Insanity is doing the same things over and over and expecting different results.

Albert Einstein

Thanks to Lexis Nexis for making my most recent article available from the current issue of Risk Management Today to my clients and readers.

The editorial panel was asked to cast their mind back to the most significant risk events over the last 12 months. For mine it was a thematic observation that despite strategic risk being the risk class which causes the greatest long term destruction and creation of shareholder value, it the class of risk most poorly handled. There are many reasons for this, but perhaps the greatest is that these tend to be slowly unfolding events over multiple years and therefore tend to not grab our attention in the same way that a sudden shock does.

The good news is that this risk class is starting to get the attention of the mainstream at the big end of town. The bad news is that there are many spruikers who are apparently suddenly well equipped to deal with this class of risk. My assessment is there’s very little substance to much of what’s on offer. This article offers a festive perspective and (hopefully) a little humour to a serious topic as well as a few pragmatic suggestions on how to get on top of this important risk class.

I hope you enjoy it as a light read during the quiet period and I look forward to catching up with you in the new year.

Key points

• ASX Principle 7 requires a focus on material business risks rather than being swamped by process. At the time of drafting the current Principles, the Corporate Governance Council was concerned that companies were being dragged into the minutia by risk processes rather than using them for strategic insights. From a shareholder perspective it seems their concerns were correct.
• Most risk assessments work on the assumption that all things remain the same. The biggest risk of all is that all things don’t remain the same. This is where black swans often are hiding.
• Here’s a bunch of things to think about over the Christmas break.

Please feel free to download the article and pass it on. (Risk Management Today Issue 6 -Black swans, 3 pages, 132kB)

More information on this publication can be found here.

Seasons greetings,

Todd

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As the developed world pulls itself away from the abyss of the global financial crisis, many around the globe are breathing a sigh of relief. Having dodged a major bullet, organizations are now returning to business as usual. But if the crisis was a wake-up-call for the world, did business leaders and internal auditors pay attention or just hit the snooze alarm? What’s the next “black swan,” or significant unforeseen risk, and what should internal auditors be doing about it?

In this free feature from IIA’s global magazine, Todd summarises several key areas should be on all company watch lists for 2010 and beyond.

http://www.theiia.org/intAuditor/free-feature/2010/february/a-look-ahead-top-risks-for-2010/

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Risk and Responsibility (AHAUCHI Conference, September 2009)

[Streaming video: YouTube - 3 parts, 22 minutes total]

Presented as part of a three day strategy and leadership conference on the future of residential colleges, Todd Davies provides insights into the nexus between governance, leadership and risk, and provides a whole systems perspective into regulatory reform, avoiding the next GFC and the future of leadership on these dimensions.

A Leader’s Responsibility: Governance, Risk and Resilience (AHAUCHI Pre-conference, August 2009) [Streaming and downloadable audio: Resilientfutures.org - 1 part, 26 minutes total] As part of the lead up to the AHAUCHI sessions, Todd discusses the new context for the governance and risk responsibilities of leaders, especially directors and managers; the breakdown of conventional methods of risk and governance management in dealing with these conditions; the consequences of such a breakdown; new processes for more realistic governance, risk and resilience.

The Real Risks of Business as Usual  (Resilient Futures Forum event – “Planning for Growth: Water? Climate Change? Economic Shocks?, August 2008)

[Streaming and downloadable video: Resilientfutures.org - 1 part, 15 minutes total]

This is essential viewing for anyone in a governance, leadership, assurance or strategy role in a large organisation – corporate or government. This presentation is particularly timely given current conditions, increasing market turbulence, and the move by stock exchanges and regulators around the world who are beginning to expect CEOs and Boards to have a strong understanding of ‘material business risk’, and hence strategic risk.

There is also a lot of great material on the resilientfutures.org website and their Youtube channel.  If you are interested in understanding the future, complexity and the challenges and opportunities arising from this, these sites are well worth a look. Enjoy. TDA

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Success is a lousy teacher. It seduces smart people into thinking they can’t lose.  Bill Gates

Most managers feel well equipped to understand and respond to the regular crises that emerge day to day in the business as usual environment. Risk management processes have permeated most organisations which give middle management a sense of comfort that they have things broadly under control.

But those who read the financial press will be aware of emerging state changes which are not picked up by their normal risk management processes.  As such, Directors and Chief Executives reviewing their risk profiles often feel that all of this effort in risk management is missing the big picture.

Emerging risks are known by many names.  Strategic planners call them external shocks.  Resilience practitioners call them discontinuities.  Risk practitioners call them strategic risks.  Economists call them corrections. Taleb calls them Black Swan events.  Greenspan calls it the age of turbulence.

Whatever you call them, an understanding of emerging strategic risks is critical to leading any organisation.

We have a habit of confusing the unprecedented with the unlikely.  Al Gore, Sydney Hilton, July 15, 2009

Todd Davies & Associates draws on a broad range of experts from a range of fields to provide briefings, training and advisory services on:

• Making sense of emerging and interconnected structural shifts, and how to turn these from strategic risks into strategic opportunities
• Making sense of unprecedented risks which are becoming increasingly certain
• Detailed briefings on each of these structural shifts
• Assessing and developing the capabilities in organisations to assess strategic risk on an ongoing basis.

To find out more, call Todd on 02 9043 1719, or email us to arrange a meeting.

What our clients are saying

“We brought Todd Davies in to conduct the “Understanding Strategic Risk” training sessions and they proved to be very worthwhile. Our audit staff appreciated the insights into sources of strategic risk from a local to a global level. No less than six methods of developing strategic capability were discussed providing something for everyone dependent upon your methodology, fit and preferences. Sound value.”  Allan Reidy | Head of Westpac Retail & Business Banking and Product & Operations Audit, Westpac Banking Corporation

Find out more first

Watch a 15 minute video presentation from Todd on gaps arising from typical risk management processes

Listen to a 25 minute audio interview with Todd on some of the key issues for leaders today

Read a brief article on strategic risk and how this fits in with regulation and standard setting

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The presentation was delivered at the NSW ACL user group forum to a group of data analytic and IT audit experts to give them some insights into what the future might hold.

One of the key insights from the presentation is that predictive models now hold less certainty and that 1 in 20 year company transforming events are now looking like 1 in 5 year events, potentially with greater force than previously. 

There are a number of things that can be done about this in terms of creating opportunities and preparing for change based on information in this slide deck, but perhaps a more important theme is the need to create dynamic and flexible organisations which can anticipate and cope with the extent of change that will become even more a fact of life.  Those managers and entrepreneurs who are able to do this will be the winners in the decades to come. 

Watch this space for related discussions in resiliance theory, 21st century capability, open platfrom innovation systems and related topics, or better still, read Larry Quick’s work at http://www.newcommons.com/.  Larry is our man for future thinking and has an amazing tendancy to predict things like the internet and climate change 5-15 years before they reshape the planet.  We are great fans of his provocative and insightful thinking and proud to have an alliance with him.

For a copy of our presentation from the TDA conference, click here.

Postcript

Larry and I are now partners in Resilient Futures.  Resilient Futures is a group of strategists, urban planners, environmentalists and a range of other practitioners who are using resilience thinking as a model to develop resilient organiations.  I’m very excited about this work, and encourage you to find out more at http://www.resilientfutures.org.

If you downloaded the futurecasting presentation and find it insightful, then you’ll want to subscribe to the Resilient Futures newsfeed.  Just follow the prompts on the RF website.

Note: Larry assures me that he is not a futurist, but what I do know is that the Resilient Futures model has an uncanny predictive capability that I do not normally see in risk, scenario planning or policy environments.

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• Clarity and unity of vision and sponsorship by internal stakeholders
• Clarity of responsibility between the various assurance, risk and compliance functions
• Efficiency in delivery
• Optomisation of risk and assurance coverage
• Increased risk-sensing ability
• Streamlined implementation with minimal false-starts

In short, bigger bang for buck and more engaged and satisfied stakeholders.

Please click on a link below to find out more about the type of work we typically get involved with.

Vision

• Vision setting
• Benchmarking
• Internal audit self assessment
• Enterprise governance framework

Enabled by High Performing Teams

• The Virtual Chief Audit Executive
• Getting the most out of internal audit sourcing
• Coaching for rising stars
• Getting the right staff on board

Powered by Leading Practices

• Internal audit transformation
• Audit committee best practices
• Assessing the adequacy of your risk framework
• Understanding GRC software solutions
• Strategic risk and emerging risk capability
• Stress testing your risk profile
• Compliance with the ASX Corporate Governance Council Principles and Recommendations

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