If King IV has its way, the link between risk and opportunity could become much clearer in corporate South Africa—with good consequences.
By Junita van der Colff, Manager: Advisory at ContinuitySA
Enterprise risk management is often seen as a relatively sterile compliance exercise, whereas in fact it should be a catalyst for new business ideas. That could be set to change once King IV is finalised—the draft introduces risk and opportunity governance as one the governance functional areas (Principle 4.1), and proposes the creation of a committee for risk and opportunity governance.
In its survey of local and international developments since King III, the report notes that that the traditional view of risk—“the effect of uncertainty on objectives”—has become much more complex in response to a much more complex business environment. Given that many of these risks relate to the fundamental disruption of existing business, usually by technology, they also often present an opportunity for the company able to see it.
The disruption might be so severe that the opportunity is the only option aside from failure—Kodak and Nokia are but two examples of companies that failed really to understand the risks they faced and so were unable to see the associated opportunity that could have saved them.
In other words, an organisation’s ability to see the opportunity hidden by many risks could be a key driver of its success and long-term sustainability. However, a significant change in corporate culture will be necessary. To understand the extent of this change, remember organisations tend to devote 80 percent of their enterprise risk management programme to establishing methodology, tools, governance and framework (the formalised risk management process) and 20 percent on creating a more risk- and opportunity-aware culture. They should, of course, be doing the reverse.
No wonder so many organisations feel they are not getting value from their enterprise risk management programme!
Changing a corporate culture is one of the hardest things to do. Based on my long experience as a consultant in this field, the following six principles are evident within organisations that are successfully creating a more risk- and opportunity-aware culture:
Obtain executive buy-in. The “tone at the top” is critical; if the leadership doesn’t buy into the new way of seeing and doing things, nobody else will. By contrast, if the organisation’s leadership consider risk and opportunity as part of their decision-making process, and acknowledge the value that the programme brings, the rest of the organisation will begin to follow suit.
Another important factor is how accessible the leadership is. If the organisation’s leaders are approachable, then staff is more likely to share risks and opportunities. If not, staff will be hesitant to flag either.
It’s vital that leaders understand how risk and opportunity feed off each other, or they can see the risk management process as hostile. In such cases, the benefits are lost and finger-pointing becomes the norm.
In my next blog, we will look at the remaining five principles for creating a risk- and opportunity-aware culture.
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