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The Upsides of Risk (Is your board too risk-averse?)

The Upsides of Risk (Is your board too risk-averse?)

Last year, the new CEO of Extended Stay America made news when he printed up a batch of “Get out of jail free” cards for his employees, encouraging them to take risks on behalf of the hotel company. CEO Jim Donald knew that growth and innovation come from daring ideas and calculated gambles, but he realized his workers were stuck in “survival mode” and risk avoidance.

In a Wall Street Journal article, "Memo to Staff: Take More Risks," Donald said that his employees were spooked because the firm had only recently emerged from bankruptcy; “They were waiting to be told what to do.” The cards reminded them of the need to take risks and his support from the top for smart risk-taking.

David W. Miles, CEO of Miles Capital and a member of the Iowa Board of Regents, recently observed in Trusteeship, “We know that excessive risk-aversion can really endanger institutions. We know that perceived risk-aversion sometimes actually adds risk. An effective trustee must be able to recognize and navigate the tension between risk-aversion and fiduciary responsibility.”

Janice M. Abraham , CEO of United Educators, has literally written the book on the many things that can go wrong at a college or university and how to mitigate those risks. Yet in Risk Management: An Accountability Guide for University and College Boards, she advises boards to remember to be sure to “Focus energy on the upside of risk. Adding new programs, building new facilities, or rebranding the institution can help ensure appropriate long-term enrollment levels, endowment funding, and community support. I encourage you to continue your oversight of strategic risk-taking, inspiring administrators to think broadly as they shape the future of their institutions.”

“The most energy should be focused on the highest  priority risks, rather than those that have only a minor impact on the institution.”

Abraham says it is important for colleges and universities to “preserve energy” in risk-management. To do this, she advises not to start from scratch, but instead to borrow risk registers that rank probabilities and impacts already developed by peer institutions.

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