Principles, Risk Management and Social Impact Strategy

Aug 3

by Marvin Cheung, Head of Research and Strategy

“Without principles we would be forced to react to all the things life throws at us individually, as if we were experiencing each of them for the first time. If instead we classify these situations into types and have good principles for dealing with them, we will make better decisions more quickly and have better lives as a result. [...] The principles you choose can be anything you want them to be as long as they are authentic—i.e., as long as they reflect your true character and values. [...] you must be clear about your principles and then you must ‘walk the talk’.” - Ray Dalio

When you are embarking on a new venture, we recommend going beyond “Why now? Why this? Why you? Why bother?” to evaluate an idea. Consider the following:

Does your idea align with your values? You can assess this through a Misuse Scenario brainstorming session. It can be as simple as asking: What is the absolute worst thing somebody can use your product for? How might we prevent misuse? For a more thorough review, brainstorm with reference to the UN's Sustainable Development Goals.

Does the business model and technology you use align with your values? How will the way you operate impact underserved or historically underrepresented communities?
Does the way you manage your team align with your values? We always recommend prioritizing your mental and physical health. How will the work you commit to do affect your team’s health? A communication guide with your team can be simple and effective: Will there be any communications during the weekend? What should the average email reply time be?

It is important then to compare your thoughts with existing regulations and best practices. How will you build on existing knowledge? Are your standards realistic? Will operating in a more sustainable way require new solutions eg. new business models or technologies?

Ethical behaviour can, but does not always lead to a loss in revenue. We like to reference the carrot and the stick model: with increasing social consciousness, there is a growing group of consumers and employees who are interested in supporting socially responsible businesses; there is also increasing regulations eg. GDPR, CCPA that will penalize undesirable business practices.

As your organization matures, these principles can then inform the rules-based approach to managing preventable risks. Preventable risks, one of the three categories of risks organizations face as outlined by Robert S. Kaplan and Annette Mikes, are controllable risks from within the organization. This includes unauthorized, illegal, or unethical actions. A guideline, in the form of an employee handbook, can communicate an organization’s values and boundaries.

While external risks ie. risks arising from events outside of the organization are beyond your control, strategy risks can be actively managed. Strategy risks are measured risks undertaken to generate a return. Because each initiative will have its corresponding strategy risks, a rules-based control method will not be sufficient. You can, however, still approach this systematically.

There are known risks common to most startups, such as talent risk, legal risk, IP risk, PR risk, cybersecurity risk, and financial risk. Spend some time brainstorming with the framework below before each business decision:

Risk identification: How might things go wrong?
Risk analysis: How likely will an undesirable event happen? What are the best and worst case scenarios associated with the event?
Risk treatment: Will you avoid, mitigate, transfer, or ignore the associated risks?
Risk monitoring: What are the signals you should pay close attention to?

If you intend to create a social impact venture, you will need to go further by formulating and measuring the intended social effects of your operations. As with most endeavours, you should first conduct a literature review and look into existing case studies before you begin a pilot program. The article by Gwendolyn Reynolds et. al. “A Playbook for Designing Social Impact Measurement” talks about social impact ventures in more detail.

Principles, Risk Management and Social Impact Strategy

How do I build an ESG-conscious venture?

Why now? Why this? Why you? Why bother?