Risky business

A new book examines the pitfalls of corporate risk-aversion.

Sandy Starr

Share
Topics Politics

‘Managers are reacting to a society-wide obsession with risk and crisis. They have internalised a society-wide tendency to worry about the downside of human action.’ (1)

So argues financial journalist Benjamin Hunt, in his new book The Timid Corporation: Why Business is Afraid of Taking Risk. Contemporary society’s obsession with risk is something that has been explored extensively on spiked, most recently at the London conference Panic Attack. Hunt’s focus is on how businesses have responded to this climate, and the consequences of this response.

Big business has rarely been as unpopular as it is today. Corporate reputations have been tarnished by the Enron and WorldCom scandals, and when corporations aren’t being accused of destroying the environment or threatening our health, they’re being lambasted for mistreating their employees and manipulating us through brands.

It seems that the biggest crime a business can commit is to be unapologetically successful – as Hunt says, ‘the fact that large corporations often make large profits provokes howls of outrage today’, while ‘the apparently outrageous news that directors receive pay rises is now the subject of intense moralising on a daily basis’ (2).

Hunt argues that ‘hardly anyone has anything positive to say about the corporation as an institution. More significantly, the people running corporations are far more cynical about them’. Just about the only businessmen who get a good press are small business entrepreneurs, which is strange given that ‘the vast bulk of individual and small business activity is highly unglamorous’ (3).

Businesses are constantly taking defensive steps to counter these criticisms, says Hunt: ‘In the name of accountability, responsibility and transparency, corporations have institutionalised a bewildering array of codes of conduct, ethical regulations, internal controls, risk management procedures, board reforms, new committees, new types of board position, audits and reporting obligations, and sustainable development and corporate social responsibility regulations.’ (4)

Some would say that these new procedures have transformed the face of business for the better – but not Hunt, who believes that they stifle growth and innovation. He explores this idea by looking at the changing relationship of businesses to employees, customers, shareholders, external consultants, various other ‘stakeholders’, and broader society.

When it comes to employees, recent scandals have made a hero of the ‘whistleblower’, the insider who spills the beans on corporate wrongdoing. Hunt argues that while ‘it is always important for individuals to act on principles and conscience’, when ‘such figures actually become celebrated and put on a pedestal’ this can serve to institutionalise suspicion and mistrust within the business (5).

Businesses are now obsessed with relating to and retaining their customers, to the point of encouraging complaint: ‘Firms now actively encourage customers to complain. Sounds mad? Not from the perspective of the holy grail of relationship building.’ (6) Hunt looks at how an obsession with the customer can inhibit growth (retaining existing customers becomes more important than acquiring new ones), and hold back innovation (businesses become reluctant to pursue any innovation that might confuse customers or confound their expectations).

He also comments upon the growing role of consultants in business, who he argues have exploited relations of mistrust between corporations and governments by ‘neatly [inserting] themselves as “facilitators” between companies and governments to promote “dialogue”’. And he looks at the increasingly popular principle of ‘managing for shareholder value’, where businesses are reorganised around the concerns of their shareholders. This is disastrous for productivity, given that shareholders ‘hardly contribute anything to economic growth…. They are in fact, with the possible exception of the consumer, the most passive “stakeholder” in the whole capitalist process’ (7).

Hunt is particularly critical of the new business principle of ‘listening to society’: ‘Society is frequently wrong. That is not a patronising view. It simply recognises that, in the absence of a proper public debate, and where special interest groups such as Greenpeace use scaremongering tactics to win over the public, reason and democracy quickly fly out of the window.’ (8)

Hunt does a good job of taking apart many of the assumptions that inform current business practice. He draws upon a wide range of literature to provide historical background and to explain how things have changed compared to the past, while his primary research – including interviews with managers, consultants and lawyers – illustrates in practical terms the stifling effects that risk-averse measures can have. If there is a problem with the book, it is the slightly patchy way in which these insights are tied together, with the unifying theme of society’s irrational attitude to risk stated repeatedly at intervals rather than flowing organically from the argument.

Some of the most useful material in the book concerns the way that definitions of innovation and entrepreneurship have changed, so that ‘in a world where there is a new unwillingness to take risk and define high standards, the concept of innovation can only take on a nebulous, vacuous existence’, and ‘inferior and trivial forms of innovation…quickly become vaunted as breakthrough innovation’. Companies are failing to develop the potential of the internet, for example: ‘If companies are innovative, they will find a way to use the internet in an innovative way. But if they are trying to avoid risk, then they will find a way to use the internet for that too.’ (9)

Ultimately, The Timid Corporation suggests that if risk aversion is taken to its logical conclusion, doing business will become impossible. For example, responding to the trend for insuring speculative business risks, Hunt points out that ‘speculative risks cannot be transferred in their entirety to the insurance markets. That would actually negate the principle of the market economy.’

And commenting on shareholders who litigate when they fail to see a return on investment, Hunt says: ‘They seem unable to accept that there are never solid guarantees with investment.’ The outcry that now meets any failure by a company to achieve expected quarterly results stems from an outlook that ‘asks the impossible, namely that financial targets will always be met and on time’ (10).

Perhaps risk aversion can never reach its absurd conclusion, and actually induce complete market paralysis (although after the responses to 9/11 and SARS, who knows?). But as long as businesses behave as though the sword of Damocles hangs permanently above their heads, risk aversion will continue to put a brake on progress.

Hunt concludes The Timid Corporation with a welcome call for ‘purposeful experimentation’, noting that ‘in the course of ambitious experimentation, new insights and unexpected benefits often arise.’ (11)

The Timid Corporation: Why Business is Afraid of Taking Risk, by Benjamin Hunt, is published by John Wiley and Sons. Buy this book from Amazon (UK) or Amazon (USA)

Read on:

Economic misery, by Ben Hunt

spiked-conference: Panic Attack

(1) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p86

(2) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p19-20

(3) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p213, 203

(4) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p42

(5) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p34

(6) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p152

(7) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p32, 122-123

(8) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p71

(9) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p186, 180

(10) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p97-98, 103, 120-121

(11) The Timid Corporation: Why Business is Afraid of Taking Risk, Benjamin Hunt, John Wiley and Sons, 2003, p233

To enquire about republishing spiked’s content, a right to reply or to request a correction, please contact the managing editor, Viv Regan.

Share
Topics Politics

Comments

Want to join the conversation?

Only spiked supporters, who donate regularly to us, can comment on our articles.

Become a spiked supporter
Share