Best Defence is a Good Offence (November 01, 2006)

Canada’s risk managers are discussing a provo-cative new approach to their identity. At the 2006 RIMS Canada Conference in Calgary, a panel of experts took a hard look at the future of risk management and what risk managers need to do to perpetuate the health of their industry.

Essentially, they advocate turning the profession’s whole approach to risk management on its head.

First, some background to help explain why risk managers are discussing a bold new direction. In a nutshell, it’s all about credibility.

The industry has gained a lot of credibility as a profession since the 1980s, as evidenced by the expanding number of risk managers and risk management departments appearing in Canadian corporations since the mid-’90s. To keep the numbers increasing, it would appear the industry is moving towards enterprise-wide risk management – what is known as ‘ERM.’

How do risk managers command enterprise-wide recognition? Risk managers need to have a seat at executive tables across the country. How does one gain the ear of the executive decision-makers? This question goes to the heart of what risk managers are supposed to do.

There is a concern that risk management, defined in its traditional sense, will ultimately raise compatibility issues with the business environment in which it operates.

In Calgary, panelists raised an essential dilemma that faces all risk managers: What is “risk,” anyway, and how can something as abstract as risk be ‘managed?’

The Oxford dictionary tells us that risk is the “chance or possibility of danger, loss, injury, etc.” or “the possibility of an adverse consequence.” Traditionally, the role of a risk manager has been to identify and assess “chances of danger” and to make suggestions or plans that might help mitigate or negate the chance that something bad will happen.

The knock on this conception is that the risk manager is relegated to a passive posture. The dictionary definition of risk leads to the popular notion that the risk manager’s role in a company is like that of a hockey goalie – always on the defensive, always in prevention mode, and always trying to keep disasters from happening.

When accidents do happen, the corporation’s “goalie” is widely ridiculed for not doing enough to prevent them and summarily sent down to the minors when too many “mistakes” light up the team’s scoreboard. Success for a goalie – like that of a risk manager in this characterization – depends on his or her ability to make sure that bad events don’t happen.

The difficulty with this notion of a risk manager – particularly for risk managers who want to gain currency with board executives – is that it doesn’t always square with the corporate sector’s current zeal to appear active. When executives meet, they consider recommendations for action. When resolutions recommending action are defeated, board executives are almost inevitably forced to answer journalists’ questions about “What happens next?” Without any concrete alternatives to recommend, a company appears to be doing nothing, suggesting negative connotations such as stasis, drift, decay, fear and stagnation. None of these adjectives regularly appear in the world of corporate advertising and PR – and for good reason.

Almost invariably, healthy companies are those portrayed in the media as “doing something.” Which means, for a risk manager, shooting down ideas because they carry “the chance or possibility of danger” may not be the way to win friends in the boardroom and influence executive officers.

Essentially companies are asking their ‘goalies,’ their risk managers, to roam out of the net and try to score some goals for the team. In other words, executives want their risk managers not only to prevent disastrous action but to identify concrete actions that carry with them the chance or possibility of reward, opportunity or successes for a company. The question might thus be asked: Do actions associated with good outcomes still count as “risks?”

While debatable, this novel concept, it is argued, may allow risk managers to expand their credibility with board executives and thereby allow risk managers to take their much-deserved seat at the board table. And ultimately, risk managers who expand their horizons to include all chances – good or bad – in their repertoire of risk analysis may soon find themselves displacing those who want to play goalie.

Time will tell where this debate leads, but the fact that risk mangers are contemplating their future suggests the dynamic nature of their profession right now.

david@canadianunderwriter.ca