I was asked to be on a 6 a.m. call this week to London that was cancelled because the European corporate client suddenly had to deal with Japan, its understandable workplace instability amid spreading fears of meltdown and contagion. I had not expected either the call or a related major meeting in Europe to be cancelled, but I was not surprised, given current volatilities around the world.
How prepared are people for the bigger reverberations of major events, and how to deal with them intelligently, of which the first step might be anticipation and planning?
I confess I have not yet read Kenneth Posner’s book, Stalking the Black Swan: Research and Decision Making in a World of Extreme Volatility, although I think it advisable for anyone who applies scenario thinking and other basic risk-management techniques to the rising uncertainties of our time. Posner's attempt, according to reviews, is to mix quantifiable and computer calculation with human instinct, experience and intuition. A worthy goal worth thinking about, and actually trying to do.
(Number me among those readers who attempted Nassim Taleb's The Black Swan and put it down before the end, partly because at a certain point before page 300 I thought I grasped the thesis well enough and because, frankly, Taleb is a writer who does not know why he would use one word if he could use 20. Of those, more than half will be about Taleb's superior view of uncertainty, about which he appears to be uncertain not at all.)
As a longtime scenario practitioner, I have an aversion to certainties of all kinds, partly because it is always the unexpected that changes the way we think and subsequently must behave. Humans must live and work in a constant tension between confidence about what they think they know and flexibility in the face of incomplete information, and sheer ignorance. But how to identify what you do not know well enough and should consider?
Enter Japan's earthquake and unfolding disaster. Were quakes of this kind uncertain? No, they were inevitable (and still are.) Were those plants "safe?" No, they never were, located on the geological "Ring of Fire" that promises serious quakes from here to eternity.
The quake's timing, however, was uncertain, and also the extremity of its effects. We must now all reconsider whether:
- A nuclear cloud will get into the atmosphere and increase cancer risks everywhere
- Anti-nuclear movements will extend globally as the world comprehends that it potentially shares in every other country's nuclear risks
- Nuclear plants should continue to answer the world's energy appetite, given what we now know, and know that we know
- Recalculation of insurance liabilities will render nuclear energy just too costly
- Makers of potassium iodide pills are suddenly a valuable stock investment (Or are you too late?)
I mean this last only partly facetiously. It says something about positive pricing effects in negative macro conditions.
Vital lessons may be taken from Japan's experience - which, pray, does not continue to multiple meltdowns and swathes of dead areas of Japan from nuclear contamination. One lesson might be in the approach that executives and managers take to major "uncertainties" that are likely to unfold at some level and at some point reasonably soon. Don't we know what some of them are?
As much as a U.S. Treasury-market collapse, Middle East (Libya, Saudi-Bahrain) disruptions, oil prices above $120/bbl, rapid global inflation, European financial meltdown and China disruptions are known to be real and proximate possibilities, many corporate and public policy leaders have not really taken the time to think these through.
Scenario thinking continues to be an invaluable tool in the risk-manager's toolbox because it allows for the unthinkable to be more easily thought and for the unspeakable to be spoken in ways that may be heard and acted upon in time. Examples are many of risks that were contemplated with scenarios and where subsequent actions saved millions or produced strategic options that were acted on profitably. Lives might well be saved as well.
Maybe Japan's quake has shaken the rest of the world enough to reconsider how prepared we are, and are not, on some of these fronts. "What if?" remains a powerful question for managing future risk, but only if you really ask it - the right way with the right people around you - and think it through.
Then you must act.
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