How Fortune Rewards the Brave

We try not to repeat the same mistakes when bad things happen. And when I write “we” I mean you and me, the companies that we work for, and the institutions that govern us. Unfortunately, we all are prone to worrying about the wrong types of errors and avoiding what seem like the most dangerous risks. Instead, we need courage to look ahead.

You can often look to governments for wide-scale risk management policies. The United States Sarbanes-Oxley Act of 2002 sought to protect shareholders and the public in the wake of Enron and Worldcom. And after our latest financial crisis, banks altered their business models, while businesses clamped down on credit and made sure they were not placing too much faith in mathematical calculations.

The problem is, you cannot manage risk looking in the rear-view mirror. It is not something that can be retrospectively solved, because risk is constantly shifting. This applies to people and economies.

But that is what companies and regulators do. They spend half their time evaluating legal, compliance and financial reporting risks but focus little attention on what actually matters most. They ignore their own thinking and plans — to their detriment. We know this is true for organizations because approximately 86% of market value loss over the last decade can be attributed to a lack of attention to strategy.

A hunker-down approach only hurts growth and slows down progress. Corporate strategy officers estimate that the rate of revenue growth might double if they could only be bolder in their decision-making.

The real risk to your business is in your business strategy and product plans. Instead, focus your energy on where you are headed. Be more responsive and go faster.

Risk management is all about avoiding negative outcomes, but focusing on uncertainty harms your ability to produce great results. It is a drag on performance and creates a culture of fear, rather than encouraging rapid progression and innovation.

Fortune rewards those who have the strength to look beyond the fear of risks. So, here is how to focus on what really matters, while creating an environment where damaging decisions are avoided.

Share a clear purpose Purpose is much bigger than financial outcomes — it is about a higher good. CEOs must take responsibility to establish a clear purpose for the business and communicate this value to employees. This helps to establish a moral framework for the company and lays the groundwork for a renewed strategic focus.

Set clear goals Establish a clear set of goals that tie back to your purpose. A goal-first approach gives employees room to innovate and space to create within your strategic framework. Check in with your team consistently to make sure the goals are still on target and redirect when necessary.

Allow employees to make “risky” decisions Executives and compliance officers cannot attend every meeting or make every important decision. They need to trust employees to make them. To do that well, they need practice. Give every employee the space to make decisions appropriate to their role and experience. This provides critical experience, drives accountability, and creates happy employees in the process.

Spot check Executives should spend time participating in meetings that they usually would not attend. They should join customer calls, and review support interactions on a regular, but unscheduled basis to provide feedback and guidance.

This provides a terrific way to create “teachable moments” and keeps leaders closer to what is really happening in the organization. It stimulates new ideas, streamlines operations, and illuminates organizational behaviors that might lead to bigger problems if they are not corrected.

It’s time for most organizations to start focusing more on the greatest threat to their business — poor strategy. Strategy is the cornerstone of every organization, so do not let it fail you.

If you get it wrong, you may no longer have a business. And possessing a clear strategy is a natural defense against rogue employees making misaligned decisions.

More shareholder value has been lost due to poor strategic decisions than anything else. It is time to acknowledge that truth and put your energy into creating greatness, not avoiding it.

What do you think is the biggest risk to your business?