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simulation three centuries before Stanislaw Ulam developed
the first electromechanical computer, which accelerated the
West’s nuclear weapons program in 1945.
Jacob’s nephew Daniel went on to do some amazing
groundwork directly in the field of risk management,
because he not only understood how to make an aeroplane
fly (Bernoulli’s principle), but also how gamblers and
investors used a complex mental equation (the ‘expected
utility hypothesis’) to decide when to risk their money to
realise an opportunity (Briggs, 2015).
Let me come to the point of my historical ramblings. The
knowledge that a spinning coin can be good or bad news,
depending on the gambler’s call, is the very essence of
running a successful business, and not a modern concept
at all (Hogarth and Pooley, 2015).
These gaming concepts pervaded the Greek, Egyptian and
Roman empires before they grew to generate $10 trillion
in legal gambling today (Glimne, 2016). Yet, in all that time,
through all of those centuries, including the 21st century
so far, no organisation and no standard has delivered a
common workable approach for an organisation.
What I’m stressing here is that it’s not a lack of technical
understanding that stops us from propelling our profession
forward, but the reticence of the board and management
to make the substantial direct effort that it takes to do
so. Currently, the vast majority of organisations put
compliance, and the comfort of marching in harmony
with their peers, well above the sentiment behind carpe
diem. The smartest people in the room – the directors and
senior managers – are certainly not focusing on the risk
management framework (RMF) in a way that creates the
best possible climate for setting, achieving and exceeding
The essential first step in addressing this lethargy or
blindness is to define the risk appetite and risk tolerance
for the organisation in the very terms of success and failure
used by the board and CEO at annual general meetings.
I was delighted to see that, at the 2015 RMIA National
Conference, Coca-Cola Amatil is an exception to this.
Surely, this is an obvious step, given that you can’t design
an excellent delivery system without a well-defined target.
Nevertheless, experience shows that board and executive
teams prefer the luxury of back-seat driving where the
integrity of the RMF is concerned. In the vast majority of the
global organisations that I have worked with over the past
25 years, the board and executive have had only tokenistic
engagement in the RMF design, and this doesn’t seem to
change with the passing of time, no matter which standard
or catchphrase is being heralded as the new horizon.
Many risk professionals are not even aware of the
expectations of securities exchange guidelines, and yet
they are left to lead the way. To reiterate, in Australia, the
board is responsible for setting the risk appetite for the
entity, and the management is responsible for the design
and implementation of a risk framework that ensures that
executive decisions are made within the appetite range.
The board must also oversee that framework and check for
soundness (ASX Corporate Governance Council, 2014).
This is critical, because only the board can speak to the
financial expectations of the investors and their preparedness
to accept risk in order to achieve strong returns. In addition,
the board is the only entity that can assume organisational
responsibility for balancing the societal benefits of jobs and
gross domestic product, against potential negative social and
One common thing that indicates that boards are not
coming to terms with a meaningful appetite statement is
a risk appetite or tolerance that includes a zero. In such
cases, the board has failed to concede that risk is ever
present, and is often the very reason its product or service
Risk management is a practical science, not a crusade, and
zero risk results in sub-optimal gains in both investor and
social responsibility performance. In the financial context,
you don’t even get to sit at the table without risking your
stake. In regard to safety/social risk, those that try to deliver
everything are the most likely to miss the biggest gains. A
surprisingly high proportion of the biggest industrial disasters
of the last 20 years have occurred shortly after a site has
been given a significant health and safety award for excellent
safety performance. By focusing on the measurement of
low-severity incidents, the probability of catastrophic events
is significantly increased (US CSB, 2012).
Let me make myself clear: I’m not saying that improvement
is not important. Indeed, any year that isn’t better than the
previous year is some level of failure, but let’s take a step
back and look at this as calmly as we can. Twenty-five
centuries ago, the original master of the infinity concept,
Zeno of Elea, delivered a suite of paradoxes to the
* Note: for government departments, the minister has the board role
and the department heads are the executive team.
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