- Posted by Andrew Bergen
- On September 18, 2019
- Board Leadership, Executive Limitations, Risk
I’ve been exploring the concept of “Growth vs. Fixed Mindset” over the past couple of months. A recent podcast* on the subject addressed this mindset partly in relation to the concept of risk. The podcast explained that a key factor in many areas of organizational health (including employee engagement, organizational growth, success of new ideas, etc.) was the organization’s ability to tolerate the appropriate amount of risk. One CEO explained that their company has moved away from ratings on performance reviews and instead holds conversations with the employees to explore what they are learning from both successes and failures.
What might this have to do with your board? There has been significant focus in recent years on Enterprise Risk Management – and rightfully so. There are far too many examples of organizations that failed to appropriately assess, address and mitigate the risks they faced. At some point, however, there is risk inherent in every business that is delivering some useful benefit to their customers (Ends).
A Policy Governance board manages risk through Executive Limitations policies. Through those policies, the board places off limits those behaviors or conditions that are imprudent or unethical – they are too risky to the organization and its owners. Removal of all risk may limit the organization from its true potential of delivering the right benefits to the appropriate beneficiaries. Organizations consumed with avoiding all risk will find it difficult to grow. These organizations are in a fixed mindset where instead of looking at failure as a learning opportunity, it is always unacceptable.
Has your board had the conversation about where the appropriate line is regarding risk tolerance for the organization? Are your Ends a large enough stretch that it requires growth, learning and, yes, potential for some level of failure? Are your Executive Limitations policies sized appropriately to truly avoid or mitigate all the risks they should, but not so limiting that they effectively stop the CEO’s flexibility to try something new and innovative?
There are no easy answers to some of these questions, but the conversation may lead to new insights at your board table.