Business organizations face different types of risks. One of these risks is the lack of congruence between the values of the companies and their actions and / or investments. For this reason, it is essential for any organization not only to have clear the values that govern its act as a company, but that these values are of the knowledge of the whole structure; thus, actions that go against these values are prevented. The risk of inconsistency between stocks and securities is damage and a possible crisis in the reputation of organizations.
Now, each organization-in turn-has a certain risk aversion for each one of those they face. That is, aversion to risk is the limit to where each company is willing to act under risky conditions. Speaking, for example, of the congruence between business values and actions, risk aversion is in how far the organization is willing to be incongruous for the benefits it will get from it, versus the losses it could have.
In the case of oil companies, they belong to a sector that is naturally propitious to operate under very risky circumstances; either with non-democratic governments or clearly violating human rights, even in situations of civil war. The expected profits from the extraction and sale of hydrocarbons more than compensate for the possible losses due to the risks they face.
This contrasts with Disney, a company with a very low aversion to risk. To exemplify this aversion to risk, it is necessary to resume the dismissal of James Gunn, director of the first two films of Guardians of the Galaxy, which were a resounding success. The dismissal occurred after a series of tweets that Gunn had written years ago and that qualified as offensive came to light. However, a year earlier, Disney had already removed one of the most influential producers of Pixar after being accused of sexual harassment, just in the same week that one of the productions in which he participated was released, Coconut, one of the largest animation projects of the company so far.
Many argued that this type of measure was excessive. However, Disney is clear about the values that it defends and that focus on maintaining its reputation as “the happiest place on Earth”. Thus, a tweet years old, which may have been a bad joke, represents a risk that Disney is not willing to run because it threatens the very foundations of the company.
Disney, unlike oil companies, does not feel comfortable operating under risky situations, no matter how minimal; that is, it is totally adverse to the risk. This business behavior gives Disney certainty, its investors, its customers, and its employees, and allows it to maintain the reputation that has worked for them in their business. Disney does not depend on a producer or a director to continue operating, so the losses for finishing the collaboration with some employee are minimal. The oil companies, on the other hand, depend highly on geological factors for their survival; regardless of the circumstances of the country where the hydrocarbon is located.
The objective of knowing the aversion to risk is not that the organization becomes paranoid. On the contrary, the purpose is that the organization can mitigate risks and take advantage of the opportunities presented proactively. An organization can effectively mitigate the risks to which it is exposed regardless of their aversion to them. The key is to implement a risk management system that is congruent with the values of the organization.
At Riesgos Políticos, SC, we can help your company establish effective mechanisms for risk management and crisis management. Contact us by mail firstname.lastname@example.org .