The facilitator of the process has to take the conversation away from the emotion and into the facts. That's why it is valuable to integrate strategic planning and ERM. The strategy conversation is about possibility and change. And those tend to be good things.  So weaving the "what could happen that could impact our strategy" question into the process helps to soften the fear factor.  

Having the conversation about what could happen, and then backing it up with facts, trends, probability and impact is a good thing.  When we look at the world through a different lens it is like looking at something from someone else's perspective. We usually learn something that we did not know, and we broaden our strategic horizon as a result. 

There are no guarantees in life and in business. We do the best we can and use the best information possible to make the best decisions.  But letting fear into the decision will only limit  possibilities. Think of the Jack Rabbit.  He went for it, and we got out of his way.  Smart rabbit. 

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