Six Keys to Creating and Embodying a Strong Risk Culture to Weather Any Storm

Like many of you, I watched in shock and sadness at recent scenes of an apocalyptic-looking New York City with businesses adjusting operations because of the heavy smoke from the Canadian wildfires. Even in Minnesota where I’m based, the forecast calls for air quality to be affected all summer, not just a few days or weeks.

This has me thinking a lot about risk, something to which I’m highly attuned because of my background. Prior to embarking on a career in executive search and recruiting, I spent the better part of two decades leading product management and marketing for organizations that include a global public company in the industrial sector and a small growth business in the safety industry.

I understand the universality of risk, recognizing the type and extent vary by industry, ownership structure, and size. However, the universal need to understand, plan for, and hedge against foreseeable and unforeseeable risks applies to every CEO whether they’re leading a $50 billion public company, a $500 million private entity or a $50 million PE-backed business.

The devastation to the North is a practical and timely reminder of the importance of good risk management, which starts in the C-Suite with a clearly defined risk culture that is understood, embraced, and embodied enterprise-wide. Given my unique perspective gleaned from leading inside companies to placing top executive talent into them, here are some quick tips for creating and embodying a strong risk culture.

1. Identify Clear Business Objectives

“To know thyself is the beginning of wisdom.” Socrates may not have been able to envision the likes of today’s small businesses, much less corporate giants like Amazon and Apple. Even so, these ancient words have practical relevance for the modern-day business world. When it comes to risk, C-suite leaders must first be crystal clear about their company’s business objectives.

Take growth as an example. Are you after methodical or hyper growth? Do you plan to achieve it organically or inorganically? The answers begin to form how you appropriately identify and manage risks related to your growth plans.

2. Get Stakeholder Buy-in of Objectives

Your key stakeholders need to agree with the objectives defined in the C-suite. In public companies, it’s obvious that the board of directors, who represent the shareholders, need to be kept apprised of key business objectives and any changes related to them.

However, if you’re a sole company founder who has sold your business to a PE firm, which has agreed that you’ll remain at the company helm, you’ve never before had to worry about getting anyone else’s buy-in. As strange as it may feel, ensuring your business goals align with the PE fund’s objectives and the operating partners’ value creation plan is imperative for limiting your company’s present and future risk.

3. Determine Risk Tolerance to Achieve Your Objectives

Together C-suite leaders and key stakeholders need to decide how much risk they’re willing to take to achieve stated business objectives. Furthermore, they need to ensure that the two align. A very low-risk tolerance is not a good match for a company with goals for highly aggressive growth through acquisitions, market expansion, new product development, or a combination of these strategies.

If the goal is to triple the business in three years, but leadership isn’t willing to risk their capital or invest in hiring high potential employees to make it happen, there is a disturbing goal-to-risk misalignment.

4. Clearly Define Your Risk Culture for Employees

Without context, people often assume a negative connotation to risk. But unless you have a zero-risk tolerance, which is unrealistic, you want the employees who power your business every day to take some calculated risks. But when and how? And how do you ensure they aren’t taking too much risk?

The only way for employees to know what amount of risk is acceptable and, even, encouraged is for leadership to clearly define the parameters of its desired risk culture. This is most typically communicated through a company’s values statement, ideally in succinct and powerful language that employees can quickly assimilate into their work processes and daily habits.

5. Ensure Your C-Suite Embodies Your Risk Culture

No matter how artfully and frequently you deliver the above message, words alone are not enough.

It may sound cliché, but the C-Suite needs to model the risk culture it hopes to achieve. If it doesn’t, no words will convince or motivate employees to embody it. Moreover, a disconnect between stated values and leadership conduct creates a significant internal credibility issue, which can quickly spread externally, especially in today’s digital, interconnected global business environment.

6. Empower Employees to Live Your Risk Culture

In companies with a well-defined, or strong, risk culture, employees are empowered to take appropriate chances or make logical exceptions that are in the business’ best interest.

My colleagues and I see play out across the client industries we serve. It may be a healthcare platform’s chief managed care officer who waives on-site requirements to hire remote staff for hard-to-fill critical back-office roles. It could be a technology firm’s sales leader going out on a limb to offer a non-standard discount to save a valued client relationship. Or in the manufacturing world where I came from, a strong risk culture extends to an employee on the factory floor not afraid to speak up and stop work when they see a safety issue.

What’s Executive Search Got to Do with Embodying a Strong Risk Culture?

These tips aren’t rocket science, but don’t let their relative simplicity fool you into thinking they’re not important. The most attractive business plans can quickly go up in smoke when companies don’t prioritize risk management so that everyone embodies the risk culture defined and modeled by leadership.

The other thing that can upend promising business plans? Top brass who aren’t well-matched to a company’s stated risk culture. If you’re dealing with such a C-suite mismatch, Focus Search Partners can help you identify the right replacement through extensive due diligence, including revelatory off-list reference checks, and assist you in bringing your first-choice candidate over the recruitment finish line.

By Andy Olson, Managing Partner at Focus Search Partners

Do you have a critical leadership vacancy to fill? Contact Focus Search Partners today.