From risk management to leadership in 3 steps

What are the most significant choices that need to be made in relation to governance and risk management? Identifying which risks are the most critical? How risks are analysed and evaluated? How controls and risk treatments are applied? How many resources are allocated? Which stakeholders are involved and how risks are reported?

In my view, the answer is none of those – it’s about mindset and worldview. For example, if you or your leaders consider that risk management is primarily a compliance/reporting activity, and something those ‘do-gooders’ in corporate/legal/finance have imposed on you, then ‘ticking the boxes’ is not going to improve the organisation’s risk maturity, your understanding of your operating environment or enable operational improvements.

Even if there is some degree of (gritted) acceptance that risk management is a thing that offers some benefits to your team/project/organisation, other mental hurdles that often have to be jumped include the time you have to find to think about and do risk management, the limited value to be perceived from the process and the perceived lack of broader engagement - e.g. even if my team does it, the organisation doesn’t really value it, no-one reads it and others aren’t doing it, so what’s the point?

Usually this type of reactive thinking leads to risk management decisions that are short-term, localised and likely to be ‘arse-protecting’ in the sense that the problem or risk is appropriately neutralised or hidden rather than actively managed, at least until you or your leader move on to the next job, assignment or project.

This, more often than not, is current day risk ‘management’.

But if you or your team would like to adopt a more pro-active, strategic and longer term approach to the risks and challenges facing your day to day business, then a different mindset is required. That is because the most important risk management decisions are between the ears, not between points on a risk matrix.

Objectivity is a myth. Therefore the first step is to analyse those hidden assumptions mentioned above – not just your perceptions about the value of risk management (or any other policy stance you take within an organisation), but also why you take these views. It is the act of trying to bring such thoughts to the foreground and becoming aware of them that starts to provide some clarity about whether choices about risk (or other choices) are driven by reality or just pre-existing biases.

Without doing the ‘between the ears work’ a risk matrix is no more than a band-aid. No-one can properly ‘listen’ to others about the issues underlying risks unless they have some internal understanding of themselves first – why they might downplay concerns raised by others due to their gender, status, age etc – or prefer the views of others who (surprise!) look and act like them..

And in finding out what makes you tick, what sets you off, what you like and don’t, the aim is not to then move to self-flagellation, but awareness. The idea is to be grateful for unearthing what you find, and to try to ‘decriminalise’ it, so you don’t spend your time either thinking the wrong thoughts about yourself or going back to wilful blindness.

The difference between this awareness and wilful blindness is the difference between driving (a project) with your eyes open or doing it with your eyes shut and fingers crossed.

But why bother? How does navel-gazing help my decision making?

Well, the point about stopping to think about yourself is not to make the decision all about you. It is the opposite - to try and broaden your perspectives.

Once you have some idea of what drives your decision making, the second step is to decide whether you actually want to continue to drive according to your ‘default’ settings. It may well be that your settings are right for the situation, or for you and your team. But how are you ever to know this unless you stop to consider your decision making process?

However, there is another problem in doing this – it is uncomfortable, it raises awkward questions and may lead to the conclusion that you just don’t know the answer.. But if you get to this point, then you are ready for the third step – whether someone else might have the information or be able to contribute to the answer.

This third step involves being open to (world)views other than your own and/or the dominant thinking around you. What types of worldview do I mean? Kathleen Allen[1] identifies four internal worldview shifts necessary for sustainable leadership:

• viewing organisations and communities as open systems rather than controllable closed systems

• viewing individuals, organisations, communities and the environment as connected and not separated

• adopting long-term thinking to allow a deeper understanding of systems instead of being short-term, reactive and profit driven, and

• fourthly, shifting to a reciprocal subject-subject relationship of collective leadership rather than a subject-object controller paradigm.

Allen puts this in more user-friendly language, as set out below:

John and Paul are both CEOs of manufacturing businesses. John is proud of his business and is focused on maximizing profits for his shareholders. He considers himself a self-made man. He uses the river that his business is located by to dispose waste from his manufacturing process. He abides by the legal limits of the contaminants. He wishes the federal government would have less regulation because meeting these standards is costly and decreasing his profits. His business is his and is designed to optimize his income and profits. His employees are expected to be productive and serve his and his business’s needs.

Paul is also the owner of a manufacturing business located on a river. He realizes that his business is impacted by local and global businesses and political, environmental, and social dynamics. He watches the turbulence of the external environment to learn how to adapt to disruptions in his business. He is grateful for all the people in his life who have helped him achieve success. He also uses the river to dispose of waste from his manufacturing process. He abides by the legal limits and even sets higher standards because he understands protecting the environment is how he can ensure his great-grandchildren will have a better quality of life. He sees regulations as feedback that current practices are creating harm and the businesses that are affected by these regulations need to redesign their manufacturing processes.

Paul studied how other manufacturing plants up and down the river were disposing their waste and decided to follow it downstream to see what the combined impact was of all these individual businesses decisions. He found that while all were abiding by the law, the combined effect of their disposal processes was creating a cesspool downstream. This caused him to start a coalition of business owners on this river to change their cumulative impact on the quality of water. Paul is proud of his business and treats his employees well. He knows that nothing can be done in his company without the active support of the people in it. John and Paul’s choices and actions are all shaped by the way they see their world.

This scenario can easily be applied to the private or public sectors, whether it is the financial services sector and the behaviour uncovered by the Financial Services Royal Commission, or the public sector based on reports by the Australian National Audit Office or state auditors-general.

Applying this to more day to day scenarios, it is about:

• Thinking beyond your section, branch, division, group etc to the people and organisations you interact with, thinking more about how they approach their business model, how they are likely to react, how they see you and your team.

• Thinking beyond living in closed world, and understanding that what you do (or not do) affects many things, including intangibles such as culture, behaviour, reputation and relationships

• Thinking beyond everything being fixed in time or short term – there are medium and longer term ramifications in most decisions

• Thinking beyond doing things to people and start doing things with people. For exanoke bringing this mindset to the concept of shared risk suddenly becomes more about actually working with others and sharing responsibility instead of trying to shift (or shaft?) it to them.

Changing your worldview in this way changes everything.

In terms of decision making, it means you actually make decisions with your eyes (and values) open, rather than being driven by reactive and (often) unconscious default setting.

Taking the time to understand yourself and others will also lead to more sustainable decision making – because it is values based, you will apply it all the time and because it acknowledges the contributions of others, trust is built, relationships are strengthened and true collaboration (and maybe even the holy grail of innovation) occurs.
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That is leadership..


[1] Allen, K. (2018). Critical internal shifts for sustainable leadership. In Redekop, B. W., Gallagher, D. R, & Satterwhite, R. (Eds.). (2018). Innovation in environmental leadership: Critical perspectives (pp. 213-224). Routledge.