This Powerful CEO Believes This is the Key to Minimizing Risk

June 19, 2016

Former Merrill Lynch CEO Sally Krawcheck sits down with LinkedIn's Dan Roth.

There are few people on the planet better prepared to understand risk than Sallie Krawcheck.

Throughout her career, she has studied risk for a living, first as a Wall Street analyst and then as CEO of some of the world’s largest financial institutions, including Citi Wealth and and Merrill Lynch. Recently, she took a massive personal risk, launching her own digital investment platform for women, Ellevest.

So, in her experience, what’s the secret to mitigating risk? What’s the key to any organization being smart when taking a big chance?

Diversity.

How a diverse staff helps organizations make smarter decisions

In her Lynda course on risk taking, Krawcheck said the key to mitigating risk is having a diverse team. The reason is, if all your people think and act the same, there’s a good chance they’ll agree that a particular risk is the right one – even if it isn’t.

“It feels much more comfortable to have people who think just like you around you, you feel like the risk has been reduced, because look, we all agree, oh my gosh!” Krawcheck said in her course. “I agree with you, you agree with me, it must be right.”

In fact, Krawcheck said part of the reason for the financial crises of 2008 was a lack of diversity on Wall Street, with many people coming from a very similar background.

“When I was on Wall Street, the whole industry, we agreed, subprime wasn't an issue, not a problem,” she said.  “But if you all come from the same background, and you all look at the problem the same way, the fact that you're agreeing doesn't mean you're mitigating the risk. The fact that you're agreeing means the risk is increased.”

Instead, Krawcheck recommended forming a diverse team. And that means not just a team that is diverse ethnically and by gender, but also one that is diverse in background: people with many years in the industry, people new to the industry; people with different educational backgrounds and with different interests.

Krawcheck’s advice is backed by a plethora of research. Specifically, one recent in-depth McKinsey study found diverse teams outperformed industry norms by 35 percent.

Bottom line, you want to make smart decisions? Don’t have a team of clones.

*Image by Chip Cutter

The following article is just one small tidbit from Krawcheck’s Lynda course on risk management, which you can watch here. Courses you might also be interested in are:

Topics