Sir Nigel Rudd on risk & reward
The words risk and business are often brought together to conjure up colourful stereotypes like Gordon Gekko, Bernie Madoff or the “Wolf of Wall Street”– an individual who is ruthless, excessive and above all a “risk taker”. Disapproving critics say the City itself is a place that shamefully encourages and rewards risk taking. And we hear journalists and politicians talk about ‘casino banks’ where traders gamble on the turn of the market’s wheel.
But these critics are jumping to a misplaced conclusion; a conclusion that risk is always a bad thing and that taking risks can only be irresponsible, foolhardy, and even amoral.
The truth is that risks are not all that easy to take – especially when the potential losses are significant. Indeed, it is not unusual to see senior executives rigid with fear and paralysed by data, when confronted by a serious investment decision.
We need more risk takers. Or more specifically, we need more individuals who understand risk and can work with it.
What is “risk”? Many would say it is the potential of losing something of value – physical health, social status, emotional wellbeing or financial wealth – as a result of a particular action. Of course it has many different applications but in financial contexts, it generally describes the possibility that an actual return on an investment will be lower than the expected return or at the cost of a greater return elsewhere.
There is plenty of evidence to show that it is easy to misjudge risk and for its careful assessment to be irrationally clouded by subjective factors – emotion, public opinion or prejudice. People often overvalue rare and infrequent occurrences such as epidemic diseases or aeroplane accidents and yet remain relatively unconcerned about high frequency events such as traffic accidents, household incidents, and medical errors.
A clear distinction must also be made between risk and plain old uncertainty, and arguably this comes down to the extent to which potential exposure can be measured. The ability to understand, calculate and offset that exposure with an appropriate return is critical – and it is an absolute requirement for a successful business. Fear, immobility or paralysis driven by aversion to risk can only serve to stifle enterprise. We only have lifesaving medical procedures or jet aircraft and long-haul holidays for instance because people took risks.
Putting capital on the line and investing in some of the UK’s most exciting growing companies, the BGF team has to know a thing or two about risk. Theirs’ is a calculated risk, a vote of confidence in an entrepreneur’s ability to build a stronger, more valuable business, and ultimately they stand to gain from shared success with management.
My message to British entrepreneurs is clear: more of them need to take a well-calculated risk on growing their businesses – not settling for merely “good”, but striving to become “great”, the business success stories of the future. Entrepreneurs should embrace the economic upturn with its latent opportunity, accept that now is a great time to invest, and keep an open mind about different ways to fund their growth.
Ironically, sitting tight and accepting the status quo is possibly the most risky option for a business because if you’re not careful inertia rapidly becomes a permanent way of life. Delaying investment could prove a costly decision as competitors across the globe raise their game.
The smart entrepreneur does not avoid taking risks but instead makes a proper assessment of them and looks for ways to manage or mitigate them. They ask “how can I take this step more cheaply (possibly by using someone else’s money); who can help me to get where I want to go (with contacts and learning); how can I do it faster; and how can I do it better than I had initially planned?”
Calculated risk taking is ultimately critical to business growth. There should be no shame in taking a risk, and indeed no shame in not always getting it right first time. Successful British enterprise requires a culture where calculated risk taking is encouraged, applauded and properly supported.
The UK needs more risk takers. The gamble we cannot afford, is to leave economic growth to chance.
Sir Nigel Rudd is Chairman of BGF
Oil & gas executives gather in Aberdeen
In April 2015, 35 experienced non-executives from the oil and gas community gathered in Aberdeen to hear from Sir Nigel Rudd, chairman of BGF, and to discuss the challenges of managing high growth and entrepreneurial companies.
The group discussed the common challenges of chairing businesses which are growing rapidly, the importance of getting the right relationship between an owner-manager and the chairman, and some of the skills that make a good chairman in a smaller company environment.
The dinner was held at the iconic Silver Darling restaurant on the Aberdeen harbour front, and was jointly hosted by BGF and FWB Park Brown, a leading executive search firm in Scotland and in the global oil and gas industry.
The 35 guests represented over 100 current non-executive appointments, including a range of owner managed, investor backed and public companies. A number of the guests commented that this is the first forum for non-executives in Aberdeen, and highlights the desire of both BGF and FWB Park Brown to work in partnership with the non- executive community.
Mike Sibson, who leads BGF’s investment activity in the Aberdeen office, highlighted the fact that introducing experienced non-executive directors to companies is a key part of BGF’s model.
“A core objective for BGF is to make a difference to the businesses in which we invest. The central plank of how we do this is the introduction of a chairman or non-executive director who knows the industry, who understands the business, and who has been through some of the challenges of growing an entrepreneurial business before. To date we have introduced over 70 chairmen and non-executives to our portfolio companies, and in our experience it has the potential to be transformational for the business.”
Sir Nigel Rudd
Sir Nigel Rudd is best known as founder of Williams plc in 1982, which went on to become one of the largest industrial holding companies in the United Kingdom until its demerger in November 2000, creating Chubb plc and Kidde plc. He is presently Chairman of BAA Limited and the technology company Invensys plc, and has been a long-term advocate of a fund of this kind. Sir Nigel became Chairman of BGF in February 2011. Sir Nigel was knighted in 1996 for services to manufacturing. He has a long record as an active angel investor in small and medium-sized businesses. He has been Chairman of some of the largest companies in the UK, including Pilkington, Alliance Boots and the UK’s largest car retailer, Pendragon PLC, the company he founded with one dealership in 1982. He was a Director of Barclays PLC for 13 years, latterly as Deputy Chairman.