No, it’s not a play on words, it’s a real quandary. Can business owners maintain healthy risk appetites while simultaneously achieving their strategic and tactical business goals? If so, how?
In the compliance world, risks are a common dilemma. There are operational risks, reputational risks, financial risks, personnel risks, and more. Most businesses, regardless of size, face one or more of these risks if they want their business to grow. So to some degree, in fact, growing your business requires engaging in some sort of risk(s). I’ve come across some business owners who were more comfortable than others in taking heightened risks. A compliance professional can help business owners or management determine if they have healthy risk appetites, or unhealthy ones. These matter, because sometimes compliance becomes secondary for those unleashed owners or managers who focus on the end game instead of how to “compliantly” get there.
A risk appetite is the level of risk a business owner or manager takes in order to achieve the business objectives. A business owner with a healthy risk appetite includes one who does the right thing when no one is looking . . . in all deals. I define a healthy risk appetite as one that allows business owners to innovate and soar while competing ethically in the market and conscientiously considering their impact on the Company’s assets. (Assets can mean money, personnel, executed business contracts, etc.)
In all the risk assessments that I perform, I pay special attention to identifying the business owner’s risk appetite. Risk assessments, if conducted properly and effectively, reveal unknown risks and cause business owners to analyze their “risky” behaviors and the impact those behaviors have had or will have on the company. I’ve met business owners who care and those who don’t. It’s those unconscientious business owners who simply focus on the endgame. It’s possible that officers or managers experience pressure to meet the strategic and tactical goals. I’ve worked in Silicon Valley where the pressure to perform and meet strategic goals was always intense. But despite these pressures, compliantly getting there cannot and should not be compromised, as the benefits received when remaining compliant are quite significant.
So, how do business owners maintain healthy risk appetites while achieving their strategic and tactical business goals? Is it acceptable for business owners to rely on their gut instead of methodically considering the consequences? Ultimately, risks have to be considered when making business decisions. From my experience, business owners have to be taught about risks, the likely occurrence, the likely impact, the severity of that impact and the corresponding consequence. During a risk assessment, these elements can be measured via both quantitative and qualitative methods. Once business owners are made aware of those elements, they, with the help of the compliance professional, will have to rank their risk tolerance. In every risk assessment I’ve conducted, the business owner walks away with data they never knew. The reality of the most defiant business owner has changed after a well-performed risk assessment.
A healthy risk appetite finds the balance between low ranked risks versus high ranked risks, all the while complying with legal obligations. A risky healthy risk appetite is one where the endgame overshadows the legal obligations, or put simply, not doing the right thing when no one’s looking. A healthy risk appetite allows businesses to grow while preserving its foundation.