Page 10 - Risk Management Bulletin Jan- Mar 2022

RMAI BULLETIN JANUARY - MARCH 2022

direction of a company. According to Val Jonas, CEO at just in terms of financial results, but also in securing
software firm Risk Decisions, “executive ego” can play the business’s long-term future by, for example,
a major part in preventing risk management (and committing to improving and investing in recruitment,
others) from challenging boardroom decision-making retention and training programs.
and the rationale underpinning corporate strategy. Jet
Airways’ fall is a story of the fall of its founder. Few “Making sure that you have a strong leadership team
business failures are so inseparable from the failings from the start is crucial, but it is also important to
of their promoters. Industry insiders often quote a line know up front whether they have the nerve and good
attributed to Goyal, “I am the person in Jet. When business sense to pull the plug on a failing strategy,”
people look at Jet Airways, they look at me.” The Berkeley said. “There need to be benchmarks in place
garrulous founder of the airline, admired by some for to measure success and a recognition that, if these
his quicksilver wit, was once its biggest asset but aren’t met, then the strategy needs to be changed or
today, he has proved to be its biggest liability. dumped. Linking executive pay and reward schemes to
these benchmarks is also vital to ensure accountability
“Some boards tend to believe in their own intuition and to measure the performance of both the strategy
rather than actual evidence,” she said. “Boardrooms and the executive team.”
are where key decisions are made and executives are
in that room because they have made quick decisions Independent Directors should also (in addition to the
in the past and they probably have had a good hit rate, management) be held accountable for board decisions
or at least they did early on in their executive careers. and audit-related compliance practices. The concept of
As a result, executives feel that they have good CEO and Board chair separation is well accepted in
instincts and they become less willing to listen to Europe, and American companies are steadily moving
challenge, listen to bad news, or accept contrasting in right direction. This would bring a better balance in
views from assurance functions that they think are the boardroom. Accountability and action against
meant to check the numbers and any legal issues, not fraud/negligence are major concerns. Professionals
set the agenda.” (auditors) should be made accountable and
consequences (punishment) should follow if there are
Ego trips can often turn into nightmare corporate any deficiencies and slip-ups.
journeys. “Biases are often projected onto strategies
and they become inextricably linked with directors’ Experts believe that better executive screening is
egos,” said James Berkeley, managing director at necessary and recent corporate governance scandals
strategic advisory firm Ellice Consulting. “Executives may put executive appointments under greater
take the notion of strategy too personally and take scrutiny in future. This May, for example, a joint
offense when it is questioned. Boards can then dig in committee of members of the U.K. Parliament
and become defensive about something that ordinarily published its final report into what went wrong at
they would not be so supportive over.” collapsed construction giant Carillion.

2. Lack of Executive Accountability
Berkeley said that there are two ways to prevent
boards from backing poor strategies, or from
continuing to pursue them in the face of overwhelming
evidence that they have gone wrong. The first—and
most preferable—involves hiring people with the
appropriate talent, experience and judgement into
board roles from the start who can deliver the
intended strategy, and who are prepared to adapt it—
or scrap it—if circumstances change. The other is to
make executives more accountable for the strategies
they greenlight and steer by making pay and rewards
much more contingent on actual performance—not

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