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Risk Insider: Jack Hampton

Least Risk or Most Opportunity?

By: | March 12, 2018 • 3 min read
John (Jack) Hampton is a Professor of Business at St. Peter’s University and a former Executive Director of the Risk and Insurance Management Society (RIMS). His recent book deals with risk management in higher education: "Culture, Intricacies, and Obsessions in Higher Education — Why Colleges and Universities are Struggling to Deliver the Goods." His website is www.jackhampton.com.

For the second year in a row, the Academy Award for Best Picture went to a movie that was a controversial choice. In 2017, Moonlight prevailed over La La Land, the overwhelming favorite. In 2018, it was The Shape of Water, probably a narrower winner, over Three Billboards Outside Ebbing, Missouri.

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The winners of Oscars were chosen by a vote of the 7,000 or so members of the Academy of Motion Picture Arts and Sciences.

In 23 of the categories, the Oscar is awarded based on the most first-place votes. For best picture, a preferential voting system reallocates votes to reflect both the most and least preferred. Such a system rewards pictures that do not offend. La La Land annoyed people with its portrayal of Jazz. The harsh portrayal of police brutality had the same impact in Three Billboards.

The Oscar results remind us of a parallel situation with respect to the selection of chief executive officers of corporations. The CEO is chosen by a board of directors, partly based on past achievements and partly on their likely ability to advance the value of the company common stock. But yet another factor is involved; risk appetite.

The upside of risk is the pursuit of opportunity.

Few CEOs are directly responsible for whether companies succeed or fail. We focus on Apple, Google, and Amazon where CEOs made all the difference in the world. In the meantime, the vast majority of organizations have lackluster CEOs who have little if any impact on the success or failure of the company.

This situation may exist because of the perceived or actual risk appetites of the board and the candidates.

Board members are often satisfied with the status quo. Absent some real crisis, all of the top prospects will have suitable but similar credentials. Board discussions may mitigate promising strategies and focus on a continuation of current practices. That is, the board may make a final selection on an Oscar-like preferential voting process. The board members who are risk adverse may knock out the strongest aspirants for the top job.

The upside of risk is the pursuit of opportunity. This, too, may take a preferential hit after the CEO gets on the job.

Once in place, the chosen CEO often foresees only five to seven years until retirement. Is this a time to stir the pot or continue the course?

During the job interview, all the talk was about the future. Once in the chair, the negative consequences of bold changes impair the value of success. The CEO does not choose strategies based on their merit. Instead, a preferential decision-making behavior may choose lower-ranked courses of action with fewer risks.

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Why did VisiCalc invent the electronic spreadsheet and then hand it to Lotus 123 and MS Excel? Why did Nokia and Blackberry fail to respond to the threat from the iPhone? Why did Blockbuster cling to a flawed business model as it watched Netflix eat its lunch?

Can these behaviors be explained by a simple risk-return reality?

Thus, we have two lessons from the Oscars.

First, nobody likes physical abuse in Moonlight or romance with a fish in The Shape of Water, but these may be less bothersome to voters than the features of other films.

Second, preferential voting endangers our organizations if risk management does not accept the risks that go with bold strategies.

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]