The Division Council president of AICD WA and distinguished non-exectuive director talks on managing risk and assessing an organisation’s true state of cultural health.
When considering board opportunities and managing my risk generally as a director, I have a clear hierarchy to assist in assessing my potential risk. It is the culture of the organisation and the quality of the people. The systems, processes, policies and procedures follow.
You can have pristine policies and procedures, but if you have poor culture and/or poor-quality people, they won’t save you. If you have a sound culture and quality people, even if the systems, processes, policies and procedures are lacking, you have a good chance because you can fix the other elements as you go.
On culture, there are two early indicators I pay most attention to; the canaries in the coalmine.
The first test is: how closely is management walking the talk? Everyone has an opinion on how close the “walk” and “talk” are in organisations where they have worked. The most obvious thing to look for is, of those values stated as company values, how many would survive a real test under pressure against a financial outcome? If it looks like a duck, quacks like a duck and walks like a duck, it probably is one.
The second test is: can everyone in the organisation speak their mind without fear of retribution? Usually, you only have to talk to a few people. You will sense if they’re singing off the company hymn sheet and telling you what they think you want to hear, or what they truly believe.
Often, it’s not the answer that tells you the most, but how the question is answered. Does the person hesitate, avoid or look for assurance or approval before responding? Neither test is conclusive, but they are good indicators of where you may need to look.
There are common themes in most if not all major governance instances in companies. The post mortem generally shows there were signs before the incident happened — yet they were missed or their potential consequences not properly recognised or understood.
Secondly some people in the organisation knew there was a problem and either didn’t speak up or weren’t listened to.
The post mortem sets out and analyses steps the directors could/should have taken, but I ask myself, if I’d been on that board, would I have seen something the other directors didn’t? It’s a challenging question, but one that has me constantly thinking about what else I should do on the boards I sit on.
As board members, we know these risks exist, so what more can we do to reduce them? There is a direct but inverse correlation between culture and risk — in commercial and safety. It’s important to have a trusting, open and transparent boardroom, but also one with a positive level of discomfort. The degree of access I have to management and people at the frontline of the business is a good indicator. It places an onus on management to trust the board, and for the board to honour that trust in how it engages with people in the organisation.
In the board setting, it is useful to occasionally drill down. Sometimes people suggest I’m at risk of getting lost in the weeds. However, sometimes I deliberately go looking for the weeds, because it is only when you get to the second or third question that you discover whether someone is telling you what they really believe or not.
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