When Lehman Brothers failed, was it a failure of corporate risk
management, or corporate crisis management, or both? Rigorous risk
management is a crucial element of good governance, not a euphemism
for guessing. As became painfully evident in the Lehman case and a
slew of other recent crises, not having adequate risk-management
systems and acting accordingly can lead to a downturn in public
confidence, and can easily become viral.
Crises aren't new. Why, then, has the management of risk
attracted so much research and occupied so much time in corporate
boardrooms? And why is it that, even as we've invested
increasing resources in institutional risk management, we still too
often encounter a profound lack of public trust?
A recent seminar organized by the Canadian
Institute for Advanced Research and York
University's Hennick Centre for Business and
Law focused on this challenge. What systemic
knowledge can we glean to better anticipate such dangers or
ameliorate their harmful consequences? How can we build
institutional capacity to better plan for change, understand risks
and adapt in the face of increasing interconnectedness, complexity
and blurring of jurisdictional ownership and accountability? What
can we learn about better managing risk and handling uncertainty
before they manage us?
Every crisis is different, but they all share common traits.
When a crisis strikes, for example, there is always tension between
the desire to understand the nature of the emergency and the urgent
need to take immediate action. There is no single rule book for
managing crises, but their commonalities offer clear lessons on
1. Leadership and strategic communications matter. Since
biblical times, every crisis narrative involves a hero, a villain
and a victim. Successful crisis management relies on strong leaders
who can effectively frame how events should be contextualized and
manage expectations as to what may be achieved and in what time
frame. As Churchill once noted, "mountains inspire leaders,
valleys mature them."
2. Delegation and networking matters. Very few crises respect
institutional mandates or jurisdictions or even sovereign
boundaries. A classic immune-system response is swarming
– blood clotting when we cut a finger or sneezing when
sinuses are congested. This kind of self-organization, the ability
to pull off an "all hands on deck" reaction, is critical
to building resilient institutions and systems. To achieve this
level of intelligence and rapid response you need extensive
networks, within and across organizations, which have to be built
up over time, invested in and nurtured.
3. Reputation matters. When crisis strikes, an
organization's reputational risk moves quickly to "macro
perceptions." When things go wrong, those at the top are held
accountable and are on their own. At the outset of a crisis, there
is some leverage to shape public expectations, but transparency,
expertise, commitment and empathy are key to remaining credible and
minimizing reputational damage. Negative perceptions last a long
4. The long term matters. Taking a broader, long-term view in
the heat of crisis seems counterintuitive, but is not. In times of
stress, it's human nature to adopt a narrow, short-term focus.
This is equally important in managing risk absent a crisis. The
culture of every corporate leadership should anticipate, and aim to
avoid, causing harm or overreacting to a crisis to ensure that
it's properly contained.
5. Information matters. Under-investment in information and
analytic capacity undermines risk management and the ability to
handle crises. Information is key for both risk management and
crisis management: It separates anecdote from fact, and rumours
from reality. The more complex and global the interconnections in a
crisis, the greater the informational challenge, and the higher its
In the immediate aftermath of a crisis, people are often keen to
allocate resources to prevent any reoccurrence. But memories (and
fears) fade quickly; as one seminar participant noted, "the
fellowship of the lifeboat is rapidly dissolved."
The world is at an inflection point, with dynamic changes
reshaping economies, societies, politics and global alignments. The
ability to manage uncertainty – and inevitable crises
– presents the greatest challenges and opportunities for
leaders of any significant institution. It is hard to imagine more
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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