Why leadership capability is becoming a critical enterprise‑level risk—and what ERM leaders can do about it.
Today’s business environment exposes organizations to an unprecedented mix of geopolitical volatility, climate disruptions, AI‑enabled competition, supply‑chain instability, and shifting workforce expectations. These forces are deeply interconnected and often difficult to anticipate, requiring leaders who can navigate risk with clarity, agility, and sound judgment.
A recent McKinsey & Company thought paper, “Scaling the 21st‑Century Leadership Factory,” argues that traditional leadership development models are no longer enough. Instead, organizations must intentionally build a leadership factory—a system capable of growing future‑ready leaders who can make strong decisions amid volatility.
Below, we translate key ideas from that research for Chief Risk Officers (CROs) and ERM leaders seeking to strengthen leadership capability both within the risk function and across the enterprise.
Leadership Skills Needed for 21st‑Century Risk Realities
Modern risk environments demand leaders—whether full‑time ERM professionals or risk liaisons embedded in business units—who can:
- Manage ambiguity
- Detect weak signals early
- Interpret complex, fast‑changing threat landscapes
- Operate effectively in fluid, uncertain conditions
These capabilities are essential for identifying emerging, unknown‑but‑knowable risks.
McKinsey highlights six traits that help leaders thrive in uncertainty. The table below summarizes why each trait is especially critical for risk leaders.
Table: Why Risk Leaders Especially Need These Six Traits
| McKinsey Leadership Trait | Why This Trait Is Essential for ERM Leaders |
|---|---|
| 1. Positive energy, balance, and inspiration | Risk conversations often feel heavy, uncomfortable, or abstract. ERM leaders and risk liaisons who bring constructive energy help executives stay engaged in discussions about emerging threats, avoid risk fatigue, and maintain momentum in risk initiatives. Their balanced mindset helps teams avoid overreaction to noise while staying inspired to prepare for long‑term uncertainties. |
| 2. Servant and selfless leadership | Risk management leadership requires influencing without authority. ERM leaders and risk liaisons must facilitate transparency, encourage upward reporting of bad news, and put the enterprise above any one division’s priorities. A servant‑leadership posture builds trust, reduces defensiveness among executives, and encourages collaborative risk identification across business silos. |
| 3. Humility and continuous learning | The risk landscape evolves faster than traditional expertise can keep pace—AI ethics, cyber threats, geopolitical shifts, and climate risk all require constant learning. ERM leaders and risk liaisons who model humility help normalize the idea that no single leader has all the answers and encourage open exploration of new information, dissenting views, and emerging risk signals. |
| 4. Grit and resilience | Risk leaders routinely face skepticism, pushback, competing priorities, and crises. They must persist through ambiguity, guide executives through difficult trade‑offs, and continue elevating long‑term risks even when attention drifts. Resilience enables risk leaders to stay steady during crises, while grit ensures they continue advancing ERM maturity year after year. |
| 5. Levity and calm clarity under pressure | High‑stakes risk events—data breaches, public scrutiny, operational failures—create intense pressure. CROs who stay calm and bring levity help regulate the emotional temperature of the leadership team, enabling clearer thinking. Their composure helps avoid panic‑driven decisions and promotes disciplined, values‑aligned responses. |
| 6. Stewardship and long‑term perspective | Many risks (AI disruption, climate, regulatory shifts, reputation) unfold over multi‑year horizons. ERM leaders and risk liaisons must champion long‑range thinking even when short‑term pressures dominate. Stewardship reinforces the idea that risk decisions must protect the organization’s future capabilities, culture, ethical standing, and stakeholder trust—not just quarterly performance. |
Addressing Leadership Development Risks Across the Enterprise
This McKinsey research highlights more than just skills for risk teams—it surfaces enterprise‑wide vulnerabilities tied to leadership capability.
With AI’s rise, escalating complexity, and the need for nonlinear thinking, leadership development is no longer an HR initiative. It is a core driver of enterprise resilience and a potential source of strategic risk.
Below are five actions ERM leaders can take to help the organization identify, assess, and address leadership‑related risk exposures.
1. Elevate leadership capability as a core enterprise risk.
Leadership readiness—across all levels—should be reflected explicitly in the organization’s risk profile. Judgment, adaptability, and sense‑making are not “soft skills” anymore; they are risk controls that shape strategy, crisis response, and organizational culture.
2. Position leadership development as a resilience strategy.
ERM leaders can help executives see that leadership development strengthens the organization’s ability to adapt quickly and maintain coherence under pressure. Treat leadership capability as a risk‑mitigation mechanism, not a discretionary investment.
3. Assess whether your culture supports experimentation and learning.
Cultures that punish mistakes or silence concerns inadvertently suppress early warning signs. ERM leaders can evaluate whether the organization encourages dissent, regularly conducts learning reviews, and creates psychological safety for raising awkward truths.
4. Push for organizational simplification where risk bottlenecks exist.
Many organizations unintentionally create risk exposure by maintaining complex structures and unclear decision rights. ERM leaders can help:
- Map decision paths to locate slowdowns or blind spots
- Identify roles with “too much friction” in risk escalation
- Simplify structures that prevent rising leaders from gaining visibility
- Reduce bureaucratic layers that slow decision‑making during uncertainty
Simplification strengthens risk responsiveness and enables future leaders to build judgment without getting stuck in structural gridlock.
5. Launch ERM‑aligned leadership development experiences.
Risk‑aligned development activities—such as simulations, scenario planning, horizon scans, and cross‑functional workshops—give rising leaders hands‑on experience navigating uncertainty. These experiences sharpen decision‑making, adaptability, and strategic thinking.
Call to Action
If organizations want leaders who can anticipate unknown‑but‑knowable risks—and turn uncertainty into strategic advantage—they must elevate leadership development to a top enterprise priority. ERM leaders have a unique opportunity to spotlight leadership‑pipeline vulnerabilities and champion the development of a future‑ready bench.
Original Article Sources:
Bob Sternfels, Daniel Pacthod, and David Berger, “Scaling the 21st Century Leadership Factory,” McKinsey & Company, July 2025.
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