Leadership risk, which may also be referred to as strategic risk, is the risk that leaders may make poor decisions, resulting in loss and/or damage for their constituents.
Every society grapples with challenges. When a society fails to produce leaders who can make correct decisions at senior and junior levels, in the long term it will lose competitiveness, prosperity, and security. The roots of leadership risk take hold years in advance, during the (deficient) education and preparation of leaders. The most reliable way to mitigate leadership risk is by doing a better job training and developing tomorrow’s leaders. Only a comprehensive leadership development effort can reduce the probability and severity of mistakes leaders make.
Leadership risk is just one of many risk types. Given that we are surrounded by so many risks, why does leadership risk deserve special mention? While it is true that any risk can lead to significant loss or damage. leadership risk has the potential for far greater damage than the others. This is primarily because the failure of leadership can expose individuals, organizations—and most importantly entire societies—to all other risks. One small error in judgment or planning by a junior leader may not be much different in terms of loss or damage from the negative outcomes of any other risks. When failures of judgement and decision making occur on a larger scale, however, entire societies are placed at risk.
When a society fails to produce leaders who can make correct decisions at high levels, in the long term it will lose its competitiveness, prosperity, and security. The roots of leadership risk take hold years in advance, during the education and preparation of leaders. To mitigate leadership risk we must do a better job training and developing tomorrow’s leaders and we must instill the appropriate values in our leaders.
In some sense, leadership risk includes all other risk types, because those other risk types can be hedged or mitigated by better decision making. For example, good leadership will opt to protect a population against disease or make political decisions and actions that avert war, or fight a necessary one successfully. Good leadership can identify and reduce financial risks, or create an environment that fosters social risk. In contrast, waging an unnecessary war or failing to implement a military option when it's needed, choking off financial growth, or failing to protect against a pandemic can all lead to immeasurable damage and loss.
Common Mistakes Leaders Make
Leaders at all levels make mistakes whenever they:
Accept bad advice
Use bad data
Use inaccurate models
Are overcome by emotion
Act impulsively without sufficient consideration of probable outcomes
Fail to remain objective
Lack critical skills
Fail to inspire or motivate followers
Lose (or fail to gain) trust of their followers
Fail to empower others
Lack specific knowledge (for example, about the industry or activity in question)
Suffer from indecision
Don’t have (or lose) moral authority
Become distracted by perks or other extraneous factors
Fall in love with prestige of office at expense of remembering and performing duties of office