December 22, 2014
ERM Alive and Well in Middle East
The problem is that the corporate culture shuns risk-taking so much that it can inhibit necessary innovation.
Having returned from a week in Dubai, where I co-chaired the 4th Annual Middle East and North African ERM Conference and led a two-day workshop on risk and strategy, I am pleased to report that ERM is alive and well half-way around the world. This reinforces my similar experience at the same forum (2nd annual) in 2012. While there may be a perception of free-flowing money and excess in this region, it is clear that key companies in many industries, including finance, energy and healthcare, face most of the same challenges in driving effective risk management strategies and programs as many of the companies in the West. Even though many risk leaders in the Middle East gained their educational backgrounds in Western institutions, where in many cases ERM is still a suspect discipline, many have nevertheless gained significant traction with advanced risk management strategies in their companies.
An interesting angle was revealed at the MENA conference that raises challenging questions for many of these practitioners. It emerged first as an informal, anecdotal comment about the challenge of raising the profile and effectiveness of risk management functions where there was little or no tolerance for risk. While most risk professionals face this challenge at one point or another in their careers, it appears more widespread in this region. The question is: why, and how to do you manage through this dilemma?
First, recognize that all organizations have a risk attitude that ranges from extreme risk aversion to a radically risk-seeking culture — you have a risk culture by default, if you don’t actively design and implement the risk culture you desire. Most often, the actual risk attitude plays itself out in risk-taking behaviors that form the basis for a risk-appetite framework and strategy. Within the context of a risk culture, which is defined primarily by the risk-taking behaviors of employees, every person has a risk attitude and appetite for risk.
The collection of these appetites and associated risk-taking behaviors can lead to what the MENA region seems to reflect, namely little or no tolerance for certain risks. That risk culture will frequently lead to performance issues or product/service pricing challenges that affect competitiveness and reputation. While it is appropriate to avoid certain risks, doing so is generally a bad choice when growth through innovation is desired; risk-taking comes with that strategy.
So attendees at MENA and others who wrestle with risk aversion should realize that this is incompatible with long-term success in a competitive environment. As a result, they should commit to developing a consensus for a risk culture that aligns with an appetite for risk that is consistent with balanced or prudent risk taking.