In This Issue:
Right Risks Beat High Risk: Do Women Fare Better? What about Dare Devils?
Business success depends upon taking the right risks. When deciding what direction to take the business, how fast to grow, how much to change, how fast to adopt the latest technology, as well as if and how to start new ventures, how well the risks are handled can make a major difference between success and failure.
Yet, today’s imagery of the hard charging, high risk taker with dare devil characteristics continues to create the impression that high risk in business leads to high reward. Additionally, we still see major corporations striving to be bolder and to take bigger risks. However, despite high risk often seeming to be idolized, high risk does not lead to high reward. The right risks, not high risk, are what brings the greatest rewards in business.
As someone who has been researching business success and failure patterns for more than 25 years, I have looked at evidence, and it does not support the adage that high risk leads to high reward. In addition to my own research, prominent research done elsewhere also found that the biggest risks taken in business did not lead to the greatest rewards.
That is why I found the June 27, 2019 Wall Street Journal article “Reluctant Advocate“ by Jack Otter quite interesting. The article discusses why Kevin O’Leary, “an investor best known for playing the tough guy on a panel full of tough characters on the reality venture capital show Shark Tank” prefers to put his money into women owned companies. He does so mainly because he finds that “women manage risk better” than men do.
According to the article, O’Leary “has nothing but disdain for the idea of investing with a social purpose.” “He’s all about capitalism”. But, as the article explains, O’Leary’s Shark Tank investments in 39 companies have “gotten significantly better return from start-ups founded and run by women. And, he doesn’t think it’s a coincidence.” O’Leary attributes this to women’s “tendency to set reasonable goals for growth.”
Management expert Mark Hortsman, who is quoted in the Wall Street Journal article, “agrees that setting realistic goals is a smart strategy.” But, he “rejects O’Leary’s assertion that one gender is superior at setting growth targets.” And, he “thinks that O’Leary’s sample of 39 companies is too small to prove anything.” But, as the article points out, “O’Leary argues that women’s advantages go beyond goal-setting.” He cites women’s superior skills at handling angry customers and the fact that women tend to start consumer products companies, which can benefit immensely from the publicity that comes from Shark Tank.
As I see it, based on my more than 25 years researching business success and failure patterns, which entailed looking at far more than 39 companies, the pattern of the right risks—not high risks--leading to the greatest rewards is clearly there. I have looked at far more male run businesses, mainly because there have been so many more of them than those run by women. So, I have not seen the gender advantage in my own research.
Yet, through programs like those offered by Women in the Boardroom, an organization that prepares women for corporate board service, and through my reading publications like Directors & Boards, I am well aware of the studies finding that companies with more women on their boards have superior performance. These studies were also mentioned in the above Wall Street Journal article. However, although I haven’t examined gender differences, I do find in my research that taking the right risks makes a huge difference in business success. Other high-profile research (not mine) had similar findings. This is consistent with Shark Tank’s O’Leary getting more attractive returns from investing in companies that manage risks better and are more risk averse, characteristics which he finds at women founded and run businesses.
Nonetheless, imagery that ties the boldest risks with great business success persists, despite evidence to the contrary. This imagery leaves the mistaken impression that taking daredevil-like high risks drives business success. In fact, a Wall Street Journal article in the June 22-23, 2019 issue tells of several very successful CEOs who take huge risks in their personal behavior. The article, written by John D. Stoll, is titled “Climbing Everest, and Other Ways Execs Scare Their Shareholders” and its continuation on another page is titled “CEOs Who Take Big Personal Risks.”
Although it expresses concern about the scariness, the article paints the picture of valuable CEOs as big risk takers. According to the article, “For companies, trying to curb top executives who are prized for walking the knife edge between calculated risk and recklessness is a dilemma. Tell them to stop flying airplanes, racing cars, horse jumping, skydiving, smoking, running with bulls, or bungee jumping and they could leave.” The article is saying that companies could lose valuable leaders if these risk-taking CEOs were required to seriously restrict their risky personal behavior.
The article even tells of a top executive at Wal-Mart who successfully climbed Mount Everest, the kind of trek that led to the deaths of eleven other climbers last year. The article explains that, soon after returning from his Everest climb, the Wal Mart “chairman recounted his experiences at the company’s annual meeting, telling workers and shareholders that ‘going big, taking risks, never giving up, and succeeding’ is what Wal-Mart is all about.”
As I see it, by emphasizing a connection between being a successful CEO and engaging in risky behavior, this article can easily, but misguidedly, leave the impression that taking bigger risks brings the highest rewards for the business. Yet, based upon the research, this is not so. According to the evidence, the right risks, which entail calculated risk taking, lead to far better rewards than does taking bigger risks. Granted, Wal-Mart has done many things right in its risk taking. So, Wal-Mart has experienced success when taking the right risks. But, the role of risk as portrayed at Wal-Mart’s annual meeting can easily perpetuate the misperception that, in business, high risk leads to high reward. Yet, the evidence indicates it does not.
In conclusion, the research---both my own and done elsewhere—reveals that the right risks, not high risks lead to high rewards. That’s why Shark Tank’s Mr. O’Leary experiences success investing in the women owned companies that are risk averse and manage risk well. Taking the right risks has also contributed to the success of companies like Wal-Mart. But, there’s still a great deal of imagery out there misleadingly suggesting that, in business, high risk leads to high reward. Thus, it’s important not to be misguided by the imagery and to go for the right risks, not high risk.
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