Strategia’s Co-founder and Managing Partner, Iain Pickard, was invited to participate as keynote speaker at the recent Bloomberg Sellside Enterprise Forum. The presentation took the form of a ‘question and answers session’, with Dr Phil McCabe, discussing ‘whether on the battlefield or in financial markets, forward planning is the major factor in mitigating risk.’
A conversation with Iain Pickard
You spent over 20 years in the army, but for the last 15 years have been in the commercial world in a number of senior management and consulting roles, mainly in Financial Service. So, you have a foot in both camps, are there any differences in the way risk is managed in the military and outside?
Yes, there is no separate ‘risk’ function in the military, it’s integral to command – front and centre of planning and operations; not delegated to a ‘risk manager’ or a risk department.
What are the similarities in risk between the army and commercial?
Very simple really, any effective planning process, if it is to be effective, must incorporate a robust risk assessment; thinking through what might go wrong and what can be done to minimise the chances of it happening. As we say in the Army; ‘the enemy gets a vote’ and it’s a good working assumption to plan on them being just as smart or smarter than you!
Do you see regulations, designed to reduce systematic risk, as having unintended consequences?
Yes, very much so. Making risk a specific function, which most regulatory regimes require, can encourage front line managers to think it is someone else’s problem and not something they need to worry about. There is an argument that this is what was what was at the root of what went wrong in the culture of banks such as Lehman’s.
It can also lead to what the insurance industry calls ‘moral hazard’; because people think someone is looking after ‘risk’ they can take gambles they would not otherwise take. Finally, there is an element of complacency when an organisation has succeeded in ticking all the required boxes, but they have to move ‘beyond compliance’.
You must see many instances where risks have been managed poorly, are there any common themes that you can identify?
Yes – a poor risk culture!
– Where challenge is discouraged, bad news is not welcome, ignored or shelved.
– Where senior leaders are in denial, heads in the sand, hoping it will go away
– Where risks not identified early enough; before funds are committed. As a result, risk treatment plans are an afterthought – and undercapitalised as a result.
How do you go about assessing risk in a new organisation; are there particular things you look for or people you need to speak too?
Winning confidence is critical. It helps to be independent; to provide a non-judgemental sounding board. It’s essential to to have industry experts that understand the structure of the business and therefore know who to speak to and what questions to ask, in order to ‘join the dots’ and identify interconnected risks, and assign severity of risks. There is no substitute for experience here.
We speak to people at all levels; for a risk review of a mine run by a large global mining company in Latin America we spoke to everyone from Head Office, the country leadership, the Mining Minister, Greenpeace and the guys driving the trucks at the mine 3000m up in the Andes. One of the best sources of insight was the Union representatives; they were in touch with ground truth, weren’t deflected by the rose tinted view from head office, but at the same time wanted the company to succeed.
Looking over the horizon, what are the emerging risks organisations and investors need to be most concerned about?
I see three key emerging risks:
– Cyber – an ever evolving and increasing threat. Increasingly critical reliance on data and Industrial Control Systems in many industries.
– Environmental, Social and Governance (ESG) – climate change, environmental protection, Human Rights, social responsibility etc; it’s driving the Institutional Investors and is inherently inter-connected to many other risks; reputational, political and security in particular
– Increasing political volatility in many parts of the world; the rise of the populist offering simple solutions to complex problems
What would your advice be for any senior leader or investor seeking to avoid unforeseen shocks and surprises?
– Focus on the four business enablers – Leadership and governance, business structure, strategy, tactics and operations bust most importantly people and culture.
– Get the culture right, risk is everyone’s responsibility, leadership must lead by example and set the right ‘tone at the top’.
– Get the risk governance and control processes right; do a ‘360’ board-level risk assessment, independent oversight by NED’s, 3 lines of defence control framework, etc
– Digitise – make best use of smart technology