Monday, December 29, 2014
A couple of articles have seemed spot on today. Take a look below, for instance, at this summary of how a company can truly get in trouble.
"In order to be considered truly poorly run, a company must have a track record of missed opportunities, mismanaged risks, poor operational decisions, or executive malfeasance. In short, a company must demonstrate a pattern of decision making that calls into question the ability of its management and directors to adequately provide returns to shareholders."
Operational risk, then, is not just gaps or holes in existing corporate programs. This quote identifies some of the other areas that ASA looks at when it partners with a company. It's from a Wall Street Journal article recently that looked at the most poorly run companies on the S&P500. Holding down the top three spots on the list are IBM, McDonald's and Staples, all of whom suffer from sluggish strategic response to digital forces and changing market pressures.
To this article, I would add Andrew Blau's new white paper for Deloitte on disruption, which seems apt when discussing strategic risk, especially since it is at this risk level that boards of directors are involved. He notes that "The trouble with strategic risks is there’s often no historical precedent to draw from to assess their potential nature and impact. Sometimes they’re the product of a visible trend, but often they appear as a surprise. And hard as they are to spot in time or manage, they are extremely difficult to recover from."
It's not easy to be either an executive or a board member these days. Decisions must be made very rapidly, often in the uncharted areas Blau describes in his paper, calculating the amount of risk exposure the decision may bring.
I'm on break right now, but will be back in the saddle next week, teaching the introductory operational risk course I designed in 2012, but which I have rather completely revised for 2015, to make it even more relevant to graduate students who know that risk taking and risk managing will be part of their leadership experience going forward.