It is only slightly arguable, but many believe that the ability to manage risk is the crucible of a leader’s effectiveness. Failure to manage risk and to develop a risk-focused culture will sink the company and the CEO. Citing two recent, highly visible cases, these Ivey professors describe how the leaders of TD Bank Group and Maple Leaf Foods designed and implemented a strong risk management ethos and strategy in their companies.
In an increasingly volatile world there is arguably no more important role for senior leaders than to prepare their organizations for risk – taking it, avoiding it and managing it. This was apparent before, during and after the 2008 financial crisis. Some organizations were ill prepared to manage the risks they had built up over the previous decade of dramatically expanded leverage. They either failed or were badly damaged by the financial markets meltdown and subsequent recession. Others had recognized the risks and had either avoided them or developed robust coping structures, systems, processes and cultures that allowed them to survive or even prosper when the immediate crisis was over.
There were many differences between those organizations that collapsed or were badly hurt – the “failures” – and those that survived and prospered – the “successes.” We conducted an exploratory study of leadership during this time and concluded that the differentiating factors could be found in those organizations’ risk prediction and management competencies; character of their leaders; commitment to hands-on leadership, especially with respect to the risk management function; their management cultures, and other factors.