Managing Systemic Risks in Organizations

The gross turnover of top 100 multinationals is higher than the gross domestic product of a few countries. As it was obvious from the financial crises, organizations employing a few hundred thousand employees can rock the global financial stability. From then on, a lot of discussion is occurring around systemic risks. However, I wonder about the actual momentum in addressing systemic risks.

As per my understanding, an inaccurate perception has formed that governments have the major responsibility to address systemic risks and not the organizations. The picture below depicts the increasing level of risks for human civilization or society as a whole and the increasing level of risks within an organization. Though we do not see linear relationships, they are interconnected. While an organization is a subset of the civilization, their large sizes have also made it a significant component of creating systemic risks.

 

Systemic risks

 

Another fallacy is that organization’s need to track systemic risks at the global level alone. From the financial crises, it was obvious that the Retail Housing Loan departments of US Banks shook the real estate industry. Various CDOs of banks investment divisions were the cause of collapse of major banks. Hence, something as small as the functioning of a department, process or product can destabilize the industry and economy when incorrect practices are followed in multiple organizations.

Moreover, senior management of organizations that have implemented Enterprise Risk Management (ERM) believe that systemic risks are automatically addressed. None of the ERMs is going beyond strategic risks. The focus is mostly on operational and tactical risk coverage. Unless the risk management department has taken concrete measures to identify systemic risks, in all probability they are unmitigated.

Lastly, for most of the systemic risks, the organization by itself can only partly mitigate the risks. Except for taking insurance, they cannot develop and implement full-fledged solutions to treat the risks. Though the impact of systemic risks is huge, the lack of understanding, information and solutions, make organizations negligent about identifying and addressing these risks. Hence, the question is – what should organizations do to manage systemic risks?

1. Global Systemic Risk Monitoring Group

Within the risk management department there should be dedicated resources tracking systemic risks from process to country level and reporting to the global group. In the interconnected world, the risks in one country impact other countries. For instance, consider the attack on Malaysian airplane by rebels in Ukraine. A geo-political risk of one country has brought an organization of another country down. Hence, now the risks have to be viewed from a global perspective. To do this organizations must incorporate the group within the organization structure, deploy funds and resources, use technology to connect and track risks at a global level.

2.  Connecting With National Risk Boards

The 2014 World Bank Risk Report suggests formation of National Risk Boards (Same name, could they have got inspired by this blog :)). This will be a huge plus, since risk identification and mitigation will be done at a national level. For instance, if a large country like India were connected at district, state, and national level through risk boards, the level of risk management would improve significantly.

Moreover, this will facilitate in addressing inter-state risks and cross border risks. For example, cyber security threats mitigation requires coordination within the country and significant amount of international collaboration. The national risk boards of countries become the focal point for international cooperation and collaboration for risk mitigation. Developing relationships with the board members and participating in the initiatives will help organizations in dealing with systemic risks.

3.  Connecting With Industry Risk Boards

The systemic risk group needs to connect with the industry risk boards and regulators to capture the industry level risks. For instance, Back of England conducts a half-yearly survey to determine systemic risks in UK financial sector and the confidence of the organizations in dealing with it.

If organizations facilitate in formation and management of industry risk boards, they can cooperate with the competitors to mitigate industry level risks. Relationships with international industry boards would be a huge plus in acquiring knowledge and formulating plans.

4.  Assessing Preparation at National Level

The World Bank report states that investment in risk mitigation and prevention is low, and most of the expenditure is done during and after a disaster to recover and continue operations. Therefore, the challenge is that risk identification may not result in developing and implementing risk mitigation plans. For example, various cities in India regularly suffer from floods during monsoons. ALthough the government knows the problem and solutions, it has not done much to resolve the issue. There are ongoing battles between city, state, and national level for risk prioritization.

That is, the same risk may have different impact and loss level due to national level preparation. Organizations need to assess the level of preparation of government and local communities to determine the impact and develop risk mitigation plans accordingly.

5.  Assessing Impact at Social Level

Previously, organizations were insulated from the society to some extent. The social networks have changed the scenario, and any incident can become an explosive issue. Hence, impact has to be calculated at social level rather than at an incident level. For instance, recently a six-year-old girl in Bangalore was gang-raped in school by her teachers. Last weekend, parents in Bangalore organized marches to demonstrate their anger against the schools lackadaisical attitude towards children security. Police has lodged complaints against the school and politicians are talking about closing the school.

Presently, rape, women, and child security are sensitive topics in India. India is fourth unsafe country in the world for women. Hence, a single incident can close down an organization. Therefore, risk managers need to identify sensitive issues related to systemic risks and extrapolate the impact at city, state, country, and global level to determine impact of various risks.

Closing Thoughts

Systemic risks impact is sometimes more than losses of earthquakes, tsunamis and nuclear disasters, hence they cannot be ignored. Higher level of focus is required within organizations, industry, community, and nations to build processes, institutions, and infrastructure to identify and mitigate systemic risks. Timely investment in this area can save billions of dollars. Hence, risk managers need to put their thinking caps on, develop concept notes, and influence senior managers to deploy funds in managing systemic risks.

2014 Business Predictions Based On Bollywood Movies

In the age of big data, data mining, social media, market studies and customer feedback, it may sound surreal to analyse business trends from Bollywood movies. Strange as it may seem, Bollywood movies provide a wealth of information on cultural change, latest fads, and customer tastes. Agree, the movies aren’t intellectually stimulating or sensible; most of them are over the top but let us not be scornful about the hyperbole and read the real picture. Tell me what you make out this analysis.

1.      Women Rule

The male bastion crumbled this year;  in most of the movies the actress portrayed a strong character, frequently superior than the actor. In Ramleela, the heroine was a gun wielding female don’s daughter capable of pulling the trigger on betrayal. In Yeh Jiwani Hai Diwani, the female character, a nerd, beat the male character in academics. In Ashiqui 2, the female protagonist, a singer outperforms the male protagonist. Leading ladies are taking centre stage, they are no longer willing to play second fiddle and be decorative while the hero steals the show.

Ramleela

In business parlance, do not ignore the female customer or the female employees. Indian women are making the buying decisions, therefore ensure that the advertising pitch appeals to them and the sales process is women centric.

Additionally, after the changes in sexual harassment act and the companies act, women are gearing for a stronger role in corporate world. The Companies Act requires at least one woman to be on the board, hence develop the top talent. The sexual harassment act has empowered women and cases are making headlines. Change the work culture to ensure equality, educate staff on sexual harassment, and form legal recourse systems. Insure senior staff from sexual harassment claims and do a background check to determine propensity for sexual harassment.

2.      Think Local

Top actors and actresses made a beeline for roles with stories in rural villages and small towns. A few years back they would have turned up their noses on a project that wasn’t with a foreign country backdrop. Most of the blockbuster’s set in small towns – Chennai Express, Ramleela, Gori Tere Pyaar Mein, Ranjhana, Phata Poster Nikla Hero, etc. – had tremendous box office success.

The Indian directors’ cultural understanding of customers is excellent. The trend shows Indian customers awe for foreign brands and products is reducing. The customers want products Indianized to their taste. The burger and pizza sales give ample evidence. Over 50% of the revenues of multinational fast food chains are coming from vegetarian products. For instance, McDonald’s highest grosser, Aloo (Potato) Tikki Burger recipe was made in India.

Customize products to cater to small town customers rather than the metros to get higher turnovers. In local markets, value for money concept works and not fancy brand names.

Astoundingly, employees working in metros are moving to small towns for better work-life balance. The craze for big cities, fast life is disappearing due to high cost of living, traffic and infrastructure problems, and superficial social relationships.

3.      Complete India Story

Northern India and Southern India directors and stories intersected this year. Within India, state borders are reducing in meaning. For instance, in Chennai Express the hero is from Delhi, the heroine is from Chennai. In Gori Teri Pyaar Mein, the male protagonist is from Bangalore and female protagonist is from Delhi. Bollywood is no longer targeting just North Indian customers; they are making headway in South India. A few Hindi movies were remakes of South Indian movies . Astonishingly, South Indian directors are making Hindi movies.

In the last decade, Indians are crossing inter-state borders frequently. Caste, region, and religion differences are diminishing. Business needs to rethink the marketing strategy. Products made for North Indian customers may do well in South India and vis-a-versa. Tastes are changing and acceptability levels for different products are improving. For instance, previously consumer durable major market was in North India. However, the latest survey shows the top states are– Punjab, Kerala, Haryana, Karnataka and Tamil Naidu.

4.      Focus on Gen-Y

Sweet and nice, stereotypical and rehash doesn’t sell with Gen-Y. Unique, controversial, adventurous, and nonconformist sails through. In Ranjhana, the female protagonist organizes the death of a childhood admirer to avenge the death of her adult lover. In Gori Tere Pyaar Mein, the heroine is a social activist, older than the hero, working in a remote village. In Lunchbox, the male character is a 50-year-old man falling in love with a married woman he has never seen. In Krissh 3, super heroes and villains, half human-half animal battle it out. Sporting legends biopic (Bhaag Mikka Bhaag)  and historical political drama (Madras Café) entered the arena. The conventional isn’t making its mark.

krissh 3

Indian Gen Y have information of international products on the tips of their fingers. Secondly, their tastes are similar across country. Previously, there was a vast difference in tastes of the younger generation in metros and smaller towns due to limited information. Now Google Translate has removed those barriers.

Hence, business sector needs to invest in research and innovation, an area they haven’t focused on earlier. The products must be of international quality, fresh and new, at local prices. The business that has the courage to differentiate, leave traditional thinking behind will get massive returns. Businesses centering on adventure sports, exclusive hobbies, social entrepreneurship, video games, and technology apps are expected to do well.

Moreover, organizations to attract and retain Gen Y need to transform the bureaucratic and hierarchical culture. Build a culture on openness, transparency, creativity, risk taking, and empowerment.

 5.      Foray Globally

The top grosser of the year – Dhoom 3 did good business in the international market. Now the Indian movies have rap music with Hindi lyrics, use latest technology (Krissh 3), and have glitzy action. Indian award shows have built Bollywood brand abroad. A few Indian actors and directors have gained international repute.

According to a McKinsey report, 30% of the revenues of top 100 companies in India is coming from international business. Indian companies are either taking over foreign companies or establishing their own in other countries. Hence, time has come to venture abroad keeping in mind the international tastes. Don’t sell the Indian product in its standard form. Customize it according to the international tastes by using their knowledge and technology.

Closing Thoughts

Risk managers’ check out the business strategy and plans for 2014. If the products pipeline, advertisements, sales processes, customer interactions, research and development, and talent management, isn’t considering the above-mentioned aspects, there might be some risks. Lastly, be adventurous and try out new approaches.

Wishing all my readers a very happy and prosperous new year.

Impact of Power Styles on Organization Risks

Power, we all want it. If we don’t have it, we associate with the powerful in the hope some of it rubs down to us. Being in the upper echelons of corporate world or the political corridors of the country’s parliamentary houses ensures that you are exempt from the rules applicable to the common person.

However, the way a person gets power and uses it reflects the person’s character, and its influence on others. In the corporate world, the power styles used by senior managers directly influence the risk levels of the organization. Unsurprisingly,  power and politics are undiscussable topics in the corporate world; hence, when risk managers do risk assessments, they ignore the two.

I personally recommend risk managers to understand the individual power styles of the senior managers and overall organization power style. To appreciate the connection between power and risk, let us first look at the power styles and their impact on the organization.

Power Sttyles

Depending on the situation, a leader needs to use various power styles. However, if a leader uses coercive style even when it is not required, then something is wrong. Leaders frequently use power styles of reward and punishment for fulfilling illegitimate requirements. Hence, the probability of followers being involved in unethical activities requiring compromise of personal values is higher. On the other hand, the expert style ensures that followers make informed judgments as the leader attempts to enhance their ethical values and knowledge level. The reward is not in the form of a bribe and is implicit; the leader is dedicated to improving the organization.

Another aspect that requires understanding is the need for creating perception of power. When a leader is undertaking illegitimate activities (watch any Hindi movie to see the underworld Don) he needs to create a strong perception of power by using threat and punishment. Else, his coercive tactics will be ineffective, as people will not cooperate. Therefore, he makes some sacrificial goats to demonstrate that he is above the law and normal rules don’t apply to him. Another tactic is to break the social norms, and not behave rationally and predictably. Both these methods focus on creating fear to ensure compliance. Without the perception of power and fear, the leader becomes vulnerable to revolt from the common person. The only way for him to retain his power is by increasing the number of sacrificial goats, threats, and punishments.

1.   Impact on Legal and Reputation Risks

A coercive leader is usually riding a tiger. The organization risks continue multiplying as more and more people become aware of the unethical practices. An elastic can be stretched up to a limit. Eventually, the concocted environment cocoon will burst and all hell will break loose. The leader cannot trust anyone after a point. Hence, his fear increases in direct proportion to his vulnerability. The leader takes more and more risks to protect his personal fiefdom. The organizations reputation risks and legal risks increase proportionately.

2.   Impact on Human Resource Risks

Overtime, the leader’s charisma wears off. As the layers peel off, disillusion sets in. Employees realize that the leader doesn’t behave with integrity and honesty. Even the loyalists recognize that whenever it suits the leader’s personal agenda, they can face the bullet without any fault of their own. This creates disquiet among employees, and employee disengagement increases. The human resource risks increase manifold with disengaged employees.

3.   Impact on Operational and Financial Risks

The disengagement starts effecting productivity and performance as everyone grasps that meritocracy has no links with rewards. This in turn impacts the bottom line as leader fails to deliver on targets. Failure to show profitability and results makes the leader’s position precarious. The leader starts feeling pressure from the top. As he is unable to improve productivity, he attempts to manipulate results and financial statements. In nutshell, leader’s power style influences operational risks and financial risks of the organization.

Closing Thoughts

No one can deny that success in life depends quite significantly on a person’s power and influence. The general opinion is that means to the end do not matter when we strive for power. On the contrary, how we get power and maintain power, is crucial for longevity in the powerful position. For a coercive leader, the end is tragic, as the hunter becomes the hunted. Moreover, if a leader gets power by paying bribes or giving rewards, his power ends when he stops doing so. His loyalists disappear with speed. Abusing power is no longer safe in the present world, as it increases the personal risks of the leader and the organization risks. Therefore, risk managers need to ensure for continued prosperity of the organization, that leaders get power by the rights means and use it for the right purposes.

Satyagraha For Freedom From Corruption

Gandhi ji, in his book “History of Satyagraha in South Africa” narrates the coinage of the term Satyagraha and the journey of the movement. It is an amazing story of sacrifice, determination, and moral courage. Hence, I wondered whether we can use the concept to fight corruption in this century.

The irony is that Gandhi ji started the Satygraha movement in South Africa because Europeans passed unfavourable laws for Indians. They were scared of Indian traders and professionals taking a huge slice of the business, hence passed laws to restrict their liberty to live and trade freely. Greed was at the crux of it since there were plenty of natural resources in South Africa for Europeans, Blacks, and Indians. Now India is being destroyed by the greed of its leaders and public.

Gandhi ji’s story stands in stark contrast to the Anna Hazare led fight against corruption. Hazare’s was packaged as Gandhian inspired struggle but as results showed it was far from it. Hazare took the stance of my way and high way on the Lokpal Bill, whereas Gandhi ji believed in negotiation. Moreover, Hazare’s was a publicity driven exercise of a few fasts and he quickly distanced himself from it when he faced failure. Another aspect was that though thousands turned up in support at the initial stage, no one made use of that energy constructively and directed people to do something more than shout slogans on the streets. Hence, the euphoria disappeared after a short while, as the educated middle class needed an action plan to maintain their commitment.

It brings back to our understanding of Satyagraha. We generally confuse it with “passive resistance” and it was the same situation when Gandhi ji developed the concept a century back. Below are few points from the book:

1)      Satyagraha

Gandhi ji considered Satyagraha as a soul-force. The Satyagrahies never used physical force even when they had the capability for it. In Gandhi ji’s word – “Satyagraha is soul-force pure and simple, and whenever and to whatever extent there is room for the use of arms or physical force or brute force, there and to that extent is there so much less possibility for soul-force. These are purely antagonistic forces in my view, and I had full realization of this antagonism even at the time of the advent of Satyagraha

2)     Passive resistance

The term “passive resistance” originated in Europe as a weapon of the weak. It was generally used when other options of fighting were not available. It was a method used by people without voting rights, or lacking public support. The people were not averse to using arms for attaining their goals. But they did not go for it because they didn’t think they would succeed with it. Hence, passive resistance was more of a strategic manoeuvre than commitment to non-violence.

3)    Difference between the two

Gandhi ji described the fundamental difference in the concepts in the following paragraphs -

 “The power of suggestion is such that a man at last becomes what he believes himself to be. If we continue to believe ourselves and let others believe that we are weak and therefore offer passive resistance, our resistance will never make us strong, and at the earliest opportunity we will give up passive resistance as a weapon of the weak.

 On the other hand if we are satyagrahis and offer satyagraha believing ourselves to be strong, two clear consequences result from it. Fostering the idea of strength, we grow stronger and stronger every day. With the increase in our strength, our satyagraha too becomes more effective and we would never be casting about for an opportunity to give it up.

 Again, there is no scope for love in passive resistance; on the other hand, not only has hatred no place in satyagraha, but it is a positive breach of its ruling principle. While in passive resistance there is a scope for the use of  arms when a suitable occasion arrives, in satyagraha physical force is forbidden even in the most favourable circumstances. Passive resistance is often looked upon as a preparation for the use of force while satyagraha can never be utilized as such. Passive resistance may be offered side by side with the use of arms. Satyagraha and brute force, being each a negation of the other, can never go together.

 Satyagraha may be offered to one’s nearest and dearest; passive resistance can never be offered to them unless of course they have ceased to be dear and become an object of hatred to us.

 In passive resistance there is always present an idea of harassing the other party and there is a simultaneous readiness to undergo any hardships entailed upon us by such activity; while in satyagraha there is not the remotest idea of injuring the opponent. Satyagraha postulates the conquest of the adversary by suffering in one’s own person.”

 4)    Freedom From Corruption

Considering the above definition of Satyagraha and the differences highlighted by Gandhi ji, I haven’t seen very many noteworthy cases of mass movement of Satyagraha. Hazare’s movement just entailed short-term sacrifice and not a long-term struggle. When the public disappeared so did he.

The Satyagrahies courted prison and lived a simple life to fight for their cause. Hence, the question is that do we lack commitment and determination for long-term struggle to root out wrong habits. Is it possible and realistic to expect people to make these sacrifices in the present age of instant gratification. Can we expect Indian public to take a vow not to take or give bribes and kickbacks? Will it be expecting too much from the citizens to sacrifice a few luxuries. Will the public stay committed to the cause or leave it when it gets bored, to participate in the next novel thing.

We need to seriously think of eradicating corruption on this Independence Day. India has come a long way in one century but the corruption is eroding its sheen and destroying the country from within. We must not forget the sacrifices a whole generation of Indians made to ensure that the next generations live with freedom. Let us pledge to keep our souls free of greed.

Wishing all Indians a Very Happy Independence Day.

References:

History of Satyagraha in South Africa by M.K. Gandhi 

Guiding Principles of Nelson Mandela

Wishing Mr. Mandela A Very Happy 95th Birthday.

nelson young Mr Mandela inspired South Africans to fight against apartheid and the world population to strive for equality. He led a life of meaning and broke all the chains that imprisoned him and his community. To free his people, he walked over landmines, made prison his political playground and sacrificed his personal life. In his own words –

It was this desire for the freedom of my people to live their lives with dignity and self-respect that animated my life, that transformed a frightened young man into a bold one, that drove a law-abiding attorney to become a criminal, that turned a family-loving husband into a man without a home, that forced a life-loving man to live like a monk. I am no more virtuous or self-sacrificing than the next man, but I found that I could not even enjoy the poor and limited freedoms I was allowed when I knew my people were not free.”

His life message is clear –  Life is not about whether one lived on bed of roses. It is about how one plucked all the thorns that were hurting and cleared the road ahead for others.

There are very few leaders of his calibre in the world. His autobiography – Long Road to Freedom – draws the essence of the man and his guiding principles.

1)    Privileges by bloodline – I maintain that nurture, rather than nature, is the primary mould of personality

As a child Mr. Mandela was neither the most intelligent or talented in his school. He was average in studies, sports and arts. As a young man he initially didn’t understand the magnitude of racial discrimination and wished just to have a job to support his family. Though he belonged to an esteemed South African family, he realized that wasn’t sufficient. As he said –

“No one knew or even cared that I was a descendant of the illustrious Ngubengcuka. The boarding master received me without a blowing of trumpets and my fellow students did not bow and scrape before me. At Clarkebury, plenty of the boys had distinguished lineages, and I was no longer unique. This was an important lesson, for I suspect I was a bit stuck up in those days. I quickly realized that I had to make my way on the basis of my ability, not my heritage. Most of my classmates could outrun me on the playing field and outthink me in the classroom, and I had a good deal of catching up to do.”

His commitment to the political cause grew over time. He learnt the ropes from his mentors and colleagues. He became a great leader after many trial and errors, failed miserably repeatedly and continued on the journey. His choices made him a great leader. Leaders grow and mature. They are  not born.

2)     Leadership – A leader is like a shepherd. He stays behind the flock, letting the most nimble go out ahead, whereupon the others follow, not realizing that all along they are being directed from behind

Mr Mandela learnt that leader has to be like a shepherd when he attended his regent’s gatherings as a child. He realized that in the  tribal hearings, after explaining the nature of the meeting, the chief listened to everyone and didn’t utter a word.  Some speakers vocally disagreed with him and criticized him, but still their views were valued. Consensus approach was followed and the minority concerns weren’t overlooked in favour of the majority.

He said – “A minority was not to be crushed by majority.” He displayed these principles throughout his leadership. During the freedom struggle he formed alliances with the communists and Indians. On obtaining freedom, he assured the fights that he didn’t want them to take to the sea. They would retain their place and rights in South Africa. They had nothing to be scared of. South Africa was for all people who lived there -white and black.

3)     Dealing with the enemy – Even as a boy, I defeated my opponents without dishonoring them.

Nelson Mandela maintained the dignity of his opponents even while they humiliated him at every turn. He learnt the lesson in childhood when he attempted to ride a donkey in front of his friends. The donkey threw him off, he became the butt of the jokes of his friends and lost face. When he regained his freedom after 27 years of captivity, he didn’t hate the white people, he hated the system which dehumanized people. His deep understanding of human nature is narrated below:

“Freedom is indivisible; the chains on any one of my people were the chains on all of them, the chains on all of my people were the chains on me. It was during those long and lonely years that my hunger for the freedom of my own people became a hunger for the freedom of all people, white and black. I knew as well as I knew anything that the oppressor must be liberated just as surely as the oppressed. A man who takes away another man’s freedom is a prisoner of hatred, he is locked behind the bars of prejudice and narrow-mindedness. I am not truly free if I am taking away someone else’s freedom, just as surely as I am not free when my freedom is taken from me. The oppressed and the oppressor alike are robbed of their humanity.”

4)    Impact of inequality – It was not lack of ability that limited my people, but lack of opportunity.

Around the world, inequalities in income have resulted in the poor and underprivileged struggling for food, clothing, shelter and an education. The blacks were denied fundamental human rights that even took away the option to dream of a glorious life.  His poignant words describe the plight of the people:

“They will cough their lungs out deep in the bowels of the white man’s mines, destroying their health, never seeing the sun, so that the white man can live a life of unequaled prosperity. Among these young men are chiefs who will never rule because we have no power to govern ourselves; soldiers who will never fight for we have no weapons to fight with; scholars who will never teach because we have no place for them to study. The abilities, the intelligence, the promise of these young men will be squandered in their attempt to eke out a living doing the simplest, most mindless chores for the white man.”

Unfortunately, nearly 25% of the world population still is in dire straits because money measures the success of a man. A skyscraper built in a man’s name makes him feel on the top of the world when he just needs to lie on the grass at night and see the stars shining brightly in the sky.

5)      Moral Dilemmas — I thought what I was doing was morally right, I was still uncertain as to whether it was the correct.

A unique attribute of Mr. Mandela’s personality is that he often questioned himself whether he was taking the right decision. He saw both sides of the coin and realized that sometimes there were no easy answers.

One such instance was in his college life. He was on night watch to see that other students followed the rules. However, he saw another student who had similar responsibilities misusing his privileges. He then thought –  Quis custodiet ipsos custodes?” (Who will guard the guardians themselves?). He wondered whether it was right to report the other students when the one in authority was misusing his?  In another situation he was putting his life on the line and he questioned himself –

“Was I sabotaging my academic career over an abstract moral principle that mattered very little? I found it difficult to swallow the idea that I would sacrifice what I regarded as my obligation to the students for my own selfish interests. I had taken a stand, and I did not want to appear to be a fraud in the eyes of my fellow students. At the same time, I did not want to throw away my career at Fort Hare.”

 6)     Love and family – I do not mean to suggest that the freedom struggle is of a higher moral order than taking care of one’s family. It is not; they are merely different.

Another aspect that he continually questioned was whether he was right in sacrificing his family obligations for the freedom of South African people.

“I wondered — not for the first time — whether one was ever justified in neglecting the welfare of one’s own family in order to fight for the welfare of others. Can there be anything more important than looking after one’s aging mother? Is politics merely a pretext for shirking one’s responsibilities, an excuse for not being able to provide in the way one wanted?”

 Mr. Mandela gave up the joy of living at his home with his wife and children. He never saw his children grow up. He became the father of the nation without being able to enjoy the simple pleasure of being a father to his children.

Closing Thoughts

nelson oldI think all of us wonder how a person can live 27 years in prison, face indignities and humiliations and come out of it with such a remarkable and generous spirit. So I am closing with his inspiring words:

“I never lost hope that this great transformation would occur. Not only because of the great heroes I have already cited, but because of the courage of the ordinary men and women of my country. I always knew that deep down in every human heart, there is mercy and generosity. No one is born hating another person because of the color of his skin, or his background, or his religion. People must learn to hate, and if they can learn to hate, they can be taught to love, for love comes more naturally to the human heart than its opposite. Even in the grimmest times in prison, when my comrades and I were pushed to our limits, I would see a glimmer of humanity in one of the guards, perhaps just for a second, but it was enough to reassure me and keep me going. Man’s goodness is a flame that can be hidden but never extinguished.”

References:

Long Road to Freedom – Autobiography of Nelson Mandela

Malala Yousafzai – The Youngest World Leader

A kid can take on terrorists of the world. This isn’t a joke. Malala Yousafzai, the 16-year-old education activist from Pakistan did just that. Last year Taliban shot her in the head and killed most of her friends. She recovered after a brain surgery and gave a speech at  the United Nations. She can teach  adults about leadership. . She has shown courage under fire. She has become an inspiration for young children and women to fight for equal rights. She is battling adversity non-violently with determination and persistence for the grater good of humanity.  She has become the voice of the young, has put their cause above her safety and life. Now this is a leader worth following. Below is the speech she gave at United Nations.

We need more youngsters to lead the world. Their idealistic thought process, commitment and courage can change the world. Unfortunately, age has only taught us to be so-called practical realist where the focus is on earning money, building a career and looking after our immediate family. We consider ourselves mature when we are able to put our own selfish interests first and foremost at the cost of harming the world. The old cannot change since the thought process and habits are ingrained in them. They have become jaded and cynical as life has dealt them with many wounds. They didn’t have the courage and character to stop being victims.

The young can build a better world for themselves without relying on the older generation. Take the torch in your own hands to  lead the world. Become an inspiration.

Strategy For Funding Risk Management Departments

Organizations want risk managers to focus on reducing costs of doing business, especially the regulatory costs. However, when risk managers ask for resources and budgets for running the department, they have to compromise. Lack of budget is generally the main cause for not implementing enterprise risk management, doing strategic risk management, building a risk management culture and providing consulting.

Generally, the budgeting process starts in the last quarter of the year. When the budget committee is approving other revenue earning departments budgets, risk management department heads present a cost budget. This does not go down well with the budget approval committee. They cut ten to thirty per cent of the budget despite risk managers giving valid justifications.

After budget approval, risk managers spend the year trying to squeeze in as much as they can. Sometimes it results in limited coverage and high stress levels for risk managers. With the increasing focus on risk management, the heads of risk management departments need to form a strategy to obtain the required funding. Look at the tips below to navigate the tricky budget approval process.

1. Start at beginning of current year

Start preparing for next year at the beginning of the current year. Identify the long-term and short-term projects. Commence influencing the key stakeholders of the long-term projects from the first quarter of the current year. If risk managers are the last one to submit their budget, they are unlikely to get heard.

2. Analyse the reasons for past failures

Assess the reasons for non-approval of the budget in previous years. Was it because the management thinks risk management is unimportant, is concerned about costs or it harms the interests of the key political players in the organization. After determining the reason, formulate strategies to change the mind-set for next year’s project approval.

3. Build relationships with key political players

Chances are that risk managers focus on the budget committee members for approval. Instead, identify the key power holders within the organization. Identify their relationships with the budget committee members. Before influencing the budget committee members, build relationships with key power holders. Get their support for the risk management function by understanding their drivers and motives.

4. Participate in business strategy formation

Involve yourself with the business strategy group. Identify various risks of the changes in business strategy and recommend the mitigation costs for the same. Attempt to incorporate the risk management budget in the strategy implementation costs. Align risk management budget with corporate goals and strategy.

5. Calculate the Return on Investment (ROI) for various projects.

Robert Biskup wrote an excellent article on Corporate Compliance Insights – “Making the Bottom Line Case for Compliance: The ROI of a Robust Compliance Department”. The nine points give superb ways of calculating ROI. Use the methods to negotiate with the business teams as the department can give a clear demonstration of cost savings or profit earnings. Do ROI calculations for previous years’ projects to demonstrate the value that risk management departments brought to the table.

6. Make business teams bear the cost of the project

For the projects, identify the stakeholders in the business teams. Categorize the projects as critical, necessary and optional from risk management perspective. Sometimes, risk managers spend time doing optional projects at the expense of critical projects, as they cannot refuse powerful business heads. In such cases, present the advantages of getting the assignment done. If possible, check whether business team will merge the cost of desirable projects in its budget next year rather than have it in risk management budget.

7. Build flexibility in budgets

The budgets go haywire when unexpected risks arise or regulations change. Suddenly risk management departments are in fire fighting mode and regular work is ignored. That is bad for business, since other critical risks remain un-monitored. Hence, estimate different cost budgets with probability of various risks and disasters occurring. Present these as contingency budgets to the management and take advance approval for the same. Risk mitigation efforts are delayed when risk managers take approval after a disaster has occurred. Revise the budgets quarterly as the business budget changes.

Closing thoughts

 Generally, risk managers have a financial background so they are outstanding at preparing the budgets. However, problem occurs when they do not have the negotiation skills and political strategy in place. Last quarter efforts do not work because everyone is on the same bandwagon. Gain a head start by starting in the first quarter itself. Be the first one to get the required approvals, so that the function gets what it wants.

Related article: Political Strategy for Risk Management

 

Political Strategy For Risk Management

A recent report published on Harvard Law School blog stated that in 81.2% of manufacturing and 73.6% of the non-financial sector companies have not appointed Chief Risk Officers (CRO). Interestingly, 83.3% of the financial services organizations have appointed a CRO with direct reporting to the CEO. This indicates, that unless mandatory, the risk managers do not have high visibility. Though their role is important in all sectors, they are unable to leverage themselves among the senior management. This issue is not new, and most complain at not getting a seat at the table.

 1.     Develop Political Skills

We need to look this issue from another lens. We need to develop a political strategy for the risk management department. Reason being, technical expertise on a subject takes one up only to the senior middle-management level. At senior management level organization politics dominates decision-making. Hence, risk managers need to develop political skills and astuteness to survive and thrive at that level.

However, the challenge is that though risk management job requires high political skills, very few work at developing them. According to an organizational study, ~ 65-80% employees avoid politics, ~15-25% indulge in negative politics and ~5-10% participate in positive politics.  Risk managers need to develop skills in positive politics to influence senior management.

The positive politics players have win-win, ethical, organization focus, enlightened self-interest, collaborative and best interests of the business mindset. Indulging in negative politics will be harmful as the group has  win-lose, non-ethical, upward focus, self-interest, competitive and personal gain mind-set. Viewing politics as dirty and avoiding it, isn’t an option. Politics prevails in organization DNA and one has to choose how to play it.

 2.     Implement a Political Strategy

Another aspect to look into is that risk managers have to influence the organization to build a risk culture. The concerns of the junior managers differ from those of middle managers and senior managers. Moreover, different business units have clashing interests and priorities. Stumbling from one person to the other and trying to influence them on a random basis will not benefit the organization or the department. Therefore, to influence each sub-group positively, risk management departments need a political strategy.

After developing the political strategy, risk managers need to implement and run with it consistently over time to reap success. It will involve getting supporters, appointing campaign managers, forming coalitions and doing some secret handshakes. Risk managers of course have to walk a fine line of maintaining independence and objectivity while implementing the political strategy.

 Closing Thoughts

Success in organizations depends on how well a person manages their own expectations by understanding the political game. Corporate world is a jungle. One cannot expect that people will make rational and logical decisions in the best interest of the organization. Risk managers will remain on the side lines unless they learn to trapeze the political web. The good news is one can learn political skills.

References:

  1. Risks in the Boardroom – Harvard Law School
  2. Investigations in Organizational Politics

Missing Men of Honor

royal disgrace

The Story of Disgrace

A wave of shame and disgrace washed over Indian Premier League’s (IPL) Rajasthan Royals team. Three players of the team – S Sreesanth, Ajit Chandila and Ankeet Chavan – were identified as part of the spot fixing racket. Eleven bookies were involved. Investigators have found some evidence connecting it to underworld don Dawood Ibrahim.

As per police disclosure Chavan was paid Rs.60 lakhs by the bookies, Sreesanth and Chandila got Rs.40 lakhs each. By the number of matches they have played they would have earned a few crores each. The bookies lured the players by throwing parties and providing female escorts.

It is shocking that players with such international repute and excellent career opportunities would take a criminal route to earn money. One wonders what they were thinking. Were they joyously throwing up their hands in the air and dancing with happiness. Did they think that for a few millions they would be breaking the hearts, trust and expectations of billions of people, starting with their family?

It is reported that Rahul Dravid, the captain of the team suspected something. He made Sreesanth sit a couple of matches and the team managers asked him to leave the team. How painful it must have been for Dravid, a man reputed for gentlemanly conduct.

This isn’t the first time followers hearts have been broken by their idols.  Now the cancer has spread through all facets of life. Indian politicians – Gandhi, Nehru, and Azad – were known for their impeccable behavior  Congress leaders fought for Indian independence. They spent years behind bars to fight for a cause. Now Indian politicians spend time behind bars for corruption and fraud. Instead of feeling shame or humiliation, they get back into public life with renewed vigor to mislead people and make money.  Over 30% of Indian politicians have a criminal track record.

The new breed, who have joined the infamous bandwagon are senior managers of Indian corporates. After Satyam and 2G telecom scam, their names appear frequently for being interrogated by CBI and spending time in jails.

Valuing Honor in Our Lives

So where has honor disappeared? Previously, the mark of distinction for a man was when people referred to him as – “he is an honorable man”.  Having a dishonorable reputation was disastrous socially and professionally. Now, honorable men among leaders can be counted on figure tips.

As a world civilization, we need honor back in our bloodstream. Without it, humanity will reach new levels of depravity. We require men and women to work dedicatedly to get it back for the sake of next generation, though it is a challenging task.

The cynics will say it is a pipe dream and point out various flaws. The idealists look at the times gone by and wish the same could somehow come back. The practical breed has learnt to work like an automaton to earn a living and look at nothing else.

So where do we get our heroes who will change the world for us?  The heroes have to pay a price. Lincoln, Gandhi and King – were all assassinated because they dared to bring about change. From the first step to the end of their journey they made personal sacrifices. They repeatedly saw failures, their hearts sank with despair and somehow they gathered their strength to walk on thorns again.

In the present world, who would wish to trade the high life, luxuries and comforts for a life full of dynamite?

But unless we do so, we are bestowing the next generation a dangerous life.

So our choice is between our generation and the next. Do we want to look that far ahead?

Closing Thoughts  

When we talk about change, our hackles rise. Even when it is obvious that we should change, we don’t want to. That is a human failing which 100% of us have. Our best excuse is that we can’t change the world, who would listen to us, how can all the people change? But if we study change, we just need 10% of the people to believe in our cause. That is, we need to influence just 1 in 10 people in our life. That doesn’t sound very difficult; all of us are capable of doing it. So why not give it a shot, and bring honor back in our lives. I leave you with words of Dorothy L. Sayers from Gaudy Night:

“If it ever occurs to people to value the honor of the mind equally with the honor of the body, we shall get a social revolution of a quite unparalleled sort.”

References:

IPL match fixing 

Risk Managers – Tone Down That Report!

This week three renowned figures – Angelina Jolie, Larry Page and Christine Quinn – disclosed their medical problems to the world. They discussed battle with breast cancer, paralysis of vocal cords, and struggles with bulimia and alcoholism. Jolie, a woman famous for her beauty bared her mastectomy details. They talked about fear of death and handicap, and frailty of human character. They risked high-profile careers by being candid. One word describes their actions – Courage.

However, the corporate world wants to hide behind lies and window dress their weaknesses. The corporate leaders sometimes threaten risk managers and auditors to tone down their reports. The messengers of bad news get shot. Risk managers face bullying, retaliation and threat to their jobs for showing courage to speak the truth. If they refuse to bow down to pressure, the business teams label them as politically dumb or difficult to deal with. Question is – should risk managers tone down their reports to please the business teams?

I want to discuss a couple of scenarios here and you decide the course of action.

Scenario 1- Don’t report correct facts to avoid giving bad news

Let us say, you are a CXO of an organization. You have a heart problem and visit a doctor who is a good friend of yours.

The doctor realizes your heart condition is bad. You require a heart surgery for four bypasses. The doctor doesn’t want to deliver the bad news to you, because he doesn’t wish to hurt your feelings.

The doctor tells you  – “You just have too much stress. You need a vacation to relax and have some fun.” He prescribes you some vitamins and discharges you.

You follow your doctor’s advice, take a vacation. You swim and jog for a couple of days and have a heart attack. You arrive at the hospital with a survival chance of 5%.

Did the doctor do the right thing by not telling you the truth?

Scenario 2 : Don’t report correctly to protect a friend

A civil engineer responsible for doing quality and inspection checks of a bridge notices that sub-standard quality of material is used. There is a high risk of bridge collapsing. However, he issues a clean report to his seniors because the engineer-in-charge of the bridge is a friend of his.

An organisation’s senior managers drive daily across the bridge to reach their office. One day all of them are on the bridge and it collapses. All die.

Would the families of the senior managers be happy with the quality control engineer’s for not disclosing the risks?

My guess is most of the corporate readers would have answered no. You would have preferred the truth when it is a question of your own life being at risk.

Corporate Scenario

So why don’t corporate citizens hesitate when they put other people’s life at risk. See the Bangladesh factory fire, Japan’s nuclear disaster or US banks home foreclosure and mortgage mess. Employees, customers and public lives or life savings were put at risk.

Wouldn’t a few honest risk management reports helped in fixing the problem in time to prevent the disasters?

The corporate world maintains double standards on reporting risks. They want full disclosure of the risks to them but not to others. Before setting these expectations, corporate citizens should answer these questions:

1) Isn’t it a risk manager’s job to identify the health problems of the organization, prescribe a cure, suggest amputation where required and nurse the organization back to health?

2) Is it right to compromise professional ethics and code of conduct to keep a few people happy?

3) Aren’t risk managers responsible for calculating the direct and indirect cost to others for non-disclosure of risks?

4) Shouldn’t risk managers hold their ground and stick to their independent advise as you will benefit from it in the long-run?

Closing Thoughts

Moral courage is one of the most difficult qualities to acquire. Larry Page, as CEO of Google fulfilled his responsibility to the investors by publicly disclosing his medical problems. Now the investors can make an informed decision. One has to admire Page for taking such a difficult call. It takes guts. Disclosing personal weakness makes one feel vulnerable, exposed and fallible. He has shown the path for corporate leaders to follow.