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The CEO's Boss: Tough Love in the Boardroom resources

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T H E S O C I A L C O N T R AC T 9 ers, and the communities they serve. Without this credo, I doubt M&T could have weathered the turbulence of its industry. Commitment to Risk Assessment Th nancial crisis has highlighted the importance of risk man- e recent fi agement, and it is incumbent on boards to see that the CEO makes a com- mitment to manage the fi le. A failure in risk man- rm’s strategic risk profi agement was one of the major factors in the Lehman collapse, and when the company went under, the press asked, “How much was Lehman’s board monitoring the company’s risk as it began accumulating its portfo- lio of real- estate assets and securities? In 2006 and 2007, the board’s risk committee met twice each year, according to SEC fi 13 lings.” Michael Raynor’s research has shown that a compelling vision, bold leadership, and decisive action, even though they are the prerequisites of success, are almost always present in failure as well. In his book Innova- tor’s Solution, written with Clayton Christensen, he talked about maxi- mizing the results of the business, but in his book Th e Strategy Paradox: Why Committing to Success Leads Corporations to Failure . . . and What to Do About It, he confronts the realities of managing risk.14 His research calls on boards and CEO’s to design their organizations so that managers at every level of the hierarchy understand the time horizon and degree of strategic uncertainty they deal with in order to make the right strategic choices. He introduces the phrase “Requisite Uncertainty” to describe this organizational design principle. In 2007, right aft Th , I was a partici- e Strategy Paradox er the release of pant on a podcast panel with Michael Raynor in which we discussed the book’s content and implications. At the time, it was more in vogue to dis- cuss maximizing results than to consider risk management. Now, only a few years later, it’s clear that Raynor was onto something crucial. In to- day’s economic crisis, boards and CEO’s need to make a commitment to manage their risk if they are to survive. Commitment to Transparency In an ideal world, it would be a given, rather than a behavioral expecta- tion, that a company’s CEO is honest. In reality, it’s important for the

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