It is interesting how sometimes business imitates life. In life, opposites often go together, pleasure and pain, love and hate. It’s the same in business as nothing is more evident than how opportunity goes with risk.
Risk and opportunity are two sides of the same coin. Great boards of directors will be able to manage both sides. If boards are motivated to define their risk appetite, they should also focus on their opportunity appetite, thus ensuring to always have both perspectives to guide their strategic decisions.
I was reminded of this at a recent conference by André Perrault of PCI, a compensation consulting firm, on board remuneration. Board remuneration creates the opportunity to attract qualified board members that contribute to the success of the business and makes them accountable. However, it also bears the risk of influencing their decisions for short term earnings per shares instead of strategic initiatives if not properly balanced.
I also recalled the presentation at the 2012 RIMS Canada Conference by Hans Lessoe on LEGO’s risk management strategy. He spoke on how increasing the level of discussion on risk management at the board level had lead to questioning if they were taking too little risk in some areas, thus missing out on certain business opportunities.
Boards should be spending almost equal amount of time analysing opportunities and risk. Most boards discuss risk reviews and follow mitigation plans but do not spend enough time planning for opportunities. A balanced board needs to have a balanced approach - not one or the other. A great example of this is the strategic decision to launch but then discontinue Google Glass. Google was willing to explore the opportunity of new interface technologies and test out the market to get feedback at the risk of needing to retire temporarily to improve the product. They found the opportunity outweighed the risk.
Opportunity management is not as organized in many corporations as risk management. Boards need to spend time focusing on an opportunity plan to take advantage of growth potential. Is your board missing out on growth by spending too much time on risks and not enough on opportunities?
To comment, go to LinkedIn - published March 28, 2015