Risky business

In business, as in life, ‘risk’ is increasingly coming to be seen as a dirty word. A spiked seminar on ‘Risky business’ discussed the issue in relation to the economy.

Julie Meyer, a pioneer of e-business and now chief executive of Ariadne Capital, began the debate by arguing that risk should not be seen as a danger, but as a positive and necessary force in business. She suggested that leadership quality is often measured by ability to confront and engage risks – and that while people often want to believe they are capable of taking risks, they shy away from actually doing so. She then posited that business success could be recognised in how many ‘smart risks’ had been taken, rather than an overall success/failure ratio.

Meyer suggested that attitudes to risk varied between cultures, even in the developed world, noting that the average age of starting a new business in the UK was 48, significantly older than in America. In considering the ‘anti-risk’ culture, she proposed that there was ‘misdirected anger against entrepreneurs’, and advocated a reduction in government intervention, citing India as an example of an economic boom allowed by loose-rein regulation. She finished with an encouragement to engage with risks in a positive manner.

Next to speak was Phil Mullan, economist and author of The Imaginary Time Bomb: Why an Ageing Population is not a Social Problem. Mullan began by explaining the ‘risk paradox’: the fact that while the world is increasingly seen as a more uncertain and ‘riskier’ place, primary sources of risk are actually diminishing. Citing the examples of economic and financial risk, he explained how much of what has been traditionally seen as ‘risk’ has been reduced, and that those risks that do exist are often overstated. Mullan then suggested that the heightened sense of business uncertainty derives less from what is happening in the economy than from broader shifts in social attitudes towards risk.

He argued that the new risks facing modern business could be called secondary risks, such as the risk of litigation, breaching new regulations, and – perhaps most of all – risk to reputations. Drawing on the example of Citigroup recently feeling the need to ‘apologise’ for making a financial killing on the bond markets because of the adverse reputation effects, he analysed the importance of public perception to companies today. Mullan argued that everyone in business is now expected to be a ‘risk manager’, and that all decisions are now ‘risk assessments’. One consequence, he said, is that companies are now awash with money where once they would have been less cautious in investing their capital.

The chair, Helene Guldberg of spiked, invited both speakers to comment on how things had changed in the financial world. Meyer reflected that the biggest change was the increase in participants in an enlarged global market. Mullan agreed, but suggested that the emergence of new markets in India and China were more a source of stability than of instability. Responding to Meyer’s suggestion that deregulation had lead to success in countries like India, he business globally was increasingly affected by government intervention or voluntary self-regulation, and that this would extend to expanding regions such as China and India.

When the debate was opened to the floor, John Adams, of University College London, agreed that risk is overwhelmingly seen as something to be avoided, and pointed out that risk mangers are often the most risk averse. Referring to the Turnbull Report on business practice, which set out 122 types of risk, he explained how mature companies were often extremely risk averse but that this ‘has nothing to do with safety, and everything to so with ass-protection’.

An audience of journalists, academics, and business people tackled the issues from a variety of different perspectives. A couple of speakers took up companies’ preoccupation with reputation and values, when their main motivation is – and should be – to make wealth. There was disagreement about the origins of businesses’ concern with risk. Some saw it as the result of scandals such as Enron, and suggested that the issue would soon fade away. Others argued that risk aversion was the result of specific business practices, such as the breaking up of conglomerates, arguing that more specialisation leads to increased caution.

In summary, Phil Mullan argued that risk aversion had spread from business to wider society, and that the public sector was learning from the private. He suggested that in light of recent developments, even the House of Commons might be considering bringing in private sector risk management controls. Finally, he pointed out that corporate rule books only ever seem to get longer – when Cadbury issued corporate guidelines in the early 1990s, the best practice code was considerably shorter than the equivalent today.

Julie Meyer suggested that the best way to manage risk within the business environment was to have a clear idea of values, and to have confidence that everyone working together shared a common aim. Finally, Meyer pointed out that the media has the power to shape modern cultural views, and that it would be better if the public could read about risk in a positive rather than negative context.