I’ve written about various aspects of risk including technology, strategy and reputation. And there is a personal aspect to risk management that I find myself continuously facing. As a mother, I tried to apply risk management principles to raising my adolescent children. I found myself trying to talk with them about the difference between controllable and uncontrollable risks. For example, I explained that wearing flip flops to take a public shower while attending the provincial basketball championship is a controllable risk, a choice that can be made. The fact that a door opens resulting in your toenail being ripped out since you had bare feet in the shower is an uncontrollable risk. (My daughter had chosen not to wear flip flops and missed the final game).
Controllable and uncontrollable risks are the heart of risk management. It is important to recognize the role not only of processes, but of people in controlling risks. People are a source of risk found in all business areas, but People Risk is a controllable risk and as a corporate director you can participate in mitigating that risk.
The risk introduced in business by people is unmistakable. I recently posted on the silo effect and its role in cybersecurity. The silo effect is in fact a People Risk, as is the character of the individual members of the leadership team. As an investment fund board member, I know the management team is a key risk and has to be evaluated before making decisions.
A recent book by K. Blacker and P. Mc Connell titled People Risk Management demonstrates the impact of People Risk on achieving strategic objectives. It confirmed my assumption that the BlackBerry demise was in part caused by People Risk: ‘Brilliant technicians that they were, RIM’s board and management had over-reached and they did not ask the hard questions about their product’s future. People Risk, in the form of hubris and overconfidence by the management team, had triumphed over the prudent management of the risk to RIM’s strategy.’
Another striking example of the impact of People Risk on corporate directors is a comment made at a governance course I attended by the very experienced corporate director of a large public company brought down by financial fraud: ‘Had I known that our new CEO was building a $10 million mansion at the same time the company was laying off thousands of people, I would have grown suspicious and asked more questions.’
Because of its oversight role, and Risk Management responsibilities, the board has a key role to play in trying to control People Risk. Here are some of the ways I use on my boards to understand and turn People Risk into a controllable risk, meeting my governance responsibility:
- Know the people that you work with. Take time to know your fellow board members and the management team, both on a business and personal level. At least once a year schedule a social meeting (like a dinner) before or after a board meeting. This allows you to have time to speak with board and management in a more relaxed atmosphere. I also try to have lunch with other board members, and to seek them out at business event that we attend.
- Lead by example to break the silo effect. Set the right tone at the top and promote diversity, transparency and inclusion on the board and in the C-suite. Actively look for diversity of opinion, of culture and of business background. Seek out people that are quiet at board meetings. They may have an analytical, more introverted mindset. Ask to meet a variety of levels of management with different roles to discuss risks.
- Understand the organization’s culture from within, not only through management, and verify if it promotes the right type of behavior from employees. The culture of an organization can be measured and that can lead to interesting discoveries. When I worked at Cardinal Health, the company performed a global culture survey. The results showed that the culture was in part not what management expected, demonstrating the need for change.
- Once a year, include a meeting with the head of HR in your board agenda to discuss culture and other HR related issues that have important impact on business growth and People Risks. Deloitte published an interesting study recently on human capital trends that can inspire subject of discussion with HR.
These are but a few of the measures I take as a corporate director to understand and mitigate the People Risk in my organizations. Please comment and share with me other methods that you use to control People Risk. And remember to stay vigilant because attitudes and behaviors that are the first line of defense against risk also can lead to People Risk.
To comments, go to LinkedIn -published June 22, 2015