Developing a culture of risk should be one of the main focuses for corporate governance when the aim is to assess and manage threats deriving from the tense political and social situation in the world. Specifically, 2019 has been characterized by the intensification of protests organized against corruption, anti-democratic systems and inequality. The fight for the defense of rights has led to unrest in several countries, where companies have been involved in social issues because of the repercussions due to various forms of political menace.
But in such turbulent times, activities and projects are not only impacted and damaged by crises. Indeed, the entropy generated outside increases the exposure of people to any sort of pressure, danger, confusion and uncertainty, which will affect their behavior when knocking on their offices’ doors. In this framework, experts who work on political-risk analysis are crucial to support governance in the comprehension of what is happening, how it will affect the organization, and what is the best way to respond. However, executives, directors, managers and employees can better interpret those studies and implement measures to handle threats if they have been prepared to cope with them thanks to a culture risk spread and absorbed by every corporate level. This should be the initial phase in the application of an effective political-risk-management model.
But to create a risk culture, it is important to define risks and how they are perceived in different countries. Risks are associated with a probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through pre-emptive action. This meaning is shared by the global community, but a differentiation element is the degree to which the members of a society or group feel comfortable with uncertainty.
Between 1967 and 1973, Dutch social psychologist Geert Hofstede examined employees working for IBM in more than 50 countries in order to describe how cultures and values influence behavior. Hofstede introduced five dimensions, among which one could find “the uncertainty avoidance,” whose understanding is essential to build the basis of a risk culture that is able to respect the specific features of a company.
Countries scoring low on the uncertainty avoidance index tend to be risk takers, flexible, and tolerant to ambiguity. On the contrary, cultural contexts that present a high index are oriented toward the strict adoption of rules and procedures to mitigate ambiguous circumstances. The US, the UK, China, India and Singapore belong to the former group; Italy, Russia, Belgium and South Korea belong to the latter.
These perceptions of threats influence decision-making processes, which are driven by cultural roots. Several studies have investigated the relationship between cultural dispositions such as uncertainty avoidance and people’s judgments, demonstrating how the degree to which a person is comfortable with taking a chance affects his behavior in front of a sure-thing option or an uncertain one. This theoretical scheme must be taken into account by those who are responsible for the strengthening of cultural attributes when difficulties occur in virtue of the environmental dynamics. Their task consists even in creating the conditions to make the convergence of distant threat perceptions possible in accordance with strategies and objectives, and in spite of different sensibilities and viewpoints.
The following step toward the development of a risk-oriented approach is related to the awareness that risk must be integrated into strategies and operations, in order to be spread to every unit through effective communication pathways. In this area, new technologies could play a relevant role thanks to the improvement of open channels between top levels and operational ones, creating a smoother exchange of key information, making it possible to get feedback that enhances engagement with employees, and sharing the company’s vision.
Good communication encourages greater participation, making everyone able to speak up to understand what direction the company will embrace when external pressures challenge it and what is the risk appetite that works as a compass for the activity of corporate governance and for the interests of stakeholders. In addition, leaders should provide answers to some valid questions which help people to overcome an eventual confusional status – for example, can the company really afford to take risks? How does the risk appetite vary according to different projects or regions?
This phase could be supported by training programs that run on a continual basis where the goal is building the cultural awareness of people around the events that deploy themselves in the markets. Being correctly informed about societies, political diatribes, and geo-economical factors could represent a way to avoid a misinterpretation of the reality that could foster a negative climate.
When the risk culture is absorbed by every segment of the organization, performance must be monitored to check if there is a misalignment with initial expectations, and if it is detected, adjusting the process that generated it.
Developing a risk culture is a path that a company must incorporate in its priorities. It may require a long-term prospectus and several efforts, various actions to engage people considering and respecting different perspectives, and the commitment of every person independently of the professional role. In spite of this difficult journey, it could make the difference in effectively managing threats in an unstable political scenario.