Aside from the normal challenges that everyday businesses face, risk is the single most demanding factor because of its ability to destroy value, ruin reputation and even bring a company down. In the wake of a global financial crisis, we have even less room to gamble with risk, which is why many businesses are taking proactive steps to detect and correct fraud, errors and safety breaches before they spiral out of control.
Having a strong risk culture is what every business needs to survive the murky waters that constitute today’s market. By having an established risk culture, you will know whether to avoid a risk or take advantage of it. Risks can easily turn into opportunities, so you don’t want to take the approach of avoiding risk altogether. Instead, you must find a way to balance risk-taking behavior so that you can enter new markets, acquire new business and invest in meaningful growth.
So, what makes a strong risk culture?
Acknowledge Risk. It’s not always fun – or easy – to acknowledge all the bad that can happen, but it’s part of managing the fate of your company. No one wants to be a Negative Nancy, but your shareholders, regulators and other internal employees will appreciate your ability to identify and deal with risk should it occur. By thinking ahead, you can modify your own policies and procedures to avoid crisis, embarrassment and reputation later on.
Make Risk Everyone’s Responsibility. Have you ever done something wrong and were scared to point out the risk to a boss or manager? Maybe you waited until the risk was actually taking place before you called attention to the mistake. This happens a lot because people are either afraid to acknowledge the risk or because they are in denial, but it doesn’t do anyone any favors. Risk should be everyone’s responsibility, and people must feel confident that they can report an issue or raise a concern if need be. Tackling problems in advance is almost always better than waiting them out.
Respect Rules and Guidelines. If a company wants everyone to watch for red flags, they must also be able to respect risk. Have you ever worked for a company that tried to eliminate risk, so they came up with dozens of impractical guidelines? Chances are, the rules became unvalued by the employees. Rules need to be respected and guidelines need to be practical; too few rules can create risk while too many can be even more troubling.
If you are looking to build a new risk culture, know that it will take time and patience. It can take at least two to three years to change a large operating environment, but the end result will be well worth the effort. Your most critical tasks will be establishing agreements among senior executives and sustaining attention over time. Start by defining the type of culture you want to build and understand that you will need to improve your activities and adopt the right attitudes and behaviors from those in your company.
Even with a healthy risk culture, you must still work diligently to reduce and eliminate harmful risks while taking advantage of new opportunities.