LEADING IS RISKY BUSINESS

The massive outage caused by a CrowdStrike software failure. The impact of Hurricane Beryl. Massive wildfires. Ongoing geopolitical unrest in Ukraine and the Middle East. A wildly unconventional U.S. election season after surprises in elections in the United Kingdom and France (all with global implications). Uncertainty around inflation and interest rates. Continued challenges in hiring and retaining top talent. A younger generation expecting business to address social issues and seeking purpose in work.

D you know how much risk your organization faces? And which should be most concerning?

While risk is not new, one of the big challenges for leaders now is navigating risk that is increasing in complexity, severity, and velocity.? For quite some time, talking risk was largely about financial risk. Hedge and mitigate where you can and insure against everything else.

We may now be moving into an uninsurable future. This is most evident in the moves of some property insurance companies to pull out of high-risk markets in the U.S. such as Florida and California (and can Texas be far behind?) because of the cost of severe weather incidents. However, insurance against other risks may be on its way out either because of insurer unwillingness, the high costs for the insured, or simply the vexing nature of some risks: Who could have insured against the Great Resignation?

This means that leaders are going to need to be ever savvier about risk. That’s a challenge given the multiplicity of threat scenarios. For example, if you have an MBA, you likely learned something about financial and reputational risk in graduate school. Weather? Politics? Cyber? Not so much. Experience adds to your knowledge base, but that will be limited by definition.

Here are three ways I have found that leaders can deepen and broaden their understanding of risk and how to work through it:

-??Use daily news to keep your risk perspective fresh. If the Crowdstrike incident or Beryl, for example, directly affected your operations, you understand the impact. If they’d didn’t, it can be easy to dismiss them because there’s always a lot on your plate. Instead, ask about your enterprise software or severe weather risk. Run an informal discussion with your team about your readiness. There are events every day that can prompt a provocative discussion about a range of risks,

-???Ask throughout your organization, “What keeps you awake at night?” Large organizations often have sophisticated risk functions. However, every risk operation has limitations, biases, and blind spots. I have found that asking frontline and mid-level employees as well as functional unit heads outside of the risk team about their concerns can be revealing. There’s helpful knowledge and perspective that may not be tapped by risk professionals.

-??Get facile running multiple future scenarios. It can be easy to assume relative stability or miscalculate risks with which you are not familiar or comfortable. Is first-mover advantage worth it if you have to push out an imperfect product? How much are the tax benefits of a certain locale worth if your facilities or your employees’ homes are difficult to insure there? Engaging in “what if” exercises helps frame the future as uncertain and primes you to consider how to adapt.

I don’t see the challenges of complex risks going away. Perhaps it is time to step up how we train leaders to handle it.

How do you approach risk as a leader? How do you find the sweet spot that is neither overly cautious or foolhardy?