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52 Risks® Update (June 2022): Solving the Inflation Puzzle, Politics and Risk Management, Top-Down and Bottom-Up Risk Management, Risk Culture and Toxic Leaders

Solving the Inflation Puzzle

inflation fed rba interest rates

I started work in 1987. That year the annal rate of inflation in Australia was 8.53%. We do seem to have nearly come full circle in the subsequent 35 years.

I don’t really remember much about 1987 and I am sure not too many CFOs or executives remember either. Accordingly, managing businesses in a high inflation environment is a new phenomenon for business leaders in many countries. Not managing inflation risks can result in a myriad of business and financial issues.

I came across a short article on Forbes last month on how CFOs can ‘solve’ the inflation puzzle. Whilst it would be a very capable CFO that could in fact solve this problem, the article does provide an action plan on how to assess the impact of inflation and develop a plan of attack. Click here to read more.

The Visual Capitalist chart above shows the recent inflation and interest rate moves in selected countries. Click here to access the chart

Politics and Risk Management 
ALP Federal Election Win Albanese
Source: Guardian

Australia voted in a new federal government in late May. The conservative, Liberal-National Party coalition was voted out after nine years in office.

The Anthony Albanese-led, Australian Labor Party was elected on a platform of significant policy changes in several areas including climate change and healthcare.

Ahead of elections, there is always a clear signaling of planned policy changes and proposed initiatives. These changes impact many industries and businesses. Some are negatively impacted; some will see many new opportunities emerge.

There is a clear link between political change, subsequent policy initiatives and regulatory change, and risk management. Businesses need to be alert to the risks and opportunities well ahead of any elections. In Australia over the next ten months, there will be state elections in New South Wales and Victoria, for example.

In a 52 Risks® framework context, the risk impacts of these changes can often be seen across Government and Regulatory Risk, Business Model Risk, Product Obsolescence, Revenue Risk, Expense Risk, Asset Valuation Risk and Supply Chain Risk.

Dramatic policy changes following the election of a new government also reinforces the need for scenario planning and war gaming of potential outcomes. This is particularly true if major long-term business investments are planned.

You can read more about scenario planning in this article on the 52 Risks® website here.

Top-Down and Bottom-Up Risk Management

enterprise risk management

Should risk management be done on a top-down or bottom-up basis? The answer of course is both.

In my consulting work, I see a wide range of approaches and emphasis. Often the exact approach is a result of legacy practices (‘we have always done it this way’) or the commitment of a few individuals in key roles driving meticulous and diligent bottom-up risk assessments. Top-down risk exercises can be infrequent and unstructured.

A recent post here on the 52 Risks® website elaborates more on the topic and refers to the 52 Risks® Mapping Template to guide business leaders and risk managers

Risk Culture and Toxic Rock Stars 

What is a good risk culture? What does it look like? How do you measure it? It is often the case that “beauty is in the eye of the beholder”.

Fortunately, bad risk culture – or culture more broadly – can be easy to spot. In many organizations, managers and employees know the nature of the cultural problems that exist.

Addressing the issues will, however, often require a change in senior personnel. Harvard Business Review recently published an article highlighting that at many organizations, there is an unspoken, pervasive, and toxic culture that never gets addressed. Top management uncomfortably (or perhaps happily) turn a blind eye.

All credit to Harvard Business Review for the article Leaders, Stop Rewarding Toxic Rock Stars and the great quote: “I know he’s a problem, but he delivers the results our shareholders want to see. How can I fire him when we have revenue goals we need to meet?”

For directors and executives, the opportunity is there to make a positive change for the better, through engaging with employees and customers to assess organizational culture, commissioning risk culture surveys and deep dives, talking about culture frequently, and acting.