Risk in the Boardroom 

The world is changing at unprecedented rates. Back in the 1930’s, S&P 500 companies would expect to last seventy five years, i.e. forever. Today, that’s down to fifteen years, and unbelievably in fifteen years time it’s down to five years.

That’s nothing. And that means most S&P 500 companies in fifteen years time will be disappearing and failing, or merging and succeeding. So the boards of our big companies today have to really anticipate why this is happening and make sure their strategy and the way they mitigate risks address these issues, otherwise they’ll fail, which will be terrible, but the successful ones will have unprecedented value for their shareholders. And that’s going to be incredibly exciting.

Boards have got to anticipate where the world is going so, the impacts of the big trends on their business and how they make sure they take full advantage of those trends.

And with that is, they’ve got to take a risk judgment. Do they go into emerging markets, how they deal the different technologies that impact their business, and really think strategically about how to turn risk to advantage, and not treat it as a back office tick box exercise.

What’s clear from the financial crisis is that risks that impact big companies today generally are unexpected but have a very significant impact – so called ‘black swans’.

Now the trick with black swans is not necessarily to anticipate them, to make sure when they happen you deal with them really quickly and effectively. You’ve got your legal, your PR, all those things aligned so that you know what to do when something bad happens.

Best way of planning for that is scenario planning, just like the military did in the cold war, Companies need to do this in this new ‘risk war’ we’re in today. Successful companies anticipate something going bad, and therefore if it does happen, they’re ready to deal with it there and then.

All of this might sound very complex and difficult. Of course it is. But the reality is the most successful companies will navigate their way through this risk jungle and they’ll ultimately succeed way way beyond their competition.

Bottom line of course is, turn risk to advantage.