A board or a CEO that is too cautious may do as much harm as one that is reckless.
It’s a startling question. The answers provide critical guidance for risk management, strategic planning, writing governance policies.
In their Harvard Business Review article Managing Risks: A New Framework, Robert S. Kaplan and Anette Mikes provide three qualitative distinctions among the types of risk organizations face. Two of these categories, preventable risks and strategy risks, are internal to the organization and so are within the control of the leadership. The third category includes risks from external sources; leadership may not control the risks, but they can prepare for them. Here’s how.
We hit the bottom of a flume and leapt into the air. The raft went left and a woman at the front went right— into the Class III rapids. She surfaced, legs out in front, and let the life vest carry her along, pushing off rocks with her paddle and arms. Our guide shouted instructions and we manuevered the raft close enough to throw her a rope. As we pulled alongside, two of our crew grasped her life vest and pull her aboard. Cold and little shaken, she took up her paddle and dug in. She was safe again, partly because she had known what to do and so had we. But the reason we knew what to do was that our whitewater guide knew about risk management.