When does it makes sense to say no to new business?

To say no to new business sounds slightly crazy. Especially when it promises to be highly profitable. Growth, new prospects, risky but lucrative choices, all tend to be fatally attractive.  

Small or new companies find it almost impossible to turn down new business, such as a prospective client. Or to ignore an apparently exceptionally lucrative opportunity.

Yet saying “no” to new business may not be quite as negative as it seems. It’s an important discipline when it comes to new products, services and innovation.

say no to new business“People think focus means saying ‘yes’ to the thing you’ve got to focus on. But that’s not what it means at all. It means saying ‘no’ to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.”
Steve Jobs

In pursuing new sources of profit, firms and their leaders need to consider four linked concerns:

  • Culture, personal liability, conduct risk, and enforcement/deterrence.

say no to new business

In signs of fresh thinking, nearly half of all large firms (48%) now regard culture and conduct risk as intrinsically joined–with culture as a critical factor.

According to a new study by Thomson Reuters, one in three major firms have refused potentially profitable business say no to new business
in the last year. They said “no” because of concerns about culture or conduct risk.

The score is even higher among “systemically important financial institutions.” It’s encouraging that some such firms now view culture as a major part of assessing risk.  This concern replaces that tired old question: “culture what’s that?”, with two rather more useful ones:

“What constitutes culture, “ and
“How do we measure it?”

Another potent and related issue, often relegated to the back burner is: “Who should take the blame for unethical business behavior?”

Again, that’s seems to be changing fast. It’s being directed by two drivers. First, the onslaught by regulators of tough financial penalties. Second, their more intense attention on company culture and the allied conduct risk.

say no to new businessBlame remains an emotive issue. For too long, senior leaders in major financial and other large institutions have escaped close scrutiny of their conduct around ethics and dubious corporate behavior.

The tougher approach now emerging seeks clearer individual accountability. This is affecting decision makers at banks, brokerage and asset management firms and insurance companies. Executives widely report fears of finding themselves personally liable for unethical behavior. For them saying “no” to some kinds of risks might be eminently sensible.

Such concerns are re-shaping their strategic choices. For example, saying “no” to certain kinds of business opportunities, or whether and how to financially  reward employees to perform better.

Nearly one in three of the Thomson Reuters participants admitted their firms declined profitable business opportunities on grounds of culture and/or conduct concerns. An even larger proportion (37%) said “no” to potentially profitable business due to the cultural issues.

say no to new businessCan’t measure it…how do you manage it?

Given this trend to saying “no” to some kinds of risk, the task of improving organisational culture affects corporate behavior strategies. Most organisations that claim to be ethical, now show more interest in measuring and communicating culture than in previous years.

For example the 2017 honorees on Ethisphere’s Most Ethical Companies list all say they regularly measure at least some aspects of their culture.

In which case we might expect them to be able to name a senior manager responsible for culture. But the study reveals more than two thirds of firms (69%) in the UK, Europe, US and Canada don’t yet have a named senior manager for culture.  It was 58% in Asia.

Attempts to measure culture seldom prove to be simple. What exactly should be measured and what do such data really tell us? Numerous commercially sold systems claim to use the “right” metrics. These might include: monitoring compliance results, staff opinion surveys and analyzing complaints.

Yet understanding whether a company is on the correct path to culture success, or assessing whether the culture is weak or strong remains more of an art than a science.

Without a widely agreed” methodology, the metrics come down to judgement and local interpretation. Without reliable data culture can seem vague, even esoteric. For example, only about one five companies even has a working definition of “conduct risk”, let alone “culture”.

Some of the most ethical companies (17%) rely on a specific survey to collect employees’ views of ethical culture and the compliance program. Even more (37%) collect such perceptions indirectly, using a broader HR or engagement approach. Ethisphere for example, says its honorees use these variables:

 

say no to new business

 

say no to new businessRisk in perspective

How much appetite does your company have for risk–when does the fear of risk result in a “no” to what would otherwise be attractive new opportunities? In order to get to “no”, risk assessment in business once depended on back of envelope calculations. Today there’s a far more sophisticated approach.

For example, bankers and supervisors used to be preoccupied just with containing excessive risk taking. Now they must consider a more proactive approach– one that includes:

  • Smart risk taking, Profit sustainability and Diversity of business models.

Given the complexity, regulators avoid trying to define the sorts of risks they dislike seeing firms take. Instead, they expect companies to make sense of risk for their particular business.  To do this firms must face up to the cultural implications.

For instance, psychological research reveals how the power of peer pressure causes employees to confirm. The debacle at Wells Fargo highlights this reality. Some 5000 employees felt compelled to go along with the management pressure to open up new business at the expense of existing clients.  Few said “no” to the demands to rip off clients. Yet the bank operated an apparently tough compliance system.

The lesson from this is firms cannot prevent unethical behaviors by just relying on a culture of compliance to prevent malpractices.  As one expert puts it:

“We have all seen the compliance focused, mandatory awareness training where the employee just clicks through the slides.”

So how can companies make sense of risk and when to say “no” to opportunities? The study by Thomson Reuters confirms how to use culture as a strategic tool. Its top elements include ethics and integrity; corporate governance and tone from the top; and conflicts of interest.

say no to new businessTogether these help refine the company’s “risk appetite”. This now needs to include a detailed consideration of both culture and conduct risk. This territory proves to be particularly challenging for technologists, with its subtle social distinctions and focus on issues such as empathy, openness and transparency.

For example around 14% of all firms say neither culture nor conduct risk were included in their formal risk appetite statements. In contrast 32% of firms in Asia reported both culture and conduct were included in their risk appetite. 

What does all this add up to for company leaders? The  clear message emerging from the recent study and others like it, is the need to say “no” may now depend on the implications for the company’s culture.  

Yet more than two thirds of firms in the UK and Europe and the US and Canada don’t have a senior manager responsible for culture.

That alone suggests that to make sense of saying “no” to some business opportunities it makes sense to have someone senior in the company focused on company culture. 

Sources:

English et al, Culture and Conduct Risk, 2017, Thomson Reuters
Early Insights: 2017 World’s Most ethical companies Honorees, Ethisphere
K.Moore, The Small Business Owner’s Secret to Saying No, Off the Ground Jun 4, 2015
Age and Gender Balance Essential in Security Culture, CLTRe, May 2017
L. Kellaway, Why the most successful people just say no,  FT,  12th  June 2017

 

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