Effective Leaders are Natural Risk Reducers

Risk avoidance is a natural, daily function of the CEO, business owner and entrepreneur. After all, as Investopedia defines it, you’re the “highest ranking executive…whose main responsibilities include developing and implementing high-level strategies, making major corporate decisions, [and] managing the overall operations and resources of a company…” By definition, you are responsible for the organization’s overall health, and that means keeping it out of harm’s way.

And, there are plenty of harms. According to Harvard Business Review, the types of risk a CEO must help his or her company avoid are plenty and fall into one of three categories:

  • Preventable risk: With internal origination, these risks come from employees or managers and should be addressed and/or done away with.
  • Strategy risk: Risk is inherent in every organizational strategy; it’s the natural risk that comes from the attempt to develop and carry out a strategic plan (i.e., operational risk).
  • External risk: Of course, we all know of the risks that lie outside any realm of our control—those risks that come as the result in economic shifts or thanks to changes in politics.

Yet, even an executive who is fully aware of the responsibilities that sit upon his or her shoulders, and who takes careful strides to help ensure every decision he or she makes mitigates risk to the fullest, can still run an organization wrought with risk-related issues. The key to getting it right? Culture.

What’s Culture Got to do with it?

We all know culture is important. It creates a standard in hiring, sets expectations for what is to be expected by employees and management, and enforces the ideal image of your brand. For the average company, this means providing a clear definition of values, visions, systems and programs, beliefs and habits, norms, and languages. Examples include the communication of a relaxed or formal work environment; another is one in which the focus is on sustainability and efforts that lead back to prolonging the life of the business and environment.

How some leaders fail, however, is by not realizing that risk aversion should and must be an organizational value—an integral part of the corporate culture. The importance of risk aversion should filter down throughout the organization with crystal clear clarity. Bright executives accomplish this by following these simple rules:

  • Top-notch Recruiting Policies. A lot of internal risk can be avoided with thorough vetting practices, to include applicant screenings, multiple interviews (including 360°), and thorough job-related testing to ensure they know exactly what they should in order to do the job correctly.
  • Checks and Balances. It’s imperative for the organization to be structured in such a way that checks and balances occur on a regular and consistent basis.
  • Strategic Planning. When making strategic plans for the business, do so strategically. Ensure there is a realistic understanding of all internal and external conditions, the presence or accessibility to necessary resources, and that monitoring and ongoing evaluation occur in order to determine progress and/or any need for change.
  • Consistent communication. Risk aversion will become a part of the culture when its importance is made known through consistent and regular communication, and it’s incorporated into the routine of doing business daily. Make sure the example you’re setting aligns.

Of course, it’s not possible to avoid all risk. There’s a likelihood that even with the best-laid and executed plans, the business will still face a dilemma at one point or another. Yet, with awareness and a heightened focus, the risk of risk diminishes. As the old cliché goes: “Risk varies inversely with knowledge.”