CEO Coaching: Playing the Game of Risk
I’ve been thinking about risk management lately. Some risk I welcome and some I don’t. Skiing a no-fall zone chute is still pretty fun and a trip to a remote area of the Amazon was outstanding! Replacing two furnaces, a humidifier, and a water heater all in one year at my house, not so much.
Several clients recently had bad things happen at work and the impact of weather and outdated technology in the airlines have provided some compelling argument for better risk management.
So, while not my favorite topic, it is an important one and one that should not be so onerous that it is ignored. I’m reposting this content from a couple of years ago in hopes that it might help one of you.
I used to fly aerobatics and was pretty confident (though not terribly skilled!) that I’d make it back to the runway with the airplane in one piece. I did, however, always wear a parachute! Regulation required it, but I also figured it cut my risk significantly.
A key trait for successful CEOs is their ability to balance optimism and risk. Unlike the original Goldilocks principle of neither too hot nor too cold, there’s no “just right.” But there’s a “righter than not” area on the spectrum.
Pessimism can be dangerous in the leadership suite, but the practice of risk management is important.
Large companies usually have significant resources dedicated to tracking risk and identifying contingency plans and preventive measures. To use an extreme example, imagine you’re the secretary of defense. You can’t wait for the first shot to be fired before you have a plan! In fact, the mere presence of a plan (think nuclear deterrence) often avoids catastrophe.
Most CEOs I work with run midmarket companies. They’re beyond the entrepreneurial stage where optimism and risky behavior are necessary to get off the ground. Now they must confidently seek ways to not only grow but also balance that growth mindset with preserving the enterprise (risk management).
I don’t particularly enjoy the “what could destroy us” conversations, but only a fool or an overly optimistic leader avoids them.
Most CEOs I know carry a spare tire in their car. Yet some have no process to identify the most likely or most devastating risks that might come their way and no plans to deflect or deal with them.
CEOs who carry three or four spare tires in their trunk are in the wrong job — unless they run a nuclear power plant. If you want to prevent every risk, the easiest way is to never take any, and that’s a recipe for stagnation or slow death.
So, what does “righter than not” look like?
First, start with a risk identification process. This can be as simple as gathering your senior team once or twice a year and asking them to write down the three biggest risks that could disrupt your business. Capture the responses and then score them on a scale of 1–10 for “likelihood” and also for “impact.” (For example, having your factory hit by a tornado is probably a one for likelihood, but a 10 for impact. The higher the number (20 is maximum), the more important to have a plan for that specific risk. If it’s a 2, fuhgeddaboudit.
Second step? Create a plan for those that rise to the top. This might be a contingency plan (a bucket to catch the drip from the hole in the roof) or a preventive plan (can we eliminate this or reduce the likelihood?). You also might be able to insure against it. Even though you only carry one spare tire, I bet you have health and home insurance.
Going through this process will either help you sleep easier at night or make you very nervous. Either response is a good thing! Your risk is now tangible, and you can do something about it.
For goodness’ sake, don’t hold yourself back! Think big! Be optimistic! But also take a bit of energy to reduce the risk of catastrophe. It’s very risky not to do so!
coaches CEOs to higher levels of success. He is a former CEO and has led teams as large as 7,000 people. Todd is the author of, Never Kick a Cow Chip On A Hot Day: Real Lessons for Real CEOs and Those Who Want To Be (Morgan James Publishing).