Leaders need to recognize that valuing risk performance is not something you achieve, but rather something you continue to work towards and improve.
Today, the interest in how organizations manage their risks extends beyond investors to employees, customers, regulators, and other stakeholders. In order for organizations to be accurately valued by the market, they must both understand and meet society’s expectations. Organizations are being scrutinized on their plans to tackle risks like climate change, workplace diversity, safety and welfare of employees, as well as other relevant risks. It is no longer satisfactory to have a risk register in place, stakeholders are demanding information on how these risks are being managed. There is a clear difference in how industry leaders value and approach risk management within and between sectors. Leaders recognize that valuing risk performance is not something you achieve, but rather something you continue to work towards and improve. This long-view is deeply embedded into leading corporate cultures and frames the approach to risk management. It is this very thinking that separates organizations who are playing the infinite game while their competitors play the finite game.
In Simon Sinek’s The Infinite Game he advocates for taking a long-term view of why an organization exists and how it manages performance. ‘Infinite Game’ thinking goes beyond the outputs, to include the processes and inputs of their control systems. It is a rigorous focus on processes that helps leading organizations navigate the changing context in which businesses operate. Sinek characterizes the two types of games below:
Why should we approach risk performance as an infinite game? Playing a finite game, he argues, makes organizations more susceptible to ‘window dressing’ because of the myopic horizon and associated goal setting. Stakeholders are now demanding more transparency about how organizations are going to achieve their goals and the progress they are making. Leaders must be able to answer what is my current risk exposure and how well are control systems performing right now? Not last week or last month, but right now. Not only does this information serve an organization’s decision-makers, it also demonstrates the efficacy and improvement of risk management to external shareholders.
Think of a 10-year-old student who is struggling with long division. She may be able to get the correct answer, but she will only get full marks if she shows her work. Showing the work demonstrates that she understands how to arrive at the correct answer. It gives her teacher the confidence and comfort that she will be able to get the right answer for similar problems in the future.
When it comes to risk performance, the same principle applies. Why should stakeholders trust a company’s results if there is no underlying performance data? This is the essence of transparency. Risk performance is not something an organization achieves. It is something an organization must constantly measure, analyze and improve. Senior leaders must provide internal stakeholders – those responsible for the performance of control systems – with the insight to help them proactively predict risk exposure and intervene on underperforming areas of the business. This underlying information will provide the leadership with the confidence that results achieved are done so in a safe, repeatable and sustainable manner.
Showing the work - or being transparent on performance - demonstrates the intent for long-term growth and improvement. Sinek sees five characteristics of organizations that will succeed in the infinite game. We have put each of those into the context of valuing risk performance:
The infinite game is a long game. It cannot be played without systems that measure, analyze and improve the performance of control systems that link to an organization's purpose. Underpinned by the appropriate intelligence, organizations can better engage with stakeholders to learn and grow, attracting talent, customers and partners towards their brand. It will be those resilient organizations who, complete with a strong purpose and sector-leading talent, will be trusted to steward and grow the decarbonization and digitization economy.
