Risk Management Leadership Lesson: The Value of Trust in Operations

Leadership, Risk Management

Risk Management Leadership Lesson: The Value of Trust in Operations

29 Oct , 2015  

Risk Management Leadership Lesson: The Value of Trust in Operations

In business and life, we grow to expect certain things. Namely, our society expects companies to produce products that are safe and reliable. We go to Yelp and rail against restaurants that do not meet our expectation for service. However, large firms, when caught red-handed often have gotten by with a mere slap on the hand. When we see a firm misbehave or use a controversial advertisement, we see boycotts initiated and apologies extracted. What about more severe damages? How a firm operates is important in its success and in forming trust with its customers.

In the last few weeks, we have seen a couple of major developments in how firms have cheated and thus lost trust. Stewart Parnell, the former CEO of Peanut Corporation of America, was sentenced to 28 years in prison for knowingly selling and distributing peanut products containing salmonella. At least nine people are known to have died from these contaminated peanut products. It is a striking case, because we now have the science to keep food safe. We now have the science to find what has killed us and identify the source of that contamination. Yet, a firm and its executives decided to operate in a reckless manner. It is the first severe penalty levied on a food company for selling contaminated food. In the trial, former employees of the Peanut Corporation of America testified that the CEO and firm prioritized profits over safe operating conditions. Of course, the tragic deaths cannot be reversed with prison time or fines. The damage to the Peanut Corporation of America was self-inflicted. No competitor or market force did that to them. No surprise in the capital markets or fear of peanuts by consumers brought them harm. When firms cheat and do harm, they ultimately hurt themselves. This fraud is of course a major risk to shareholders, customers, markets, and, in this case, the health of people.

The recent EPA disclosures about how Volkswagen has more or less gamed its diesel engine systems to perform well on emissions tests (and only during tests) showcases yet another case of internal fraud. Attorneys General across the US are already calling for billions in damages from Volkswagen. The firm created an image for “clean diesel,” sold it to well-educated and wealthy Americans, who wanted an environmentally palatable vehicle, and they profited handsomely from it. Now the lies have been revealed. The fraud, again, is internal and self-inflected. No competitor, regulator, customer, or market force made Volkswagen do this. It is risk that now will harm shareholders, customers, the German economy, and the environment. And, let’s not forget about Toyota and its accelerator, GM and its ignition switches, and well… the list goes on and on. We lose trust in firms because of the harm they cause and because that is the result of internal risk taking and decision-making gone awry.

These two recent cases are largely about internal fraud. It is clear that the firms knew about their misdeeds and elected to operate in a reckless and harmful manner. We often think of internal fraud as a banker walking out of the vault with gold bars. Such fraud is far less likely to occur than that of an executive taking undue risk against the firm to meet short-term goals. With average CEO tenures on the order of 5 years, the pressure to preform is high and the window of opportunity is short. The threat of internal fraud is a risk that all firms must address.

The management of such risk falls under Operational Risk Management. Operational Risk and self-inflicted damages are the cause of the greatest reputational harm. Nobody forced BP, GM, Volkswagen, Toyota, or the Peanut Corporation of America to do what they did. Their executives elected to take risks (and dangerous ones). Trust requires operating successfully over many transactions and creating value for customers. Once that trust and reputation are damaged, the firm must work to change not only its image, but also its operation. The process to managing Operational Risk requires a treatment that addresses the organization, its culture, its management, and leadership. We will explore all of these topics in the upcoming course Operational Risk Master Class: Measurement, Management, and Leadership.

Professor Walker provides keynote talks, seminars presentations, executive training programs, and executive briefings.

Recent talk topics enjoyed by clients have included:

From Big Data to Big Profits: Getting the Most from Your Data and Analytics”

“Data Monetization”

“Leveraging Artificial Intelligence and Automation at Work”

“Winner Take All – Digital Strategy: From Data to Dominance”

“Success with an Inter-Generational Workforce: From Boomers to Millennials”

“FinTech, Payments, and Economic Trends and Outlooks in Consumer Lending”

“The World in 2050: Risks and Opportunities Ahead”

Exceptional executive training programs have included:

“Digital Disruption, Automation, Analytics, Data Science, the IoT, and the Big Data Wave”

“Master Course on Operational Risk: Measurement, Management, Leadership”

“Complete Course in Risk Management: Credit, Market, Operational, and Enterprise Risk”

“Cyber-security Training: Prevention, Preparation, and Post-Analysis”

“Managing Your Brand and Reputation in a Crisis.”

“Strategic Data-Driven Marketing”

“Enterprise Risk Management and the CRO”

Professor Walker has provided these talks and programs to leading firms and governmental organizations. Click here to learn more about his talks, references from clients, options for customized talks and programs, and details on scheduling a program for your organization.

About Russell Walker, Ph.D.

Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University.

His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.


He  has advised many leading institutions on Operational and Reputational Risk Management, including: The World Bank, SEC, Genworth, Capital One Financial, Discover Financial, PNC, The Bank of England, and the US State Department, among others.

You can find him at @RussWalker1492 and russellwalkerphd.com

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By  -      
Russell Walker helps companies develop strategies to manage risk and harness value through analytics and big data. He has done novel research in data monetization and digital disruption and advises leading firms on these topics. As Director of Experiential Learning in Analytics and Associate Teaching Professor of Marketing and International Business at the Foster School of Business, at the University of Washington, Dr. Walker is an academic thought-leader on analytics. Russell Walker has developed and taught leading executive programs on Big Data and Analytics, Strategic Data-Driven Marketing, Enterprise Risk, Operational Risk, and Global Leadership. Previous to moving to Seattle and the Foster School, Dr. Walker was Clinical Professor at the Kellogg School of Management of Northwestern University, where he founded and taught many popular courses in analytics and risk management. His is the author of the book From Big Data to Big Profits: Success with Data and Analytics (Oxford University Press, 2015) which examines data monetization strategies and the development of data-centric business models in the new digital economy. He is also the author of the award-winning text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management as a competitive advantage. Dr. Walker consults with firms on the topics of Big Data and Analytics, Data Monetization, Risk Management, and Business Strategy. Russell Walker can be reached at: russell@walkerbernardo.com @RussWalker1776 russellwalkerphd.com

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