Risk and the Executive


Risk and the Executive

While those at the highest levels of an organization can have the most impact by taking risks—they have the broadest scope when it comes to decision making—they may not always be inclined to do so, weak economy aside. Perhaps they have worked all their life to achieve their position and are happy to plant their lawn chair on top of the mountain. The last thing they want to do is risk what they worked so hard to earn.

Yet wouldn't you rather be the CEO who led your company to record sales and profitability? Or would you prefer to maintain the status quo, only to be replaced and watch your successor, a so-called turnaround artist, take all the credit? (Of course, turnaround artists may have it easier, as they have more permission to be muckrakers.) Working hard to get to the top is admirable. But once you're there, it's your responsibility to keep the organization healthy and primed for the future. As a leader, you must fight complacency and continue to push the envelope. Your company depends on it.

Like many entrepreneurs, I'm comfortable with risk. I took a risk in starting my company. I take a risk every time I give the go-ahead for a new product or hire a new employee, particularly if the product requires great investment or the person comes with a high price tag. The way I see it, it's riskier not to launch new products or hire top talent. FWI, like virtually all companies interested in survival and prosperity, is dependent on growth—and the only way to grow is to take risks. Products that are relevant today may go the way of the dinosaurs within a few short years, even months. To stay ahead of the curve, businesses—and the people who lead them—must embrace risk.

My rule of thumb for the CEO of a large, established company is to strive to grow the business between 10 and 15 percent each year, both gross and net. If you lead a medium- to small-sized firm, double that goal. And if you're an entrepreneur in the early stages of the game, double it again. It's your job to identify the opportunities that will get you to that level of growth. How are you going to post numbers like that if you don't take risks? (Note: I am not suggesting growth for the sake of growth. I use these guidelines as a reminder to keep pushing the business forward, and the clearest indicator you have is financial performance. But temper that desire for growth with realistic expectations of where a company is in its growth cycle, the conditions of the market, the industry, and so on. Expecting a Wal-Mart, for example, to grow at 15 percent annually is unrealistic—and could lead to the same kinds of problems that we found in companies pursuing growth at any cost in the 1990s.)

At my company, it's only natural that the greatest gambles—those with the biggest potential payoffs—come from me. Nonetheless, my employees know that FWI's culture is one in which their own risk taking is encouraged and rewarded. Of course, there are those who are more at ease taking risks than others, so part of my role is to encourage everyone to stretch beyond their own individual comfort zones, to do things differently.

To get the stakeholder perspective, I asked people from FWI's editorial, operations, finance, and sales areas to describe the ideal organizational environment for encouraging risk. Here's what some of them said:

  • Editorial. "Personally, I think it is feeling that I will be rewarded for original thought and for taking my ideas to the people who can use them. Sometimes, of course, I don't know that my ideas are good ones, which makes it a risk to come out with them. Nonetheless, I feel rewarded for, if nothing else, trying to be innovative. Even when people have innovative ideas that, to be honest, are stupid, the fact that they are brave enough to throw it out there is appreciated because how else is the company going to evolve and improve?"

  • Operations. "As clichéd as the terminology has become, ‘ouside-the-box’ thinking should be highly regarded. Those who don't run with an idea or seek tasks outside their normal duties do not move up the totem pole. Additionally, when a person takes a risk and does not achieve her goal, the attempt is not looked down upon but instead is considered a learning experience. I do consider myself a risk taker, especially when it comes to voicing my ideas for ways to improve aspects of the business. While not all my ideas have worked, many have been implemented and did indeed improve various processes. I cannot help by staying quiet when I see that something can be done better, more quickly, or more efficiently."

  • Sales. "Risk should be rewarded. In my own situation, I definitely take risks with my clients, but they are ethical risks. Some of the business that I have brought in has required imagination and stretching on everybody's part. As a result of these risks, the company has grown and evolved a little bit more, and that is very rewarding for me It makes my job challenging and fun."

These comments show that maintaining a culture in which risk taking is supported requires continuous reinforcement from the leadership. As CEO, I can't simply proclaim that risk taking within the company is expected and then leave it at that. Similar to my responsibility concerning communication and conflict resolution, I must work to cultivate an atmosphere in which stakeholders feel safe putting themselves out there. And ultimately, that means working to increase trust.

Of course, if someone is just severely risk averse, all the training in the world won't change that outlook. At the other end of the spectrum, there are people who fearlessly go to the wall for their ideas. However, it can be very hard to find the latter individuals for your team; and if you have them, you might need to make sure they are conscientious in their risk taking. Most leaders will find that the majority of their people are on the fence when it comes to risk—they may just need a little encouragement to make the leap. Build trust and spread the passion about what your company does and you'll encourage people to put themselves on the line and take their performance—and the company's—to the next level.