The World Economic Forum’s annual Global Risk Report is a highly regarded look at the most significant risks facing business (and, well, all of us!). The forum, reporting on hundreds of survey responses from around the world, identified the following as the Top 10 Global Risks for 2014:
- Fiscal crises in key economies
- Structurally high unemployment and underemployment
- Water crises
- Severe income disparity
- Failure of climate change mitigation and adaptation
- Greater incidence of extreme weather events (e.g., floods, storms, fires)
- Global governance failure
- Food crises
- Failure of a major financial mechanism or institution
- Profound political and social instability
The forum’s findings are both obvious and a little startling. Questions about our natural environment abound, as risks such as water crises, failure of climate change mitigation and adaptation, greater incidence of extreme weather and food crises reveal. Plus financial risks remain a reverberating echo of the 2008 crisis (fiscal crises in key economies, structurally high unemployment and underemployment, severe income disparity and failure of a major financial mechanism institution).
In both instances, there is an obviousness to their prominent inclusion on the list. Indeed, I might note that political and social instability might register as well, for though there are numerous reasons unrest can occur, who could fail to notice that environmental and financial concerns are playing a role in many of the great social and political issues of our time? What is startling about this – upon a moment’s reflection – is the realization that there is a strange disconnection between risk and our response to those risks.
I should note that sitting among these risks is what might be called a response risk: global governance failure. This may explain why our ability to actually address the other risks is so challenging. Simply put, we are presently unable to find governance structures of sufficient scope and depth to match the global risks we face. I might go so far as to call this mismatch the dilemma of our age.
I want to offer a slightly more academic comment on all this. In risk management parlance, the use of the term “global risks” can sometimes cause confusion because the scope of such risks need not necessarily be truly global. The Mountain Pine Beetle epidemic in the western United States is an example of a non-global global risk. The category of global risks connotes a set of risks that are wide ranging in impact and tend to feature interconnectivity as a key attribute. The implication is that these risks are not addressable in isolation, nor can they be managed without collaboration and cooperation.
Collaboration and cooperation – there’s the rub! Absent seamless global regulations and governance systems, these global risks cannot be fully addressed, let alone successfully managed.
The phenomenon of global risks is one of the striking reasons the concept of Risk Leadership (contrasted with Risk Management) has arisen as a subject of interest in the last few
years. The word “leadership” – in this context – is meant to signify that managerial acumen is not the primary asset in addressing these risks. Rather, individuals hoping to play a role in addressing global risks will have to better understand the range of skills, abilities and knowledge necessary to envision, inspire, communicate, persuade and influence – that is, to lead. As often noted, one of the fundamental challenges for risk management today is that it has moved from purely a collection of technical functions (insurance buying, health and safety, financial risks, security) to a more general function. That is, it has much more to do with leadership than with management alone, and it is never more the case than with global risks.
That is the problem; what can be done about it? As reported in the last issue of B. magazine, the Opus College of Business has launched a Risk Leadership project with Copenhagen Business School to better understand the risk leadership phenomenon, not only in global settings but also in corporate settings where the wide span of risk exposure means that leadership (rather than just managerial) skills are very much in demand.
Additionally, May 29-June 7, 2015, will see the next offering of the management course Global Risk Leadership, which will take MBA students to London to meet global thought leaders dealing with global risk issues, including climate change, sustainability, food and water security, global systems and leading in times of crisis. While the participating MBA students may not discover all the answers during a short sojourn to a global capital, the journey itself is, perhaps, illustrative of the types of collaborative and cooperative experiences we must offer to prepare the next generation of leaders for tackling global risks.
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