[MTE Executive Summary] Are societal shifts preventing effective corporate resilience?

Are societal shifts preventing effective corporate resilience?

Synopsis of Presentation

Our risk perspective has shifted from practicality to frivolity in our evolving, individualistic society.

Focusing on zero risk and confusion between probability and possibility renders risk assessments ineffective. Growing but questionable regulations add complexity, diverting focus from the essence and purpose of resilience.

This is a summary of the presentation by Dr Chris Needham-Bennett, Managing Director, Needhams 1834 Ltd., at the Meet-the-Expert Webinar on 22 June 2023.

Meet-the-Expert Webinar 22 June 2023

The presentation's theme is "Are societal shifts preventing effective corporate resilience?"

Challenges in Operational Resilience

Operational Resilience is facing a critical challenge in today's world, particularly when viewed from a Western perspective. The epicentres of the future global economy, with all its associated risks and complexities, are increasingly shifting towards Southeast Asia and, to some extent, South America. Europe and America have seen their prominence wane, both intellectually and economically.

The critical question that demands attention is whether societal shifts hinder effective corporate resilience. Risk, as a concept, is not static; it evolves and is influenced by the society in which it exists. Specific societal shifts, occurring not only in the West but also in other regions, are potentially obstructing our ability to establish robust corporate resilience.

One notable challenge is the inadequacy of the English language in describing risk, as evidenced by ambiguous risk matrices commonly used by companies. The language can inadvertently blur the distinctions between impossibility, unlikeliness, possibility, probability, and likelihood, confusing risk assessment. Our ability to forecast the future, intrinsically linked to risk, sets us apart as humans. However, the future is a mental construct, making risk assessments educated guesses until they materialise into reality. We excel at managing significant, well-understood risks but falter regarding middle-ranking risks, often failing to perceive impending "radar-assisted collisions." Furthermore, our approach to risk has evolved.

We have grown accustomed to accepting "Old risks" like theft, fire, and floods, which are quantifiable and tangible. In contrast, "New risks" have emerged, with COVID-19 revealing that even building denial (inaccessibility to physical offices) is not as disruptive as previously thought, as many organisations have transitioned to remote work. This transition underscores the need for a shift in focus from individual rights to the collective well-being of society when assessing risks. A myopic emphasis on individual rights can lead to inefficiencies and overlook the broader impact on society and the economy.

Operational resilience faces new challenges in an evolving global landscape, with Southeast Asia and South America emerging as economic powerhouses. Societal shifts alter risk perception, necessitating reevaluating our risk management strategies. We must address the limitations of language in articulating risk and acknowledge the evolving nature of risk assessments, emphasising the need for a balanced approach that considers the rights of individuals in the context of the greater societal good.

Operational Resilience and the Evolving Risk Landscape

Operational resilience faces new challenges in an evolving landscape driven by shifts in human behaviour and societal expectations. High-profile incidents like J.K. Rowling's controversy on transgender issues or the arrest of leaders like Nicholas Sturgeon have led to abrupt resignations, causing significant disruptions to organisations. This highlights a novel risk where personal actions of senior managers, such as bullying or misconduct, can damage an organisation's reputation, contrasting with traditional quantifiable risks like fire or theft. 

Regulatory frameworks, notably in banking, have adapted to this change by focusing on risks where "failure could cause harm" rather than quantifiable probabilities. However, this subjective approach raises difficulties in measurement and standardisation, as what constitutes "could" harm varies from person to person. Striking a balance between individual well-being and effective risk management is crucial in this context, as imposing unmeasurable standards may hinder operational resilience. Ultimately, the challenge lies in navigating this new risk landscape while maintaining a robust risk management framework.

Challenging the Shift from Probability to Possibility

In a thought-provoking discussion, two unnamed academics critique the current trend in academic and regulatory writing that steers away from probability assessment. They emphasize the folly of assuming that everything will go wrong as a foundational planning assumption, likening it to expecting your car to break down or your house to be robbed daily. They argue that risk management's essence is to reduce the likelihood of things going wrong, not to assume they will. They assert that this mindset shift from probability to possibility is problematic as it blurs important distinctions between the two, potentially leading to misguided decisions.

The academics also raise concerns about the inclination to invest heavily in mitigating unlikely, high-impact events rather than focusing on probable risks. They contend that this shift in language from probability to possibility can be dangerous and counterproductive. Additionally, they highlight the paradox of an increasingly risk-averse society despite life becoming less risky overall. This shift in perception, they argue, is driven by factors such as increased awareness of potential harm and a desire for zero tolerance, even when it may not be feasible or practical.

Furthermore, the academics point out that the media shapes public perception of risk, often sensationalising events and skewing people's judgments. They lament the loss of the ability to take calculated risks and how society's reluctance to accept risk can stifle innovation and progress. The discussion underscores the need for a nuanced approach to risk assessment rooted in probability rather than succumbing to an overreliance on the concept of possibility and a culture of risk aversion.

Language Control, Risk, and Regulations

In today's increasingly controlled language landscape, even universities like Stanford are taking steps to filter out words they consider pejorative or discriminatory from their IT systems. This hypersensitivity to language has led to concerns about normalising violence, such as the phrase "beating a dead horse" in the UK. The fear of using certain words or expressions in an academic setting highlights a growing climate of caution and censorship.

Two professors, Forrester and Rosling, have addressed this issue. Forrester argues that society has become overly risk-averse, often confusing possibility with probability. This culture of fear discourages risk-taking, even in areas like cryptocurrency investments. Rosling adds that a fundamental inability to understand statistics has led to misconceptions about the state of the world. For example, the global temperature rise doesn't mean uniform warming everywhere. This fear-driven culture impacts regulations, particularly in banking, presenting significant challenges.

The presentation also touches on the decline of Western Civilization's fundamental morality, replaced by a culture of fear. This has influenced regulatory decisions and the need to manage risk. Ultimately, the call is for critical thinking, questioning the rationale behind regulations, and encouraging a more balanced approach to risk management.

Summary by Moderator ...

In this webinar, the speaker addresses the importance of simplifying risk management language, particularly in the context of the BCM Institute and the Asian audience.

The moderator, Dr Goh suggests that using straightforward terms like "Very high, high, medium, low, and very low" instead of complex phrases like "certain probability" is more effective for clear communication. The argument is that this approach is not only easier to understand for Asians but also provides a more tangible and measurable way to convey risk levels.

The speaker emphasises the significance of using simple, understandable language in risk management. They assert that overly complex terminology can lead to confusion and criticism, especially from European and American audiences. The discussion highlights the need to make risk management concepts more accessible and relatable by focusing on straightforward descriptors and measurable metrics.

Towards the end, Chris discusses the adoption of operational resilience policies in the banking industry and how these policies may spread to other sectors. They suggest that banks focusing on sustainability and resilience are well-positioned to drive the adoption of such policies.

The moderator concluded by pointing out the importance of regulators ensuring effective policy implementation rather than relying solely on compliance. Overall, the discussion underscores the value of clear, straightforward language in risk management and its potential impact on various industries.

Dr Goh Moh Heng moderated and recorded the session.

To learn more about the course and schedule, click the buttons below for the OR-3 Blended Learning OR-300 Operational Resilience Implementer course and the OR-5 Blended Learning OR-5000 Operational Resilience Expert Implementer course.

	If you have any questions, click to contact us.