Introduction
The New Opportunity
After completing a presentation in Phoenix, Arizona, and exchanging business cards with a few executives, I packed up while noticing that a few participants lingered. As I headed for the door, one of those participants, Justin, stood up when I passed his table in the ballroom of the hotel. “Can I buy you a cup of coffee, Mr. Rael?” he asked.
“Please, call me Ron. Thank you for attending. It’s a pleasure to meet you.” I shook his hand as he introduced himself. Justin led me to the dining area at the front of the hotel. The air around filled with the buzz of busy professionals and the aroma of freshly brewed coffee. We were silent until seated.
“I really appreciated your presentation today and was intrigued when you spoke about how vital enterprise risk management is to both profitability and longevity. I knew then that I needed your advice. I am in a quandary about what to do with an opportunity that recently arose for my company, but it’s like riding a mule.”
“A mule?” That was a metaphor about risk I had not heard before.
“See a mule can get me to where I want to go, yet she might throw me off in a split second and deliver a fatal kick to my head. With a mule you never know which one you might get.”
“Ouch!” I winced at his rustic analogy. “That sounds more descriptive of risk taking than my taking a leap of faith.” My frivolity kicked in. “What about riding a reliable horse, Justin?”
He chuckled, “If you can show me where I can find a reliable and steady steed, you are hired,” he grinned back. Silently to myself I thought, “He gets my humour. That’s a good sign.”
After getting acquainted we set up a meeting date at my office three weeks hence. As we walked towards the conference centre’s parking lot and got blasted by the 32° Celsius heat, Justin said that he would bring along his partner, Paul, and warned, “Paul may be resistant to my idea of asking for help, but I believe he will come around.”
“That could be a warning or a challenge,” I thought as I got into the rental car.
Three Weeks Later
The rain in Seattle, Washington, clicked against my window. Looking out I noticed the fog lifting. “It will be warmer today,” I thought. My nose detected the clean scent of spring wafting in the partially open window. Ding! My Outlook calendar was reminding me about the 1.30pm meeting with our new client. I perused the file of research we conducted on Justin, Paul and their enterprise. “There has to be something that Justin didn’t disclose to me.” I soon found out what this meeting was really about.
Promptly 10 minutes later, Darcy ushered both men into my office. As I shook their hands and led them to my conference room, I did a quick profile. Justin, a native of New Mexico, the elder of the two, looked like he spent lots of time outdoors. He was lean, wiry, tanned and in great shape and dressed in crisp jeans, a cotton madras shirt, and new cowboy boots. Noticing his calm manner and short greying hair, I estimated his age to be over 45. Paul clearly was the dynamo of the pair and resembled a GQ model. A child of southern California he was elegantly clad in an expensive charcoal-coloured suit, matching tie and highly polished loafers without socks. Paul’s tan was not from outdoors, but his light cocoa colouring matched his longish surfer-style blond hair. I guessed him to be in his mid-30s.
“We could use some of this rain in southern Arizona. Mind if I take some home with us?” Justin teased.
“Yes if we can have some of your sunshine and warm spring weather in exchange.” I noticed that although Justin was playful, Paul stayed somewhat aloof. “I’ve got to get him to loosen up, or this could be a hard sell,” I thought.
After the typical ice breaking self-introductions, exchanging of cards and discussing Seattle’s wet weather, each of us relaxed.
“How can the High Road Institute (HRI) help you?” I wasn’t sure how much Justin told Paul about our initial meeting in Phoenix, so I played it low key.
Paul went first. “We have been in partnership for eight and one-half years, and while I think we’ve accomplished a lot, I’m afraid we’re at a crossroads. If Justin and I can’t figure out how to see eye to eye on the future of PJ Investments (PJI), well have to dissolve, and ...”
Justin cut in, “It will be like a messy divorce! We’ll have to liquidate most of our holdings, thus creating a lot of hurt feelings, while tarnishing our firm’s reputation. I’ll also take a bath on my net worth.”
“I’ll lose money too!” interjected Paul as he glared at Justin.
“Looks like Justin is the alpha male in this partnership, but Paul wants to be,” I noted to myself.
Justin stayed quiet. Paul spoke up, “I believe that we should and can continue to work together, but ..”
Waiting a beat I asked, “But what, Paul?”
“We used to be in sync about the investments we made, but lately all we do is argue.”
“What do you disagree about?”
“Where to put our investment dollars.” Justin sat up in his chair as he said this. “Paul takes too many risks.”
“I do not! You’ve become too complacent!” From this unwarranted emphasis I could tell Paul was hurting and a bit angry.
I sat on my chair’s edge and took control of the conversation in order to prevent any more arguments. “You want us to help you define your risk appetite, I assume.”
Paul took my hint and sat back, “If that’s what you call it. Justin told me about your expertise when he returned from the executive briefing he attended. I watched your DVD, and two things really hit home for me. You spoke about balance and about the cost you cannot afford. I tried to look at this situation objectively and saw that we are missing both of them. I feel we are not in balance because Justin and I have different opinions on this unaffordable cost.”
Facing Paul, Justin said, “What I believe that Ron’s firm can do for us, Paul, is to add some structure to our approaches to the risks we choose. It struck me that we have been extremely lucky because most of our risky ventures paid off in the past, but the stakes are higher today, and I don’t think we can afford to make any mistakes with future investments, especially with the one that fell into our lap last month. That’s the one I told you about in Phoenix, Ron.”
I turned to Paul, “You have an equal stake in this decision. Is that what you want?”
“Well... I only have information about your services from your website, but when I read your blogs regarding how managing risk requires a thoughtful, disciplined approach, I agreed with Justin that we should ask you to work with us.”
“That is what we can do,” I replied. We took a break to replenish our coffee, and I gave them a tour of HRI’s facilities. We chatted as I introduced them to the HRI team. They asked many questions. As we headed back to my office I could tell Paul had cooled off.
I asked, “Do the two of you have time today, so that we can define the scope of this project?” We spent the next three hours and our lunch time going over the specifics of how HRI could assist them to do a better job of assessing, managing and mitigating risk. I explained that this work would require a shift in their firm’s culture. At the time they didn’t realise what this meant and why it is necessary.
We met numerous times over the next seven months, mostly in Phoenix where it averaged 38° Celsius. (I don’t do heat well!) I introduced them to many of the tools that are available to successfully avoid worst case scenarios. In the end the two partners adopted the same risk appetite, and their firm grew by 30% that year. Despite the pain that comes with change, the culture of PJI and all the subsidiaries are now more risk savvy. In addition its ability to take more risks has improved. In risk management this is known as your risk appetite.
I am using the experiences we had with Justin, Paul and PJI as a case study to explain how you too can introduce proper disciplined risk management into your company or organisation. I will share with you the tools they employ. I will share with you the stories I use to illustrate the basic concepts of proper risk management and how your efforts will pay off in the areas of stronger leadership, profitability and flexibility.
Note: For the rest of the book the content approximately will be how I explain the concepts to Justin, Paul and the rest of our clients. All our client’s names and information are altered for confidentiality purposes.
“Only those who will risk going too far can possibly find out how far one can go.” T.S. Eliot