Mountain High – Risk Management
Every business has a risk profile and corporate culture but I’ve found the most interesting thing in business is working with senior executives. In this short note, I’ll share some of my observations and lessons learnt, with anecdotes, but first I’ll share my thoughts on risk management and hopefully throughout demonstrate just how business critical it is.
Some risk management companies focus on one country; others reach more than one. Some specialise in business sectors; others by disciplines, the list of which includes, but is not limited to, programme and project management, external and internal audit, governance, health, safety environment, loss adjusting, security, asset protection and management consultancy and so on. Our scope is within the law and any boundaries which businesses impose on themselves and there are no tailored solutions because that infers preconceived outcomes. Our work always includes methodologies. We rely on referrals. We sell expertise to individuals, private equity funds and to listed and private corporations and realise our findings affect decisions to buy or sell, enter or exit, hire or fire. Some internalise because they can and that’s a great option. We know others understand risk but we’re eternally grateful few have the time and resources to manage and mitigate them without specialist and dedicated help.
I mentioned working with executives. Recently, a Founder and CEO told me he’d changed his vision for his business because his investors wanted change. His honesty struck me. Where was the ego? There was no need to impress me, but he did. He knew what was needed of a CEO. I’d asked him for advice on behalf of a Client and enjoyed his candidness. He reminded me of an ex-boss who’d coached the need to share what he called ‘coordinates’ and to extract more value from existing assets before investing in new.
Every businessmen knows deals can go wrong but only the best prepare for every outcome. Perhaps leading a climb through a treacherous mountain range is a good analogy; especially so since managing cash means survival and moving in the wrong conditions can prove fatal. To illustrate the point, a retired businessman told a group of us at business school that survival fuelled each of three Boards he’d been a member of. It shocked us because we’d expected the common denominator to be the weighted average cost of capital or pitching dividends with share price or something to do with acquisitions. All three remain global brands today. Each had its own risk profile but each shared that same primary motive, that of survival.
It’s the shareholders’ risk profile which counts or should I also say the risk profile of the CEO is rarely the same as his or her shareholders. They’re generalisations but stock markets exist because people expect to match risk with return. In fact, every senior executive I’ve met, irrespective of their gender, age, or nationality and irrespective of the type of business they run, continually test and press others to create more value and develop options to grow. It’s for that reason the plans with the best yields are approved by investment committees and others are rejected or postponed and why the Founder and CEO I mentioned wouldn’t compromise but would improvise to secure his funding and still deliver.
None of us knows a CEO who’d leave base camp without knowing how to improvise along the way or to cope in crisis. They’ll know the forecast; have briefed the teams; shared the coordinates, tested the basics and believe their judgment to be sound. They know life is not a rehearsal and willingly make the hard calls to descend or stand-down when the risks are too high and when conditions clear to call ‘mountain high’ let’s start our ascent.