Rethinking Risk - Blog from Davos

Source: Kevin Kelly for Business Week
[posted on 01/29/2010]

It’s late Wednesday/early Thursday. I’m back in my hotel room after a typical day at Davos: 10 formal meetings, at least a dozen useful chance encounters, a panel discussion, and dinner. Writing this blog is a good way to stop and think, but there are also business development notes to write from today, preparation for meetings tomorrow—and a little sleep wouldn’t hurt.

Davos is 40 years old, the age of the midlife crisis, but the only world-weariness I detect is in a few of the journalists. Meanwhile I see no dimming of its founder’s zeal for bold new thinking. I was at the dinner Professor Schwab hosted this evening, and his enthusiasm was as infectious as ever. He’s a great advertisement for the theory that ideas keep you young. In March he turns 72.

There is far more optimism around compared to Davos 2009. Rumor has it that Davos is pretty much filled to capacity, compared with many cancellations last year. It’s not that people feel they’re out of the woods: most do not. But in the end, retrospection undermines resilience. As one CEO said to me today, “You can beat yourself up only so much, and then the human spirit takes over and you say, OK, so now what are we going to do?” The meeting’s theme describes the general feeling pretty well: Rethink, Redesign, Rebuild.

That said, most here are anxious about the world rushing for growth again without learning from its mistakes. And Sarkozy’s passionate speech in the Opening Plenary has made people more inclined to say what they think about governance and the financial sector, which is a good thing. Until then the simmering anger had been more private.

The panel session I took part in was called "Rethinking Risk in the Boardroom." It must have struck a chord with delegates because there was standing room only. Other panelists included the president and CEO of Goldman Sachs USA, the chairman and CEO of Novartis, and the chairman of Sinotrans-CSC Group from China.

The starting point was that risk is intrinsic to any business strategy but that, before the crisis, many boards were asleep on their watch. We agreed the definition of risk is expanding. The most forward-thinking boards have multiple risk committees so they can understand all the risks they run. We talked about the importance of aggregating discrete risks together, because they have a nasty habit of feeding each other, and we talked about the ever-present danger of assumptions preventing board members from testing and retesting the information they receive. But most of all we talked about the need to give boards the confidence to oversee risk with a long-term perspective.

My firm and I believe this means that leadership itself needs to be conceived as the major risk factor. You make the risk predictable by finding the right people and then educating them--and not just about the firm's commercial objectives. Boards provide oversight on behalf of shareholders. The lucky ones also truly understand why the company exists. They don't just manage risk through systems and structures; they also promote and protect a culture which allows the organization to see beyond short-term expediency.

Click here to view the original blog posting on BusinessWeek.com.