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. The COVID-19 pandemic is yet another test of humanity’s progress in building enterprise-wide approaches for managing risk. The question now is whether the post-pandemic era can serve as a hinge in history that sparks a repurposing and reframing in the field of Enterprise Risk Management.
“The global pandemic is a hinge in history. Hundreds of thousands of lives lost globally; trillions in economic damage. It is as if the 1918 flu and the 1929 crash happened in the same year. It is the kind of event that alters the course of history so much that we measure time by it: before the pandemic - and after. . . .
Periods of vast transformation require will. It’s not an accident that these periods most often coincide with hardship. Crisis has a way of synchronizing our commitment to a mission; it strengthens our resolve. The Space Age was characterized by the imperative of space exploration. And by leaders willing to name it, catalyze it and inspire us to reach it. . . .
This might sound impossibly ambitious but new ages are not new. Whether harnessing the power of seeds to give birth to an agricultural age or harnessing the power of steam to ignite the industrial age, humans have proved at critical moments that we have the ability to set a new course with new tools and new technology, resilience and tenacity. . . .
None of this work is beyond our capacity. At this moment in time, at this hinge in history, there is little question of whether we can build a . . . [Risk Management] Age. The question, instead, is whether we will.” - Regina E. Dugan, Sputnik set off the Space Age, This Virus Can Spark the Health Age, The Washington Post, July 26, 2020.
In his book “Orthodoxy” published in 1908, G.K. Chesterton, a British philosopher, made the point that you can’t paint a fence post white once and think that the job is done. “If you particularly want it to be white you must always be painting it again. . . . Briefly, if you want the old white post you must have a new white post.” (G. K. Chesterton, Orthodoxy, Chapter VII - The Eternal Revolution (John Lane Company, 1908). So it is with risk management. For the past 12 years, The ERM Initiative at North Carolina State University’s Poole College of Management has published its annual report on the state of ERM practices with the same dismal finding that risk management is not seen as adding value to an organization’s success. This should not be surprising given that much of the focus of the nascent field of ERM has been on the periodic compilation and review of a list of bad things that might happen to an organization. (More information on the risk management surveys conducted at North Carolina State University’s Poole College of Management).
Improved senior leadership is necessary for ERM to become effective at helping an organization act as a cohesive community capable of meaningful collective action. Organizations are social bodies - that is they are comprised of people who need to feel that they are part of a common enterprise that has a shared destiny. Endless discussion of how to lessen the probability and severity of bad things happening creates distrust, suspicion and alienation. Even worse, this approach to risk management causes people to think more about what’s right for them as individual employees more than what’s right for the organization and the people it serves. If you distrust other people because you think they have bad motives or are out to undermine you, then you will be slow to reach out to them to pursue opportunities or solve problems.
As Mark Twain joked, a cat that never steps on a hot stove (negative risk) might never do it again but the cat might also never step on a cold one either (positive risk). In other words, it’s human nature that we scare easily and absent good leadership, we can stay scared a long time.
We live at moment where we can we outgrow current ERM practices that unintentionally produce widespread risk aversion. The key will be whether enough senior leaders are willing to build institutional capacity to take positive risk that can deliver enormous societal benefits (e.g., producing vaccines, addressing climate change etc.). For that to happen, a change in mindset has to occur in that risk management must align more with disciplines such as organizational development that promote a sense of peoplehood and belonging. In other words, in the absence of relentless building of institutions and relentless persuasion, people are apt to adopt a “the only person you can trust is yourself” mentality which thwarts collective action.
Let me state this differently. Risk management won’t be effective if it is seen simply as a source of technical solutions to managing challenges (i.e., buying and administering insurance programs). The challenges we face are also people-oriented. Take the current pandemic for example. Scientists invented amazing vaccines in record time; the challenge was how quickly and effectively the world could produce and dispense them. The same is true with climate change - scientists have developed technologies that produce energy with little pollution but we have not summoned the collective will to implement these technologies.
What kind of leadership is needed to develop the field of ERM? At least three qualities are required and they are evidenced by our previous discussion of three leaders who helped the world eliminate smallpox. The first leader is Lady Mary Montague whose public confidence in variolation paved the way for the field of vaccination to come to life. The second leader is Edward Jenner who embodies the importance of planning through his insistence that existing variolation procedures become a new field of infectious disease and vaccination that would be based on evidence gathered through scientific research. The third leader is Albert Schweitzer whose empathy was foundational to his belief that the potential for human progress must be rooted in a reverence of life of every form. In the next three sections, we will explore how these three leadership qualities are essential to helping ERM become a more effective and relevant business discipline.
Periods of vast transformation require will. It’s not an accident that these periods most often coincide with hardship. Crisis has a way of synchronizing our commitment to a mission; it strengthens our resolve. The Space Age was characterized by the imperative of space exploration. And by leaders willing to name it, catalyze it and inspire us to reach it. . . .
This might sound impossibly ambitious but new ages are not new. Whether harnessing the power of seeds to give birth to an agricultural age or harnessing the power of steam to ignite the industrial age, humans have proved at critical moments that we have the ability to set a new course with new tools and new technology, resilience and tenacity. . . .
None of this work is beyond our capacity. At this moment in time, at this hinge in history, there is little question of whether we can build a . . . [Risk Management] Age. The question, instead, is whether we will.” - Regina E. Dugan, Sputnik set off the Space Age, This Virus Can Spark the Health Age, The Washington Post, July 26, 2020.
In his book “Orthodoxy” published in 1908, G.K. Chesterton, a British philosopher, made the point that you can’t paint a fence post white once and think that the job is done. “If you particularly want it to be white you must always be painting it again. . . . Briefly, if you want the old white post you must have a new white post.” (G. K. Chesterton, Orthodoxy, Chapter VII - The Eternal Revolution (John Lane Company, 1908). So it is with risk management. For the past 12 years, The ERM Initiative at North Carolina State University’s Poole College of Management has published its annual report on the state of ERM practices with the same dismal finding that risk management is not seen as adding value to an organization’s success. This should not be surprising given that much of the focus of the nascent field of ERM has been on the periodic compilation and review of a list of bad things that might happen to an organization. (More information on the risk management surveys conducted at North Carolina State University’s Poole College of Management).
Improved senior leadership is necessary for ERM to become effective at helping an organization act as a cohesive community capable of meaningful collective action. Organizations are social bodies - that is they are comprised of people who need to feel that they are part of a common enterprise that has a shared destiny. Endless discussion of how to lessen the probability and severity of bad things happening creates distrust, suspicion and alienation. Even worse, this approach to risk management causes people to think more about what’s right for them as individual employees more than what’s right for the organization and the people it serves. If you distrust other people because you think they have bad motives or are out to undermine you, then you will be slow to reach out to them to pursue opportunities or solve problems.
As Mark Twain joked, a cat that never steps on a hot stove (negative risk) might never do it again but the cat might also never step on a cold one either (positive risk). In other words, it’s human nature that we scare easily and absent good leadership, we can stay scared a long time.
We live at moment where we can we outgrow current ERM practices that unintentionally produce widespread risk aversion. The key will be whether enough senior leaders are willing to build institutional capacity to take positive risk that can deliver enormous societal benefits (e.g., producing vaccines, addressing climate change etc.). For that to happen, a change in mindset has to occur in that risk management must align more with disciplines such as organizational development that promote a sense of peoplehood and belonging. In other words, in the absence of relentless building of institutions and relentless persuasion, people are apt to adopt a “the only person you can trust is yourself” mentality which thwarts collective action.
Let me state this differently. Risk management won’t be effective if it is seen simply as a source of technical solutions to managing challenges (i.e., buying and administering insurance programs). The challenges we face are also people-oriented. Take the current pandemic for example. Scientists invented amazing vaccines in record time; the challenge was how quickly and effectively the world could produce and dispense them. The same is true with climate change - scientists have developed technologies that produce energy with little pollution but we have not summoned the collective will to implement these technologies.
What kind of leadership is needed to develop the field of ERM? At least three qualities are required and they are evidenced by our previous discussion of three leaders who helped the world eliminate smallpox. The first leader is Lady Mary Montague whose public confidence in variolation paved the way for the field of vaccination to come to life. The second leader is Edward Jenner who embodies the importance of planning through his insistence that existing variolation procedures become a new field of infectious disease and vaccination that would be based on evidence gathered through scientific research. The third leader is Albert Schweitzer whose empathy was foundational to his belief that the potential for human progress must be rooted in a reverence of life of every form. In the next three sections, we will explore how these three leadership qualities are essential to helping ERM become a more effective and relevant business discipline.
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