Although it is the very height of summer, I’ve just received my first marketing email about Christmas. In that spirit, let’s talk about It’s a Wonderful Life, a sentimental Christmas film made 80 years ago—and what it can teach today’s boardroom leaders about risk.

The film stars James Stewart as George Bailey, owner of a mortgage company in small town America, who almost went bust when all his customers wanted to withdraw funds at the same time. It explores the febrile nature of trust and confidence. The 2008 global financial crash acts as a reminder of what can happen when banks rely on customer trust to distract from their inadequate liquidity.

Despite regulations to protect public confidence, as recently as 2023 Silicon Valley Bank collapsed for exactly the same reason: inadequate liquidity when customers wanted to withdraw funds. Risk in the financial world is viewed through probability models, with the probability of significant numbers of customers wanting to withdraw funds at the same time being so low as to be considered an acceptable risk.

Reality does not follow probability models—something rated improbable can still happen, despite the fact its occurrence is considered unlikely. That is why understanding risk alone is not enough; judgement is an essential part of the equation. Judgement is something we consider good or bad only after the event; it is always a retrospective evaluation. It is a management skill not taught in business schools, unlike the fashionable topic of leadership.

A skill to learn and develop

Good judgement is a skill that can and should be developed. Board decisions are often made with good intent that, ultimately, turns out to have been the wrong call. There are at least five reasons we make poor judgements and each is effectively a decision risk:

These five causes are: insufficient information, inadequate interpretation of information, insufficient opinions canvassed, inadequate estimation of variables, and insufficient time given to make a decision. The respective solutions are: get more information, rigorous and inquisitive interpretation, explore other stakeholder views, challenge assumptions made, and allow time for considering consequences.

One of the most common factors is time pressure, which results in hasty decisions. The Romans knew that haste was the enemy of good judgement: festina lente (‘make haste slowly’) is a caution against rushed decisions that could later prove to be folly. The world of sports psychology uses team training exercises to cope under pressure. Thinking Clearly Under Pressure or TCUP might be a programme relevant to boardroom executives.

For the past nearly two decades since the global crash, the topic of risk has earned its place on the board agenda; however, we forget the purpose of addressing risk. It is not to create registers or mitigation plans, but to enable the execution of better judgement in collective decisions. Risk has a role in stewardship beyond mere compliance.

Garry Honey is director of Chiron Risk and an external tutor at Henley Business School.