LEADERSHIP
Words: Amy Duff Illustration: Nick Kobyluch
Risk tolerance is often the difference between success and failure in business. But just how well do directors cope with jeopardy? We invite a group of leaders to undergo a psychological test
that you think you can walk on water. Which you can’t,” he explains. What we’re talking about is disposition, he adds. “It’s not how you present yourself to others, or the way you behave in the office, or even your attitude—which is superficial and can change and be influenced by others—it’s your fundamental nature which is hardwired.” Ropeik says the system by which we respond to risk is remarkable. It’s “a complex mix of neural wiring and chemistry, subconscious psychological processes and instincts, and fact-based cognitive firepower. It’s fascinating and powerful. It’s in charge of our survival.” In his book, Ropeik lists suggestions to help readers make “healthier choices” about risks. The Psychological Consultancy has developed the Risk-Type Compass, which assesses risk tolerance based on personality and identifies individuals as one of eight types (see panel). Its purpose, says Trickey, is to encourage leaders to understand what they can and can’t do. “Any asset has a potential downside,” he says. “Anybody who reaches a prominent position will have strong personality characteristics. Being very confident, for example, is superb but it can also make you oblivious to other people’s concerns. It can be a strength and your Achilles heel.” The compass also helps directors to create roles for people that will suit their
Rolling the dice
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re these the riskiest times we’ve ever faced? An internet news search suggests that society and our personal and business lives are being constantly informed by perceived uncertainties. On one day towards the end of last year, French economy minister Christine Lagarde told us that the eurozone was not at risk of breaking up despite jitters over Ireland’s creditworthiness; Qatar was the only one of nine contenders to stage the World Cup in 2018 or 2022 to receive an overall “high” operational risk rating from 28
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Fifa; and if you took regular exercise as part of a healthy lifestyle, you could slow down how quickly the body ages and cut your risk of developing dementia. Whole industries have grown up around risk. Pensions, insurance, investments, business continuity, health and safety, reputation, governance, law… you name it and there’ll be a profession to sell you something or advise you on the threats and opportunities associated with risk. The media likes to play with our perceptions, too. As David Ropeik, author of How Risky Is It, Really? writes: “The news
media tend to play up the scary, the negative and the dramatic aspect of things… it often seems darker and more threatening than things really are.” The spread of the internet and social media, he adds, “has created millions of new advocates adding their voice to society’s 24/7 Tower of Babel about risk issues, all trying to shape what you and I think.” Putting hype to one side, risk is an inevitable part of business and can be a key ingredient to success or failure. But rather than focus on processes and procedures such as governance or compliance, says
Geoff Trickey, managing director of the Psychological Consultancy, he says it’s more useful for directors to understand how different personalities within an organisation will respond to risk and then build a balanced team that combines risktakers with those who are more risk-averse. “It’s always beneficial to know about what you are really like deep down because that’s how, in the end, you respond, particularly under pressure. And sometimes even more dangerously, when things are going so well that you develop a confidence and hubris about everything
So what type of risk-taker are you? Spontaneous Impulsive and excitable, the spontaneous type enjoys the unconstrained nature of unplanned decisions. Attracted to risk like moths to a flame but distraught when things go wrong. Passion and imprudence make them exciting but unpredictable.
Intense Highly-strung, anxious, alert to risk and fearful of threat to their precarious equilibrium, intense types invest a lot emotionally in people and projects, and are nervous about failure. Passionate and selfcritical, they take it personally when things don’t work out.
Wary Self-disciplined and guarded about risk, the wary type is organised but unadventurous and puts security at the top of the agenda. Drawn to the idea of securing a future but anxious that something may go wrong.
Prudent Very self-controlled and detailed, the prudent type is systematic, conservative and conforming. Conventional, they prefer continuity to variety and feel most comfortable sticking to what they know.
Deliberate
“BEING CONFIDENT IS SUPERB BUT IT CAN ALSO MAKE YOU OBLIVIOUS TO OTHER PEOPLE’S CONCERNS. IT CAN BE A STRENGTH AND YOUR ACHILLES HEEL”
Self-confident, systematic and compliant, the deliberate type tends to be unusually calm and optimistic. They experience little anxiety and tackle risk in a business-like and unemotional way.
personality and deploy them to the best advantage. Directors we asked to take the survey reckon the tool offers food for thought. All believe that they’re regularly exposed to a degree of business risk. Mat Maddocks (“adventurous”), product manager at risk management software company Russell Consulting, says there’s always risk in a small business. “Big companies have much more resource, you’re up against the fact that they could do some of what we do for themselves. And the technology landscape is challenging— the pace of development is dramatic, so
Adventurous
Composed Cool-headed, calm and unemotional, but at the extreme, the composed type is almost oblivious to risk unaware of its effect on others. Imperturbable and manages stress exceptionally well.
Impulsive and fearless, but at the extreme, the adventurous type combines calmness with impulsiveness and a disregard for convention. Unconcerned about risk.
Carefree Impulsive and unconventional, carefree types are adventurous, excitement-seeking and, in extreme cases, reckless. Impatience and impulsiveness expose them to making hasty, imprudent decisions. Source: the Psychological Consultancy
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there’s the risk that what’s taken us years to develop could in a year’s time be produced by some spotty teenager who sticks it on the Net for free.” Maddocks says he isn’t surprised to find himself labelled as adventurous. “It’s a combination of my natural attitude to risk but also my personal situation. I have my own flat, it’s reasonably secure, and I’ve got no dependents. It’s situation and intrinsic personality that contribute to the results.” Paul Bates (“intense”) is in charge of setting up The Network, a governance, risk and compliance firm, in Europe. A start-up is always high risk, he says, but he finds it more exciting than a “steady Eddie” job. He adds: “The risk for the company is that it isn’t small change to employ somebody like me. And to stick with it for an amount of time to see if it works or not.” The tool proved to him that he’s matured. “Probably 20 years ago I would have been reckless and thought, ‘sod it, kick the door down to make something happen’. Now I’m more laid-back and will make something happen without panicking.” It makes you think about the balance in your team, observes entrepreneur Joe Blackman (“spontaneous”), founder of Green Ant Events. Categorised as someone who’s not aware of convention or inhibited by it, impulsive and easily distracted, he says his company invests in fairly high-risk funds to secure good returns. Once Blackman had made the decision to open an office in London, it was a case of, “we have to do it now”. He says the test has encouraged him to consider whether he needs more “composed” or “prudent” types in the company for balance. “I’d be wary of some of the other types, such as ‘carefree’,” he adds. There’s no reward without risk, comments Bradley Wright (“carefree”), managing director at Veterus Consulting and a former weapons engineer in the Royal Navy. He has a thorough understanding of risk that stems from experience and education, and reckons the bigger the rewards you’re seeking, the larger the risks you must take. He’s disparaging of people who want to manage risk out of business. “The thing I’ve found about being an entrepreneur is that you 30
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“EVERYBODY IS CONDITIONED TO BE FRIGHTENED OF RISK, AND TOLD THAT MISTAKES ARE BAD. THAT’S WHAT’S HOLDING US BACK AS A SOCIETY” need the right mindset,” he explains. “People will read how to manage risk and read about a business opportunity, but they will not take action because they’re scared. “Everybody is so conditioned to be frightened of risk, and told that mistakes are a bad thing, and that’s what’s holding us back as a society. Risk aversion has transferred into people’s business attitude as well. You can spend a huge amount of money being risk-averse. An entrepreneur would use that [money] to come up with a new service or product.” Does Trickey think that entrepreneurs such as Wright are bigger risk-takers by nature? There’s nothing you can say about humans that is always the case, he cautions, because “humanity is wonderfully variable”. But he does believe entrepreneurs are often groundbreakers—adventurers who cut their own route through whatever life brings. “They seize opportunities that others might not have recognised,” he says. Trickey doesn’t necessarily agree that entrepreneurs fall into particular types. An “intense” type could just as well use his or
her disposition to their advantage. “They’re never satisfied with their own performance; they’re critical, they never let themselves off the hook; they keep driving,” he says. “That’s an uncomfortable type of person to be but you succeed with it because you put in so much effort.” The “spontaneous” type may also succeed as an entrepreneur, Trickey adds, “because they will go where angels fear to tread and sometimes they get lucky. They’ll do it where everyone else will stand on the edge and say, ‘not me mate’.” But he does concede that entrepreneurs tend to fall into “carefree”, “adventurous”, or “composed” types. They also display common traits. “Being an entrepreneur is risky, no one has a dead certain path to success. But you do see determination, not being frightened of failure, maintaining optimism…” Because we decide for ourselves how to react based on such a dynamic mix of biology, psychology, experience, and social and personal life circumstances, says Ropeik, we can only gain from using selfevaluation to “step back and think things through more carefully, more honestly”. Trickey agrees. “There are many reasons why people become leaders, but whatever reasons those are, it’s good that they can understand themselves well enough to know what their limitations would be,” he says. “Greater self-awareness means you can be more realistic and it gives you flexibility because you don’t dig holes for yourself. You know when to stop digging when, and if, it goes pear-shaped.” D