32 years after the Cadbury Report defined modern corporate governance rules, corporate scandals continue to happen. Another version of the Corporate Governance Code came out in January with yet more minor changes. Why isn’t corporate governance working and why do corporate failures keep happening? Growing frustration is leading to demands for ever more regulation, but we’ve actually already got the benefits from good governance. Added pressure...
Risk simply means that we are not sure about what will happen in the future. If you know everything about the future, you haven’t got any risk. However, if you are mortal like the rest of us you are constantly wrestling with what might, or might not happen, in the future. That’s risk. Then you think about what you might do to influence or respond to the future event. That’s risk management. Risk management isn’t about having a risk committee or...
A ‘government source’ is quoted in the Times (25 May 2021), trying to defend the government against accusations that it failed to prepare adequately for the pandemic: “The reason we prepared for flu is because we have flu epidemics every year. The idea that you prioritise what’s least likely to happen is for the birds. This was a novel virus. The clue’s in the name…we didn’t know that it was asymptomatic. It’s very difficult to prepare for...
I travelled from Tashkent to Moscow on an Aeroflot Ilyushin 86 in the early 1980s. The seats were basic metal framed deckchairs, screwed to the floor1. Why don’t airlines nowadays use simple deckchairs on airplanes, instead of very heavy, crash-resistant ones? The fuel saving alone would be enormous and the temptation, especially to low cost carriers, must seem overwhelming. The answer is obvious, I hear you say; safety. But airlines spend...
Imagine that you are worried about your infirm mother and want to make sure that you do everything to protect her. If you adopted typical corporate risk management practice, you would identify a risk that she falls over. You would then calculate the impact (maybe a broken bone) and then identify some mitigations, such as putting some cushions around her bed or installing a handrail. All sensible, but not very through. What if the consequence...
There’s a saying in aviation: ‘Never fly in the same cockpit with someone braver than you’. Risk management for a pilot is literally a matter of life and death. Have you ever asked yourself whether you would share a boardroom table with executives braver than you are? Company risks are often presented as long shopping lists; each with a reassuring comment, about how it’s unlikely but that it’s covered off. A typical audit committee, and now the...
The popular image of a pilot is of a dashing hero, who pulls off amazing feats of skill to save his aircraft from imminent disaster. However, in reality, what airlines value most in pilots is keeping to procedures and operating according to checklists, acting with defined responses to various planned and unplanned events. That’s not to deny that pilots possess considerable skills and knowledge. It’s just that these are best deployed in known...
The basic model of commercial aviation is a thin tube of highly pressurised metal being propelled at 600 miles per hour by inflammable fuel at 35,000 feet in all weathers at temperatures of -57 degrees. So have you ever wondered how aviation got to be one of the safest forms of transport, despite being inherently full of such potentially catastrophic risks? On the other hand, the average boardroom, comfortably at 20 degrees, often going...
Famously, in 2008, the Queen asked economists why no-one saw the great financial crisis coming, not least as they were giving her a full retrospective inquest into why it happened1. She might well ask the same question again now about the COVID-19 pandemic. Of course, some commentators did predict the likelihood of a similar pandemic. Bill Gates, not a renowned epidemiologist, in 2015 said; “If anything kills over 10 million people in the next...
Corporate Governance
Economics
Notes From A NED