101 – The Basics About the WHAT THE R*SK! Podcast

WTR 101

Larry Gordon: [00:00:00] Welcome to What The Risk, Exposing Business Blind Spots. Have you ever been in a business situation where you or a colleague have gotten blindsided and unexpected and unwelcome news that will impact your business? Think about your entire computer system going down. A supplier that cannot deliver your biggest customer declaring bankruptcy regulatory changes that interrupt your ability to export or import or your new marketing strategy completely missed the mark. These were visceral. What the risk moments. Your exact words may be different, but the feeling is the same. After you address the problem, you will ask questions like, What could we have done differently to prepare? What could we have done to avoid the risks that just surprised us? Well, that's exactly what we're here to talk about exposing these business blind spots to enable you to mitigate, manage, and avoid the risks. The title of this podcast is a vivid reminder of the emotion you do not want to experience and the actions you can take to prevent it. What The Risk, Exposing Business Blind Spots. What The Risk is an interview-based series that dives into the less often seen sides of enterprises spotlighting unseen pitfalls that can potentially destabilize growing companies. Our aim is simple. We want to help business leaders, stakeholders, board members, lenders and investors navigate the sometimes murky waters of risk management. We're here to arm you with the knowledge you need to make better decisions and have more informed conversations when everyone's eyes are focused on the next sale.

Larry Gordon: [00:01:36] High impact. Low visibility risks often get overlooked. We call these blind spots and these blind spots cause what the risk moments. So join us on this journey as we learn to ask the right questions, expose potential pitfalls, and turn those What The Risk moments into I've got these victories. Welcome to episode 101, the first season, first episode of the What The Risk Podcast. I am your host, Larry Gordon. The first episode will cover the basics of the podcast. I'll share a little bit about myself, your host. I will cover the purpose and value of the podcast. We'll discuss the format and the opportunity for your involvement with the podcast. And finally, upcoming episodes as a supplement to the podcast series, I've created episode 102. It's a bonus episode dedicated to the foundations of risk management and its framework. Some of you may already have the knowledge, but others may not. More about episode 102 later. Let's jump right in. I'm Larry Gordon, your host. With nearly 30 years in financial services at organizations ranging from large banks to fintech startups and leadership experience across multiple areas of risk. I wanted to take that knowledge and empower you to see where your business blind spots might be and learn how to expose and address them. During my career, I've held executive leadership roles across three lines of defense in financial services, customer facing business line management, first line of defense.

Larry Gordon: [00:03:08] I was a wholesale lender where I made loans to large public and privately held companies across a variety of industries and credit profiles, from investment grade to highly leveraged merger and acquisition transactions. On the third line of defense called Independent Review, I was a credit review director where me and my teams evaluated thousands of transactions to ensure bankers were identifying, evaluating, documenting, and monitoring risks associated with their loans. Along the way, I've also provided credit training to many bankers over the years, and in the second line of defense, corporate compliance and risk. In addition to credit experience, I led teams in financial crime, risk management and compliance areas. These areas included Bank Secrecy Act, think Anti-Money laundering, OFAC, more commonly known as sanctions and being responsible for the alphabet soup of bank regulations. Training was the key to success when it came to risk. The development of training programs to change cultural risk. Awareness is where the dividends really paid off. As a risk management consultant, I have both enhanced and built from scratch new enterprise risk management programs. Based on this experience, I want to share with you a holistic view of enterprise risk management. The purpose of what the Risk podcast is to educate and inform business leaders, stakeholders, including board members, lenders and investors about various types of business risk. The podcast is about you. It's a safe space to learn about risk, how to think about risk, and even to submit questions for our guests.

Larry Gordon: [00:04:45] Keep in mind that when we are knowledgeable, when we are aware and we understand the rules of the road about managing risk, we get better outcomes. We will share with you later in the show how to register so you'll be able to submit questions. Remember, this is your management safe space. During each episode, set aside any fears or lack of knowledge. If you feel vulnerability on these risk subjects, I encourage you to harness it. Use the podcast for self-improvement growth, goal setting and celebrate your successes as you learn how to identify blind spots in your business. Share this podcast with your colleagues, your teammates, and your stakeholders to break down communication barriers about risk. When we think about risk, remember, none of us can manage what we cannot see. That is why each episode we will be discussing topics that empower you to protect the business that you lead to better evaluate loans you will provide to a borrower or to understand the investment you have or you will make in a growth company. If you provide support to or engaged with business leaders in your role as an accountant, lawyer or other advisor, what the risk podcast has value for you. Let's do a bit of level setting. Risk management may not be sexy. They do not make television or cable drama shows about risk management like they do for doctors, lawyers, criminal justice, etcetera.

Larry Gordon: [00:06:14] Risk management is akin to the AV guy. You only notice their absence when the audio or visual does not work. Or like home and auto insurance. Something that you recognize as a cost of shifting your financial risk. But insurance is something you never want to utilize, but it does prove valuable when there is an event. That said, we'll try to provide you with real life experience and examples that you can learn from and use to avoid unnecessary drama in your business. One of the things that you will notice very quickly is that I like to use analogies to simplify sometimes complex ideas, to provide clarity, to make more, to make risk more relatable and candidly, to make the points more memorable. Perception matters. Risk management functions often are associated with the role of Dr. No as the evil character that works against the sales force of an organization. This perception tends to perpetuate from people remembering when someone in a risk department somewhere or a legal department told them no when they sought permission to do something. When an organization has a strong risk management culture, the relationship between sales and risk should not be seen as an obstacle, but as empowerment. This enables the business to thrive and generate sales within safe, risk based parameters or guardrails. Think of risk management as a prescriptive way, not to be on a reality TV as a potential news headline or the next business school case study about a company downfall.

Larry Gordon: [00:07:46] Now let's talk about return on investment at this point. You're seeing the value for the time you will invest in the listening to this podcast. Let's take a few minutes to frame up the return on investment. Remember, your goal is to turn those what the risk moments into I've got this victories. So I want you to keep in mind that experienced bankers and investors bet on the jockey, not on the horse while the horse is important. The jockey skills will help navigate the horse to be at its best as a business leader. You are the jockey that is being evaluated. If you're the banker or the investor, your interests are aligned and you undoubtedly are motivated to help your jockeys be their best. So let's talk about the business leaders. This is an opportunity to increase your risk awareness and stimulate thoughts about your ability to manage risks. This reduces the stress of the unknown. So you, as the business owner or leader, can sleep better knowing you're able to protect your business. You're better equipped to reduce potential financial losses and you have an approach to enhance decision making and can improve resilience of your business. If we don't effectively guide the horse. It's not just your financial stability in jeopardy. It's the livelihoods of countless families who depend on your decisions.

Larry Gordon: [00:09:06] In exchange for your time, you'll be better informed and able to think more holistically about business risks as you engage with the board of directors, bankers, investors and vendors. Think about it. If you as a business leader can demonstrate that you're aware of and are mitigating a wide range of risks, your stakeholders should view this very favorably and translate it into more confidence in their working relationship with you. Now business lenders and underwriters in the normal course. Loan officers should continue to evolve the efficacy of their due diligence activities when underwriting a loan. This ensures that loans are being made and the credit risk is priced accordingly. So the banker and chief credit officer have more confidence in the loan portfolio. Now, let's think about this from the boots on the ground perspective. Loan officers want to keep building their portfolios in relationships while avoiding loan losses. They cannot be afford to be viewed as a commodity when the price of the loan is the primary decision making factor for a borrower. Surprises are for birthdays, not loan repayment risk. Great lenders do not want to be surprised by their borrowers risk blind spots. Think like a best in class lender when this quarter's leverage and interest coverage ratios are important. Best in class lenders want to understand more about the borrower, their challenges and their risks. A take away from each episode. Bankers will have topics for conversation starters, empowering them to gain insights into risks that their borrowers may encounter.

Larry Gordon: [00:10:42] This will deepen and make borrower relationships more meaningful because share of mind equals share of wallet and bankers want more of both. Investment managers. Investors want greater insight into portfolio companies. The jockeys, their business leaders will help maximize their returns. More effective risk. Due diligence leads to greater investment success by identifying efficiencies, deficiencies and opportunities. So the investment manager has transparency to make more strategic investment decisions and enhance the trust of their pool of lenders. The process of weeding out pitches that do not fit their investment thesis is relatively quick. Due diligence continues layer by layer of the investments to build out SWOt analysis, strengths, weaknesses, opportunities and threats. This is where the blind spots need to be identified and sized. My experience is that investors are voracious learners. They want to know what they do not know and figure out how to either gain that knowledge or have access to specific expertise. The ability to create a unique lens and have subject matter knowledge available ultimately provides them with a competitive advantage to evaluate new products, increase their returns, or reduce their exposure to events beyond their control. Their value will be deeper risk centric conversations as parts of their due diligence and ultimately better governance of their portfolios, because better information leads to better decision making. As the principal of Gordon Resolutions, I often speak to business leaders, bankers, investors, or people that provide services to these groups.

Larry Gordon: [00:12:25] While learning about their business, the conversation would naturally shift towards risk topics. Regularly, the person I'm talking with says Larry, Until this conversation, I didn't think about insert subject as a potential risk to my business. I realized over time this is a repeating pattern and a knowledge gap. This is the why behind the creation of this podcast and identified void for business leaders where they can have access to concise, easily accessible and understandable information about risk and risk management. As someone who has always enjoyed teaching, I want to empower you to expose your business blind spots. The journey goes through the following phases from "I don't know what I don't know" to "I know what I don't know" to "I want to know more." This is the safe space we're providing. This will go from the natural anxiety, fear or uncertainty through to building confidence through awareness. Reality check. This podcast will not transform you into a subject matter expert. It will, however, help you become risk aware, provide breadth of risk understanding, enable you to be both a better leader and teammate to your organization, and perhaps know when to call on subject matter experts. The format of the podcast episodes will include both inspiration and motivation. The inspiration will focus on the target state we want to achieve regarding risk management topics. The motivation is a spark to take that first step towards the inspiration point.

Larry Gordon: [00:14:01] The motivation will usually come from nuggets of information based on experiences, usually from what we call other people's mistakes or suboptimal execution. As we discussed the inspiration and motivation components, we'll talk about any recent headlines or current events regarding the episode's subject. Another part of each episode will be your questions for our guests so we can be more relevant to you and your interests around managing risks. Your risks. Sign up to be a business blind spot Insider at W-w-w dot risk Blind spot.com. That's multiple because we all have them risk blind spots.com to get exclusive advanced notice of the next two episodes so you can submit questions, topics and suggestions for our show. Let's talk about strong risk management culture as a point of inspiration. Strong cultures demonstrate competence and a recognition that risk management is ever evolving because risks are not static. They're dynamic. Risk awareness should be in the DNA, along with the willingness to share observations. The mantra needs to be if you see something, say something. And strong cultures are much more than just using dashboards. Which brings us back to the podcast tagline for a moment Exposing business blind spots. Too many companies use three metrics on their dashboards. Pipeline for sales, sales and cash on hand. While this may be oversimplified, if this is what you have, I would use it as a starting point to up your company's game.

Larry Gordon: [00:15:38] Like I said a moment ago, risk management is ever evolving. Well, we talked about motivational nuggets a moment ago, learning from other people's mistakes. This is done only from the perspective of education and understanding. So you don't make the same mistakes. It's not done from any other perspective. Silicon Valley Bank provides a good foundation for learning opportunities. Without a chief risk officer for nine months, there was a classic overreliance of managing by dashboards. Not managing the risks. Regardless of the efficiency or effectiveness of reporting, organizations that limit their risk programs to dashboards will miss emerging barriers to success. Let's think about the analogy of driving a business like driving a car. Don't get me wrong, it's natural to focus on activities that give more tangible rewards, such as speed or sales in cars and in business. There are a core set of metrics that should absolutely be monitored on a dashboard. Dashboards should tell you what is currently happening or has already happened. In business, dashboards are built based on the size and complexity of the operation. Here's the big however. If you're only looking at the dashboard when you're driving, it's a disaster waiting to happen. It's a matter of when, not if you hit a friction point. Risk leaders like good drivers should spend most of their time looking out the windshield. Windows and mirrors to look for obstacles. In other words, manage the risk.

Larry Gordon: [00:17:08] The ability to identify friction points, anticipate events and make adjustments will always lead to better outcomes. When driving a car. The greatest potential impact can come from missing what's hidden in your blind spots just over the driver's shoulders. Frankly, you may not look in your blind spots all the time, but we do need to have the right visibility when the time comes. There are new technologies in cars that help expose blind spots when driving. Blind spot detectors on the side mirrors, cross alerts, lane departures and surround cameras. Similarly, this podcast is designed to help you expose your blind spots in business. As far as upcoming episodes and your involvement as a bonus episode to this podcast series, I've created episode 102 that is dedicated to the foundations of risk management. It covers what risk is and what risk is not. Which also sheds light on misconceptions, characteristics of strong risk culture and some red flags to watch out for. Also included. As is terminology that will be used as we discuss risk and how to think about the measurement of risk. Episode 102 is intended to help build your understanding of the risk framework. Some of our listeners may already have that knowledge. Others may not. Please use episode 1 or 2 for ongoing reference. Now about your involvement. As we think about blind spots, we want to engage you proactively. Registered blind spot insiders will receive advance notice of upcoming episodes, and soon you'll be able to submit questions for our guests or tell us what topics that are important to you.

Larry Gordon: [00:18:50] We will then aggregate the questions into themes and ask these of your guests. Sign up to be a business blind spot Insider. Go to risk blind spots.com. That's multiple because we all have them risk blind spots.com to get exclusive advance notice of the next two episodes so you can submit questions, topics and suggestions for our show. As far as upcoming episodes we're excited to share with you. We have a former lead bank regulator to talk about the current banking market and how to work with your banks. A venture capitalist with a family office. They will talk about the investment evaluation process as it pertains to risk. An information security specialist to talk about data protection and vulnerabilities and a specialist in the consumer packaged goods industry to talk about the risks of innovating if you've not invested in understanding your customer.

Larry Gordon: [00:19:46] Episode 101 Wrap up. Key takeaways from episode 101 For the purpose of the podcast, what the risk and its value as a safe space to learn about risk management. It's designed for business leaders, including board members, bank lenders and underwriters and investment managers. The podcast format and your ability to engage with us. And finally, the bonus episode and upcoming episode topics we've covered. As a side note, key terms and acronyms will be included in the show notes for future reference.