Friday Business Feature: When Growth Destroys Shareholder Value

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The "Smart Growth" Way

Three Key Steps to Managing Growth Risks at Your Company

By Ed Hess

For many of the companies today that are making headlines for all the wrong reasons, "smart growth" is an oxymoron. But it doesn't have to be, says Ed Hess. Below he explains how you can grow your company the smart way:

Conduct an annual Growth Risks Audit. This kind of audit should be conducted as part of the yearly budgeting and strategy processes. The results of the audit should be disseminated to as many people in the company as possible, so they can be alert to early warning signs of the risks of growth. Leaders must establish priorities and set boundaries around things that must not be compromised in the pursuit of growth. Accountability must be established within leadership teams, and the board of directors should hold the senior leadership's feet to the fire if they do not effectively manage the risks of growth.

Use independent, cross-functional teams to monitor growth risks. Companies should create cross-functional teams, reporting directly to the business unit leader and charged with monitoring the risks of growth and implementing risk management and mitigation plans when predetermined "tripwires" are set off. To maintain objectivity, these teams must be independent of those responsible for producing growth. Their reward structure should be based not on hitting revenue numbers but on identifying and managing the risks to the business.

Reflect growth risk management in rewards and compensation. The board of directors should make a meaningful percentage of the compensation of senior management dependent on their success in managing the risks of growth. Good results should be rewarded; bad behaviors should be penalized. If you want to get the attention of executives and managers, hit them in the pocketbook.