Risk Insider: Dante Disparte

Governing Risk or Governed by It?

By: | March 9, 2017 • 2 min read
Dante Disparte is an entrepreneur, business leader and global risk expert. He is the founder and CEO of Risk Cooperative, an innovative strategy and risk advisory firm based in Washington, D.C. He is the co-author of Global Risk Agility and Decision Making.

Senior executives and boards are learning the hard way that the buck does, in fact, stop with them.

This is painfully true when it comes to risk governance and the reality that in the smoking crater of complex risks such as cyber threats, reputation risk and the erosion of stakeholder trust, they are the ones left to pick up the pieces.

At best, they can endeavor to reassemble their organizations under the discretion and dignity of privacy — a luxury in the era of rampant cyber threats. At worst, they are carted in front of an angry Congressional hearing only to watch their share price and egos take a hit.

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Somewhere between these two extremes, the reality that most organizations are governed by risk is revealed. Addressing this risk governance gap is an organizational priority requiring the uncomfortable admission among boards and C-suite executives that they are ill-prepared in their human capital, knowledge, organizational “muscle memory” and general levels of resilience and decision making under duress.

Risk is a surprise event, or better still a process under the adage complex systems fail in complex ways. It does not respect board meeting schedules or when quorum can be formed in the crisis management committee.

Because of this misalignment between the dynamic forces of risk and the static forces of maintaining the semblance of status quo, organizational responses to surprise events are perceivably “clumsy” and all too often they amplify negative consequences, rather than abate them.

Breaking the habit and presumptions of being inured to risk and adverse consequences is the first psychological obstacle to overcome.

Shifting this reality and giving leaders the upper hand — albeit gingerly — enabling them to govern certain risks, they must train and train again. Breaking the habit and presumptions of being inured to risk and adverse consequences is the first psychological obstacle to overcome.

When you look at the personal characteristics, income levels and stature many board members and executives enjoy, their relative personal resilience does not convey to their organizations — and the many millions of employees and stakeholders and trillions in economic value that depend on their ability to suppress hubris, ask the right questions, and motivate information sharing.

Running risk simulations, addressing the knowledge gap and generally stress-testing risk readiness and their organizations is a low-cost, low-consequence way to prepare for the era of man-made risk.

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Unlike natural hazards, such as earthquakes and windstorms, which are capricious by design, man-made risks like cyber threats, terrorism and activist shareholders all have agency. This gives man-made risks an incredibly dangerous plotting quality, which makes it difficult to control and even harder to respond to when it rears its ugly head.

Rather than presuming safety and that everything is “covered” by an IT security professional, insurance policy or crisis communication strategy, senior leaders would be well advised to remember that risk favors the prepared. From a platform of healthy respect and continuous risk governance simulations, senior leaders can train their organizations to not only shield themselves from the powerful forces of risk, but to add value by harnessing it.

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.
By: | April 19, 2017 • 2 min read
Topics: Cyber Risks | RIMS

“The sky is not falling” when it comes to cyber security, but the threat is a growing challenge for companies.

“I am not a cyber apocalyptic kind of guy,” said Gen. Michael Hayden, former head of the Central Intelligence Agency and National Security Agency, who currently is a principal at the Chertoff Group, a security consultancy.

Gen. Michael Hayden, former head of the CIA and NSA, and principal, The Chertoff Group

“There are lots of things to worry about in the cyber domain and you don’t have to be apocalyptic to be concerned,” said Hayden prior to his presentation at a Global Risk Forum sponsored by Lockton on Sunday afternoon on the geopolitical threats facing the United States.

“We have only begun to consider the threat as it currently exists in the cyber domain.”

Hayden said cyber risk is equal to the threat times your vulnerability to the threat, times the consequences of a successful attack.

At present, companies are focusing on the vulnerability aspect, and responding by building “high walls and deep moats” to keep attackers out, he said. If you do that successfully, it will prevent 80 percent of the attackers.

“It’s all about making yourself a tougher target than the next like target,” he said.

But that still leaves 20 percent vulnerability, so companies need to focus on the consequences: It’s about response, resiliency and recovery, he said.

The range of attackers is vast, including nations that have used cyber attacks to disrupt Sony (the North Koreans angry about a movie), the Sands Casino (Iranians angry about the owner’s comments about their country), and U.S. banks (Iranians seeking to disrupt iconic U.S. institutions after the Stuxnet attack on their nuclear program), he said.

“You don’t have to offend anybody to be a target,” he said. “It may be enough to be iconic.”

The world order that has existed for the past 75 years “is melting away” and the world is less stable.

And no matter how much private companies do, it may not be enough.

“The big questions in cyber now are law and policy,” Hayden said. “We have not yet decided as a people what we want or will allow our government to do to keep us safe in the cyber domain.”

The U.S. government defends the country’s land, sea and air, but when it comes to cyber, defenses have been mostly left to private enterprises, he said.

“I don’t know that we have quite decided the balance between the government’s role and the private sector’s role,” he said.

As for the government’s role in the geopolitical challenges facing it, Hayden said he has seen times that were more dangerous, but never more complicated.

The world order that has existed for the past 75 years “is melting away” and the world is less stable, he said.

Nations such as North Korea, Iran, Russia and Pakistan are “ambitious, brittle and nuclear.” The Islamic world is in a clash between secular and religious governance, and China, which he said is “competitive and occasionally confrontational” is facing its own demographic and economic challenges.

“It’s going to be a tough century,” Hayden said.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]