Diversity, risk and governance

How can House of Cards help governance?

Francesca Lagerberg Francesca Lagerberg

One of the reasons House of Cards is so successful is its two protagonists, Frank and Claire Underwood. What strikes me is the fact that these bold, powerful characters’ understanding of one another is key to their success. Both recognise the need for calculated risk-taking – but they also know when to step in and tell the other that it is or isn’t the right time to take that risk.

There is another obvious yet notable dimension to these two characters. One is male, and one is female. Leadership, gender and risk intertwine to great effect in the programme. These three factors are also high on the board agenda for dynamic businesses today.

Risk taking or risk adverse

Around the world, Grant Thornton is talking with a diverse range of organisations every day. One thing that comes across, regardless of their sector or their ambitions, is that the way organisations take risks or manage them when they arrive is reflective of the cultures that reside within.  For example, a culture of go-getting and big risk taking will stem from the leadership of the organisation, and business decision-making environment fostered by the individuals there.

This risk culture sits central to the governance of an organisation. This is something which is gaining greater attention from regulators. In Australia for example, the financial services industry regulator, the Australian Prudential Regulatory Authority, has mandated board responsibility for risk culture. The corporate regulator ASIC (Australian Securities and Investments Commission) has also called for greater civil penalties for executives responsible for poor culture.  

Fostering a strong culture

Within an organisation – to manage risk or anything else – requires making tough decisions. And the best decisions are often those which have been subjected to scrutiny. By comparison, cultural weakness can often occur when people are all thinking the same or if decision-making goes unchallenged.  Recent problems at Toshiba, which led to its Chairman resigning suddenly earlier this year, have been attributed in part to governance and weakness of culture where decisions went unchallenged.

Put simply, a diverse set of perspectives is a good thing when it comes to governance. Particularly when managing risk. One important reason for this is that risk does not just pose threats. It can also pose real opportunity. Having a range of viewpoints on risk gives you a greater chance of spotting both the threats and the opportunities.

How men and women perceive and respond to risk

Research we conducted for our 2017 Women in Business report found that men and women approach risk, and perceive the likelihood of risk, differently. Contrary to what many might expect, it is men that see greater levels of risk in their business environments, and are more likely to jump to action on these risks. In comparison, women overall see lower levels of risk when considering aspects of organisational and commercial life such as political or economic change, and see lower levels of opportunity in these changes.

Neither approach is right nor wrong. What would be wrong is to have risk managed by a team dominated by one gender. That team would miss the benefits of different perceptions of and responses to risk that men and women typically offer.

To have only men running companies could leave them susceptible to a risk myopia. And yet, many companies are run purely by men. In fact, our research found that over a third of businesses globally – 34% - have no women in senior management roles at all.

From a risk perspective this is, well… plain risky.

Inclusivity and diversity

A key component of managing risk, strengthening culture, and therefore the overall governance, of an organisation is both inclusivity and diversity. So how can firms maximise the ability of their management teams to govern, foster the right culture, and manage risk?

Firstly, build mixed gender teams for effective risk management. We have found that men and women perceive and manage risks differently. Both approaches are vitally important. Companies that fail to bring women to the table or vice versa will jeopardise their long-term growth.

Secondly, provide women with leadership opportunities that make them familiar with risk. Nurturing diverse future leaders requires confidence-building early in people’s careers. Provide young women with on-the-job experiences, exposing them to the process of risk management and – where appropriate – involving them.

Thirdly, create a culture where taking calculated risks is part of a successful business strategy, not something to avoid. Creating cultures that clearly communicate the organisation’s risk appetite and avoid blaming people can help bridge the confidence gap, and allow people to ‘lean in’ and embrace risk.

I’m not advocating we run companies exactly as House of Cards’ fictional President and First Lady run America. The lengths they sometimes go to in order to get their way have undoubtedly raised a few eyebrows and a few bodies strewn along the way! But their screen success is down to a mixed gender team which approaches risky situations differently, and combines those approaches to make a considered decision. Businesses that can take the good learning from this will be playing a strong hand when it comes to effective governance.