The coronavirus is a timely reminder of the pervasive threat of pandemics and
the need for a robust and resilient response from the world's governments,
institutions, and businesses. Terrorism, cyber risk, climate change, and
resource nationalism all have global implications and require a sea change in
the manner in which global actors approach problem-solving and an effective
marshaling of resources.
While too little progress is being made on a routine basis, a paradigm shift
is, fortunately, gradually occurring, setting the stage for achieving more
meaningful risk management outcomes in the future.
Emerging and developing nations have spoken up loudly about the inequities
in the existing global decision-making apparatus, and they are being heard.
Even the five permanent members of the United Nations Security Council
recognize that the current framework for the council's decision-making was
literally created in and for another century. It is a matter of time until the
leading emerging and developing nations have a stronger voice in that body.
Although the United States, Europe, and Japan continue to lead three of the
four largest multilateral development banks (the World Bank, European Bank for
Reconstruction and Development, and the Asian Development Bank), China's
Asian Infrastructure Investment Bank and the New Development Bank (both based
in China) represent a fresh new approach to development finance.
New organizations and standards have proliferated at the national, regional,
and global level, which has created both breakthroughs and bottlenecks in terms
of how new laws and regulations are crafted and implemented. This represents
progress, due in large part to the ongoing pressure being applied to the status
quo by state and nonstate actors. The longer-term challenge is to ensure that
the change that does occur is more in favor of the common good, which is in
everyone's long-term interest. Change can only occur while including the
existing power structure because it is needed to approve change for the
future.
Searching for Risk Management Balance
So, a balance must be struck between those in favor of maintaining the
ancien régime of risk management and those wishing to disrupt it. This
represents a real challenge for businesses, which must, at the same time,
embrace change while not tipping the scales too far in any direction. It is a
delicate balancing act, requiring the right mix of open-mindedness,
adaptability, and accountability. A realistic approach to achieving risk
governance standards that are at once bold enough to foster real change, but
balanced enough not to rock the boat too much, requires an organizational
culture that fosters systematic information sharing and has the ability to
evaluate critical information in an efficient, thoughtful, and timely
manner.
As it is clear that a meaningful approach to risk governance cannot be
achieved in isolation, a diverse range of actors that an organization may not
have been accustomed to including in the decision-making process should become
part of it. Given the range of challenges organizations confront, and the
number of actors on the stage, the solutions are unlikely to be simple and
straightforward—rather, by definition, they will be complex and ambiguous.
By definition, risk governance is intended to address risk management in a
broad context, which includes as many actors, thought processes, and mechanisms
as is practicable. It is not merely the organization that should benefit from
this process, but society at large. How the information is obtained, analyzed,
and interpreted will naturally impact the outcome. Since change is the one
constant in the management of risk, our ability to embrace change and adapt to
it will, in the end, determine how successful and effective our efforts will
be.
In thinking about how to create a framework to achieve this larger
objective, some of the basic questions any organization should be asking itself
include the following.
- Who should be involved in creating an enhanced risk management
framework?
- What model or framework that already exists should be used from which to
build a customized model that ideally meets the needs of the
organization?
- What scope of global operations should be included in the model?
- How and from what sources will the information be collected, prioritized,
and evaluated?
- What are the likely direct and indirect impacts of the model?
- What are the comparative costs and benefits of pursuing each given course
of action?
- What needs to be done to enhance the long-term effectiveness of the
chosen course?
When considering the answers to these questions, it should be borne in mind
that there will be setbacks and things will fall through the cracks. Arriving
at the best methodology will certainly not be achieved with a single straight
line. Long-term objectives should always be kept in mind; focusing on
short-term goals will inevitably generate a secondary set of challenges. When
mistakes are identified, tackle them head-on—delaying the inevitable will only
make a solution more difficult to achieve.
Developing a New Approach to Risk Governance
The coronavirus is but one example of a plethora of slowly developing risks
that pervade the global landscape. Whether a pandemic, financial crisis, or
rising ocean temperatures, they generally take weeks, months, or years to
evolve to the degree that they become a real problem for people, governments,
risk managers, and decision-makers. In order to be thoughtfully addressed, we
must both learn from the lessons of history while also having a distinct
long-term future orientation.
An effective decision-making framework to tackle such risks should include a
focus on systemic issues, decisions that are based on facts (rather than
opinions or observations), flexibility along the way (to account for new
factors that may influence the process), and acting with the firm belief that
recommendations that will be made are both realistic and will be acted
upon.
Risk governance is all about realism, teamwork, effective communication, and
ownership of actions and decisions that were taken or not taken. It is not
supposed to be simple, fast, or straightforward. Getting it right is hard work.
With the stakes so high, no government or organization can afford to adopt a
cavalier approach to the subject. The key messages are that operating in a
cocoon or a silo, thinking about new challenges in old ways, and failing to
have a long-term orientation will not get the job done. Fighting this virus
will require collaboration, open minds about new alternatives, involving new
actors in the process, and turning the pyramid upside down.