We’ve all heard of the elephant in the room, but have you thought about the gray rhinos that are probably sitting in your corporate boardroom right this second? These risks are so obvious we overlook them—often to our detriment. Think of Blockbuster Video ignoring the switch to Redbox and then streaming services. They were so confident in their rental market that they failed to acknowledge the gray rhino about to upend their entire business model. Don’t put yourself in that position by pinpointing, acknowledging, and managing your corporate risks.
Janet Zelenka, EVP, CFO, and CIO of Stericycle, a multi-billion-dollar global services company, sat down with us recently to talk about how she structured her board to avoid the gray rhinos, optimize shareholder value, manage risk, and be a responsible corporate citizen.
Are You Meeting Shareholder Expectations?
When it comes to driving value for shareholders, many organizations focus solely on financial metrics, but today’s shareholder wants (and expects) more. Janet points out the need for a more holistic approach that considers financial performance and non-financial factors such as culture, innovation, and sustainability. This broader view of risk is critical for creating long-term value for shareholders.
When shareholders look at your company regarding culture, innovation, and sustainability, what do they see? Are you putting out the right messaging to shareholders? Should you be investing more in one of those areas? Missing the mark in these areas can affect shareholder support.
Essentially, shareholders are looking for good corporate citizens. They want to see that companies are responsible and contribute positively to the world at large. Governing your board as a good corporate citizen is about implementing fair wages, offering good benefits, contributing to communities, and ensuring environmental responsibility. It also combines executive leadership training and career support to empower your company to reach its highest potential. Investing in social programs, environmental initiatives, and public services are all ways companies can manage their risks and ensure long-term success while providing transparency to investors, customers, regulators, and other stakeholders. This helps build trust and confidence in your organization.
At the same time, it’s essential to know what risks are on the horizon so the company can pivot before they impact the bottom line, shareholder value, and corporate identity. How do you walk that fine line between acknowledging and taking risks that could bring massive growth?
Bring in the Oversight Committees
Just as their name implies, Oversight committees are there to weigh the pros and cons. However, if you’re responsible for managing your organization’s risk, you may have a reputation for being overly cautious and always pointing out potential pitfalls—a Debby Downer. For example, when our kids used to play in the jungle gym, we would caution them about going down the slide in a certain way, fearing they might get hurt. We didn’t want to be that kind of parent, constantly worried and discouraging them because that could keep them from taking the risks that are so necessary to becoming an adult. So, how do you balance the risk management aspect with identifying opportunities?
The key is to create a corporate strategy that proactively identifies risks and manages them over time while also focusing on growth for the company. Organizations can generate oversight committees of crucial stakeholders or executives from different departments who are given responsibility and accountability for the success or failure of a particular plan or acquisition to ensure continuous alignment and tolerance.
By bringing in different departments, such as HR, IT, and legal, you bring diverse perspectives to the table. Because their perspectives differ, they can often foresee risks no one else predicted, whether those are:
- External risks include the economy, wars, fuel prices, and other uncontrollable elements. While we may not have direct influence over these risks, monitoring them and establishing mitigation strategies in advance is essential.
- Strategic and market risks, such as the growth of competition, operational issues, customer demand fluctuations, and other variables, can significantly impact your business.
- Legal risks include compliance with changing laws and regulations across state lines. The pace of change and the government regulations that go with them are moving at a rapid pace, and staying up-to-date is crucial.
Adopting responsible practices for risk management while maintaining a positive reputation in your industry and continuing to be a good corporate citizen can pay off in the long run by strengthening relationships with stakeholders and morale within the company.
What About the Gray Rhino?
Michele Wucker’s book, The Gray Rhino, discusses the paradox of ignored or unforeseen events that could have been predicted with thorough research and analysis. This tendency to overlook “gray rhino” risks is comparable to people buying beach houses in areas almost guaranteed to submerge by rising coastal waters. Often, companies do the same, ignoring the inherent dangers and disregarding the long-term ramifications while focusing solely on short-term gains.
Succession planning, cyber-security, changing trends, and falling profits can all be gray rhinos that companies ignore in favor of stubbornly holding fast to what worked in the past. This blindness to risk and inevitable losses can lead to a company’s downfall.
There are other sudden-onset risks, such as gray rhinos. Cyber-attacks like ransomware and natural disasters like hurricanes (for companies located in hurricane-prone areas) are ones that every board should prepare for and see before they happen. The COVID-19 pandemic served as another instance of a sudden onset risk that demanded widespread management and left many companies shaken.
There are a few easily adoptable strategies for mitigating these gray rhino risks:
- Increase vigilance & watchfulness. Put processes in place for regularly monitoring your environment for emerging risks and opportunities
- Employ scenario-planning tactics. This allows you to anticipate the potential impacts of unforeseen events or trends.
- Create an ecosystem of partnerships for greater information sharing and collaboration across industries. Each one may be impacted differently by specific scenarios.
- Foster conscious decision-making at every level throughout your organization. This helps teams make smarter decisions and become more resilient in the face of change.
It’s essential to consider both the likelihood and magnitude of any risks. These factors can be assessed on a scale to determine the probability of an event occurring and the potential impact if it does. The events that rank high in both categories should be given utmost attention and proper coverage. On the other hand, events with low scores in both areas can be dealt with later. Once you understand your priorities, you can allocate your time and attention accordingly.
As we navigate an unpredictable business landscape, these insights into risks are more valuable than ever. We believe that the best way for a board to predict the future is to create it, which begins with understanding and managing risks more effectively.