Risk Management was always viewed as Audit’s evil twin. It is a necessary but unpleasant experience which management hates because it provides direction to assurance providers, allowing them to focus on areas of a business which may represent deficiencies in financial controls and concomitant material misstatements in the accounts – a figurative enema by numbers. And then, if this wasn’t enough, Risk Management has been identified as the 2nd Line of Defense in the management arsenal of providing stakeholders with the combined assurance that all is well on the home front by the King Report on Corporate Governance. I’m sure the sponsors of these reports conceived by Judge Mervyn King hold a special place in the hearts of many fallen cadres of SOE’s and disgraced CEO’s. What did Raymond Zondo say to the SAA Board Chair when he questioned her on governance and control; “You are a Chartered Accountant Ms. Myeni, surely you should know…” Maybe she was thinking about Charles and Camilla when she heard “King”.
But let’s for a moment be practical and ask what the real role of Risk Management should be, apart from being a formal irritant at Board and/or sub-committee meetings. Logic dictates that it develops an informed/appropriate business response to a potential Black Swan Event – like COVID-19, so that it is able to mitigate the residual risk and continue to operate as a going concern. Imagine for a moment BAT’s horror when Dlamini Zuma banned smoking during her infamous; “You mustn’t Zol” address or SAB not being able to trade in Southern Africa because garlic and ginger were no longer enough to keep the dreaded flu at bay, or was that HIV? While the probability of this risk materializing was most likely extremely low, the impact on business activity must have been catastrophic. Although both of the aforementioned companies are multinationals and had sufficient cash reserves to sustain operations, the trickle-down nature of their supply chains – especially the smaller businesses – must have been devastating. And while we can debate the merits of declaring a national state of emergency, more challenges loom on the horizon in the form of political insurrection; infrastructure failure; macro-economic hurdles; et al. So, can effective Risk Management prepare your business for these challenges and is it able to provide you with opportunities that you, as a business can capitalize on and achieve a competitive advantage in the market?
The short answer is YES. Risk Management appears complex but, in my opinion, is all about providing you with a competitive edge. Sure, it can highlight your weaknesses and exposure to threats but it may also identify opportunities for a business to capitalize on with its inherent strengths. There are all forms of complex formulas and complicated jargon but for the man in the hot seat, it is an indicator if a risk is an opportunity worth taking or something to avoid at all cost. Most business leaders I know run a mile when they hear the word “risk” or immediately call their insurance broker, but some enterprises thrive in the face of adversity. Take, for example, the manufacturers of face masks during the COVID-19 pandemic, or the installers of solar panels after the Gupta’s appointed ESKOM’s Board of Directors – they have prospered because they embraced risk.
The process requires a true reflection of self and exposes risks you may want to keep buried in your basement, but the end result holds untold strategic benefits for growing and positioning your organization in the South African and global markets. There are various online articles and courses on this topic, but unless you have a clear understanding of how it can be of benefit to your business, I would approach it with caution.
So, until next time when I unpack Levels of Authority, stay true to yourself and remember that risk is not necessarily evil or be administered by a Proctologist.