We live at a time when humanity is steadily moving away from riskier forms of self-sufficiency to safer and more productive forms of mutual interdependence. This article explores the mindset needed to build organizations that use enterprise risk management to support and encourage innovation and growth.
The COVID-19 pandemic is a reminder of the importance of evolutionary biology which includes the study of how biological and ecological systems respond to attacks from parasites that exploit weaknesses in a system to enter, grow, and propagate. The same concern exists in the business world given the fortunes spent on cyber-security and crisis management. Today, an individual with a $500 laptop, a $25 a month Internet service plan, and a YouTube account can create a larger potential audience to spread a crazy conspiracy theory that is more impactful than fact-based broadcast emanating from a multimillion dollar (albeit 1990s era) television studio that is supported by a large newsroom, expensive cameras, an experienced research staff, transmitting equipment, and a FCC license. The point is that if we don’t know what to believe or who to trust, uncertainty can make it seem like everything is terrible and that we are drowning in a sea of pessimism.
Consequently, an important role for leaders and the nascent field of enterprise risk management (“ERM”) is to put truth into the world in way that defines and promotes the pursuit of the common good. Psychologists and behavioral scientists refer to this as helping organizations develop cognitive immunity which at bottom means our ability to sort out facts from fiction. If we lack the ability to think rationally and problem solve based on shared facts, it’s difficult to innovate and create solutions to our biggest challenges. In other words, the absence of shared truth makes it even more difficult to act in a manner that increases the probability and magnitude of good things happening (i.e., pursue positive risk). Consequently, cognitive immunity based on truth is an important pillar of ERM.
Previous sections cited the work of Matt Ridley (How Innovation Work, and Why It Flourishes in Freedom (2020)) and the importance of developing a culture of innovation. Ridley teaches us that innovation is often a hard slog that requires years of guess-work, experimentation, and learning. People need the opportunity and room to make unexpected discoveries and they need a supportive environment and stamina to gradually develop their ideas into useful products and services.
Why is the current state of ERM so bad at supporting innovation and helping organizations increase the possibility and magnitude of good things happening? How did we lose that childlike sense of wonder, inspiration and curiosity that is foundational to lifelong learning, critical thinking, and good decision-making? Put differently, how can we recapture the energy of our youth when we would try to figure out how their world works and recharge our ERM practices so they help keep our organizations on a path of inquiry, ideas, and innovation?
A great deal of the answer about how to build cognitive immunity lies in the 2018 book entitled Factfulness - Ten Reasons We’re Wrong About the World - and Why Things are Better Than You Think. The principal author is Hans Rosling, the Swedish physician and academic who became famous for teaching the world how human potential and progress depends on our collective ability to become better fact-based thinkers. Rosling asserts that without a fact-based mindset and worldview, we will remain in thrall to misconceptions that the world is worse than it actually is and that such misconceptions keep us from making good things happen (aka taking positive risk). As an example, Rosling explains how many Western businesses still operate according to deeply rooted, outdated, and distorted worldviews that are not fact-based. These misconceptions include not recognizing that the world market of the future will be growing primarily in Asia and Africa and how not realizing this negatively impacts current practices involving employee recruitment, production, and investment. Rosling further argues that a fact-based worldview is necessary to cope with globalization as an ongoing process. For example, the textiles industry which had previously moved from North America and Europe to Bangladesh and Cambodia will shift again to African countries. And unless Bangladesh and Cambodia recognize that their increasing wealth requires them to diversify, they too will experience the turmoil previously felt by Western countries who went through the same transition.
So why are humans naturally unskilled at being fact-based thinkers and how can ERM help? Rosling explains that we are born with a dramatic instinct and that fact-based thinking is a learned behavior that all of us need to master, whether we are business executives, policy experts, or laypeople. All of us are pre-programmed with the dramatic instinct that helps us make snap judgments about how best to respond swiftly to possibly dangerous phenomena. Consequently, we devote a lot of mental energy to thinking about things that are going wrong or could go wrong which causes us to develop biases and distorted perceptions of the world. It’s why we are interested in gossip and dramatic stories (think about our ancestors sitting around a campfire) as they used to be the only sources of news and useful information. Similar to learning to control our instinctual cravings for sugar and fat that were once life-saving sources of energy when food was scarce, so too must we learn to control our appetite for drama so we can see the world as it is and all the possibilities that it holds.
Rosling’s book should be part of every ERM program as we look for help on how to build organization-wide cognitive immunity. Three of my favorite skill-building exercises involve the concepts of single perspective, blame, and urgency. A good ERM program will help people to embrace diversity of thought and to actively consider contradictory views and opinions. Similarly, root cause analysis is far better than blaming problems on the proverbial “bad guy.” Finally, be wary as well of the activist mindset that cultivates unnecessary urgency which, in turn, generates fear, impedes logical thinking, and increases the likelihood of rash actions and unintended consequences.
ERM programs that help develop cognitive immunity are going to be in great demand. The current pandemic is accelerating massive changes to the nature of work, workplaces, and the workforce. As globalization of products and services continues, building diverse but tight-knit teams that can work-learn, work-learn, work-learn over and over together will be a huge priority. This means that the future of ERM will be about helping people develop comfort and security so they will speak up, share their thoughts, and be willing to put themselves out there without fear of the consequences of being wrong. And when people feel comfortable to try new things and to figure out what works best, empowerment and protection afforded by cognitive immunity ensues. This is the future of ERM - building the norms, customs, and practices to create and sustain cognitive immunity - and it’s exciting one!