Recently, leadership dynamics have been investigated in several different ways, including financial management, human capital management, and strategic management. Additionally, business academics and practitioners debate the topic of leadership at length in connection with business success or alternatively, business failure. Whether management is considered poor or good, what must be considered is the connection between leaders and their direct reports. To appreciate this dynamic and its impact on the overall results of an organization, executive leadership must take a deep dive into its culture, governance, risk framework, and strategies among other aspects.
Leading Academic, Dr Suze Wilson in her Sage Journals’ article, Pandemic leadership: Lesson from New Zealand’s approach to covid-19 wrote that the possibly life-altering ramifications of positive or poor management have never been so apparent for many of us that they are at present.
Results of the 10th Allianz survey (a study of the insurance and fund products) revealed that the top four business risk were:
1. Business interruption – chosen by 41% of respondents. (Seventh time in 10 years at the top.); 2. Pandemic outbreak – 40% (Previously ranked 17th and also the main cause of business interruption.); 3. Cyber incidents – 40% (Last year’s top risk.); and 4. Market developments – 19% It is against this background, I wish to discuss, in brief, four areas that executive leaders of any industry should keep on their radars. I believe, if dismissed, organizations run the risk of failing.
Tone at the top - poor governance
Risks associated with an organization’s reputation is now considered as important as risks associated with strategy, operations, and finances. To effectively manage reputational risk, an organization must cultivate an ethical, transparent, and open environment at the top – this is critical. Without clear and consistent leadership from the top that echoes a strong risk awareness and compliance culture, organizations almost always deplete the effectiveness of risk management and assurance environment.
Keith Darcy, an independent senior advisor to Deloitte & Touche LLP explained, “Creating and maintaining the right tone at the top is the bedrock of a robust ethics and compliance program. By clarifying and then carefully harmonizing the relevant roles of the CEO, board and CCO, organizations can establish a tone at the top that truly binds the organization together.”
Toxic organizational structure
Organizational cultures that are unhealthy enable a relatively minor issue to turn into a major catastrophe. Some C-Suites would prefer to stick with operational issues that are more easily quantifiable, but risks related to organizational culture should never be ignored. Toxic organizational culture can lead to human capital flight i.e. departure of quality stakeholders that are not easily replaceable and employee fraud. BDO Canada rates employee fraud as the #2 Fraud to be aware of this year.
To address this risk, the enterprise risks pillars need to be aligned with a strong partnership between the Chief Risk Officer and the Chief Human Resources Officer to recognize and address the reemerging risk of human capital volatility.
Conclusion
In short, culture, governance, risk framework, and strategies once robustly deployed, strategically implemented and consistently monitored within a well-structured regime would greatly increase the probability of an organization’s success vs its failure. It is the responsibility of executive leadership to work efficiently and effectively to convert risks into rewards.
