Executive Guidance for 2010: Confronting Six Enemies of Post-Recession Performance

“As best as I can understand, we are going after multiyear growth in the emerging economies of the world, and we’re making the next two quarters by gutting the compliance and accounting departments. I’m putting our house in my wife’s name." That’s how the governance chair for a U.S.–based, Fortune–500 company summed up a two-day strategy offsite. Joking aside, his assessment rings true at many companies for two reasons:

1. The peril of entering developing markets with underdeveloped risk management
   Many companies are hinging their growth on inherently more risky, developing markets such as China, India, and Brazil. Unfortunately, inertia and cost cutting have left these companies with risk management capabilities that are:
• Focused in the wrong places,
• Far too lean for the myriad commercial and legal challenges they now face, and
• Not agile enough to address rising velocity of key risks.
• Of course the developed world has its own risks. A toxic and unprecedented combination of monetary stimulus; wholesale deleveraging of businesses, banks, and consumers; and nearly $1 trillion in unused U.S. economic capacity confront companies trying to make even the simplest interest rate, currency, and capital planning decisions.
2. The need for faster, more agile, risk management strategies
   While organizations are better at assessing the likelihood and potential severity of risk events, they have ignored the increasing velocity with which risks can occur and swamp a company. The best companies are focusing on strengthening their risk agility and preparing for only the most important and uncertain scenarios.

Most Businesses Will Emerge From the Recession with a New Set of Business Partners— Government Entities at All Levels

 

Confronting the Enemy

• Spend less time on risk assessment and more time on building effective risk response capabilities.
• Test risk metrics for economic relevance before adding them to business scorecards.
• Reduce information overload by reporting metrics on a timeline aligned with their variability and how quickly operating plans can be changed.
• Incorporate speed of onset for risk events into risk prioritization criteria.