<photo: on the trek to Everest Base Camp (EBC). When asked by The New York Times why he wanted to climb Everest, British mountaineer George Mallory, who died on the mountain during his third expedition there in 1924, famously answered, “Because it's there.">
In an uncertain world where it's easier to attack then to defend, resilience means the abilities to recover and adapt in an ever-changing environment. In the 2013 Global Risks Report issued by the World Economic Forum (WEF), resilience to global risks was seen as becoming critical in an increasingly interdependent and hyper-connected world.
Fast forward to the 2016 edition of the Global Risks Report, the WEF quoted the Global Agenda Council on Risk and Resilience on the importance of a culture of integrated risk management in building enterprise resilience. Companies can no longer afford to have silo thinking in risk management. The entire organization, including its supply chains, must collaborate transparently on risk management.
The UK Financial Reporting Council (FRC) report on "Corporate culture and the role of boards" echoes the views of the WEF with respect to the importance of culture in building enterprise resilience.
In the foreword to the July 2016 FRC culture report, Sir Winfried Bischoff, the Chairman of the FRC said that "A healthy culture both protects and generates value. It is therefore important to have a continuous focus on culture, rather than wait for a crisis. A strong culture will endure in times of stress and mitigate the impact. This is essential in dealing effectively with risk and maintaining resilient performance." The FRC culture report
unequivocally states that the board should spend sufficient time on evaluating culture and deliberate on how they should report it.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has recently issued an exposure draft of an update to its Enterprise Risk Management – Integrated Framework, which was first issued in 2004. In the July 2016 exposure draft, enterprise risk management is defined as the “culture, capabilities, and practices, integrated with strategy-setting and its execution, that organizations rely on to manage risk in creating, preserving, and realizing value”.
The WEF, FRC and COSO are concerted in their views on the importance of culture in building enterprise resilience. That said, culture is not easy to get a handle on, given its intangible nature. Does the corporate strategy drive culture or does "culture eats strategy for breakfast" as management guru Peter Drucker once said? And how do you fit purpose and values into culture?
In her book "Grit", the author Angela Duckworth wrote that "Whether we realize it or not, the culture in which we live, and with which we identify, powerfully shapes just about every aspect of our being.” Dan Chambliss, a sociologist who conducted a study of competitive swimmers said that “Look, when I started studying Olympians, I thought, ‘What kind of oddball gets up every day at four in the morning to go to swimming practice?’ I thought, ‘These must be extraordinary people to do that sort of thing.’ But the thing is, when you go to a place where basically everybody you know is getting up at four in the morning to go to practice, that’s just what you do. It’s no big deal. It becomes a habit.”
Whether it is “just the way we do things here” or “no news is good news”, culture is inherently difficult to understand and measure. Companies need to start by defining their purpose and values and setting out clearly the desired culture. They then need to develop the frameworks and tools to benchmark actual behaviour throughout the organization and report it. Reporting frameworks such as the Securities Exchange Commission’s Form 10-K which mandates the reporting of risk factors by US listed companies will have to evolve to require more disclosures on how culture affects the risk appetites of companies.
“Go fever” is a term used in the US space industry to describe a culture of “being in a rush or hurry to get a project or task done while overlooking potential problems or mistakes.” The term was coined after the Apollo 1 fire in 1967 which killed 3 astronauts, and has been used to described the space shuttles Challenger and Columbia disasters. Mountaineers have summit fevers, where there's a burning desire to reach the peak at all costs, blind to obvious dangers.
Companies must learn how to detect fevers and cool them down before things go terribly wrong.