Hairy Risks

Dequity Partners Corporate Advisory Dequity Blog

Sydney-Funnel-WebWe Love Big, Hairy Risks

Fear of risk, like fear of spiders, is mostly irrational and based on lack of understanding. Sure, if you poke the wrong type of spider and annoy it enough it may bite you and a certain few species will actually hurt you.

However, most of our hairy eight-legged friends will actually shy away and look for an escape as their first line of defence. During our lifetimes we’ll hardly ever see a really dangerous spider, let alone get bitten by one. Business risks are the pretty much the same despite the adverse media attention a few get.

How many business risks are dealt with perfectly well but the headlines focus on the ones we didn’t deal with?  There’s nothing newsworthy about a small harmless little spider, the same goes for small harmless business risks.  Most spiders do more good than harm, in the same way as speculative risks allow us to take advantage of opportunities in business. There is no reward without some risk.

If you leave the spiders up in the corner of the room they’ll take care of mosquitoes and bugs for you. Of course, you don’t want the house overrun with spiders either, so sometimes a little housekeeping is required, one might call this control or compliance. This is where we need to apply logic and perspective not fear and guesswork. In some countries a mosquito is merely annoying, in others they can kill you through the transmission of fatal diseases. In those countries I would want an army of spiders in my house, I’d be buying them in and releasing them with my blessing.

Business risk housekeeping should be delegated to the middle managers, auditors and compliance people. They, can identify gaps in your defences and keep things clean with their feather dusters and polish. They perform a very important role in helping maintain some control, but they will never help you make business critical decisions.  They will almost never take risks.

The big, hairy risks that only the Board and Senior Management should be looking at are the Tarantulas and Funnel Web spiders of the business risk World. They are truly dangerous if you ignore the warning signs or if they sneak up on you.

I want to do everything in my power to avoid getting bitten by a big, hairy spider that can really hurt me, nothing irrational about that.

That’s big picture risk management. That’s what I love and where I play best. Over the years, regulators, audit and compliance people have ingrained far too much negative thinking and irrational fear into our Boardrooms.  They have choked them of creativity and have wasted their time. Shareholders and investors have been led by the media, highly regulated and mediocre fund returns to believe that risk management is just about spreading your investment over a portfolio. They want zero tolerance of risk with some upside.  They frighten our Directors and Chairmen to death and blame them for perceived bad decisions.

Just as society has allowed with arachnophobia. Directors and Chairman feel uneasy in any area that they believe a risk might exist spending a huge amount of time and resources chasing the little harmless spiders all over the place.

The really big, dangerous, hairy spiders are harder to spot, they hide in the shadows and they rarely make an appearance in public.

They tend to lump all the big, hairy risks under the banner of “strategic risk” and then say they are either too big to worry about or outside of their control. Not so. If you are brave enough to peep under the table, poke around in the grass and look under rocks you will find the dangerous spiders going about their business.

The same is true of business critical risks. Be warned though, once you’ve found them you have to deal with them.

The good news is that there’s no spider in the World that can face an attack from a simple slipper. Just ask Sean Connery. As Bond in Dr No he dealt ably with that big, hairy spider. He allowed it to crawl up his body and onto his pillow, then jumped up and beat it to death. He must have got a terrific buzz out of that one!

That’s why Dequity Partners love big, hairy risks. They make our lives interesting, keep our pulses racing and of course it’s where the biggest opportunities are for our clients. We like to analyse risks, understand them, pull them apart, poke them with a stick and make informed decisions about them. We do not fear any risks until we know what they are and what we’re dealing with.

Boards need more people like us around them to help them make decisions based on evidence and facts.  People willing to stand behind their decisions. Sometimes we’ll have to use our best guess approach, but surely that is what makes life in the Boardroom worthwhile and why we get the big bucks.

Bring on the big, hairy risks….

How do you deal with big, hairy risks in your business or investments?  Are your senior management, Boards and Chairmen wasting too much time worrying about minuscule risks and ignoring the rest? Would you like our help uncovering your risks, dealing with them, educating investors, shareholders and fund managers? Please call on +61 2 9258 1972 or go to our Contact page.

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