Black swans - unlikely, unpredictable, and catastrophic events - justify investment in ERM but there is even greater justification with the arrival of black elephants - looming disasters that are visible but no one wants to address or deal with them.
Building a risk management framework to respond to these known and complex risks (e.g. pandemics, cybercrime) starts with leaders being held accountable for helping their organizations build institutional capacity to pursue opportunities and solve problems.
“The World Health Organization tracked 1,483 epidemic events in 172 countries between 2011 and 2018. It has raised the alarm that the world is not prepared for the next pandemic, despite viral outbreaks being such a clear and present danger. In a September 2019 report, WHO called for concrete actions to lessen the risk, including stronger commitments by heads of state, countries and regional bodies to invest in preparing for pandemics; regularly tracking preparedness; increasing funding, particularly for developing countries with weak health systems; [and] improving international coordination.” - Michele Wucker, Stop Calling the Coronavirus Outbreak A Black Swan, LinkedIn Newsletter “Around My Mind” (January 23, 2020).
In the previous section, we talked about how the Great Plague of Athens led to the collapse of the Athenian democratic state (arguably the first of its kind) because the citizenry no longer trusted their institutions, their leaders or themselves. Why did this happen? What caused Athenians to adopt such a pessimistic and fatalistic mindset?
The answer lies in the difference between complacent optimism and conditional optimism. Complacent optimism is the feeling of a child waiting for presents. Conditional optimism is the feeling of a child who thinks about building a treehouse; “if we get some wood, and my friends help me do the work, we can build something really cool.” In the first example, what leaders say and the policy options they offer don’t matter. The second example, in contrast, depicts an active, problem-solving mindset. Which way a community or an organization leans depends a great deal on the accountability of leadership.
For more, we turn to the work of Michele Wucker, a Chicago-based strategist and author of the book entitled The Grey Rhino: How to Recognize and Act on the Dangers We Ignore (2016). Similar to Adam Sweidan, the British investor and environmentalist, who coined the phrase “black elephant” to describe a high-impact scenario that is likely to occur (e.g., a pandemic or cybercrime) yet leadership does not act in a responsible manner, Wucker wondered why so many leaders turn a blind eye to obvious warnings of impending harm. Inspired by Elizabeth Kubler-Ross, the Swiss-American psychiatrist who theorized that terminally ill patients experience five stages of grief, Wucker devised a five stage model to explain why too many leaders are biased towards short-term decision-making and kicking the can down the road.
Wucker argues that we are better off thinking of a gray rhino instead of a black elephant because it conveys an image of a big, obvious thing that’s coming at you. Unlike an elephant standing still that lets everyone ignore it, the grey rhino, stomping the ground and getting ready to charge with its pointed horn, presents a choice. You can choose to get trampled, you can get out of the way, or you can hop on the back of the rhino and use the crisis as an opportunity to change things for the better. The choice we make is influenced by our decision-making structures and systems which are inherently flawed because of incentives, biases, and other psychological aspects of the human condition (e.g., very homogenous groups are less likely to engage in constructive debate).
Wucker’s five stage model is designed to help leaders assess where they are in relation to the grey rhino and what they need to do next to help their organizations become more resilient. Wucker’s first stage is denial, a condition often exacerbated an absence of diverse inputs and missing or quiet stakeholders that can point out biases and missing or wrong metrics. If leaders recognize the problem but come up with reasons not to do anything, they are in the second stage known as muddling, often because they fear they don’t have enough resources or they don’t know to get additional resources. Diagnosis is the third stage in which people begin to make plans to solve the problem. If leaders are unable to come up with a realistic plan, they are apt to panic which is the fourth stage of Wucker’s framework. Panic is helpful in that it impels action but it is also harmful in that it impairs our judgment which causes us to make bad decisions or be susceptible to misinformation. Action - the fifth stage - is the desired place to be and in this stage, the questions often concern who has the power and ability to do what?
Past sections have discussed the exemplary leadership of Paul O’Neill at Alcoa and General Stanley McChrystal, the former head of the U.S. Joint Special Forces; both are shining examples of how leaders helped their organizations face daunting challenges. Another example is Winston Churchill’s first year as UK’s prime minister during World War II when England withstood nine months of bombing raids that killed almost 45,000 British citizens. Noted author Erik Larson explores the nature of Churchill’s leadership in his book entitled “The Splendid and the Vile” (2020) in which he opines that Churchill didn’t make the British people brave. Instead, Churchill allowed their courage to come forward by teaching his nation how to become fearless. Larson concludes that fearlessness is a learned skill.
Larson is right. Good leaders help people shift from complacent optimism - a state of learned helplessness - to conditional optimism, a different set of learned behaviors in which people feel a sense of control to change things for the better. Learned helplessness is what happened to Athens when its leaders and institutions failed to respond to the plague.
In holding leaders accountable for whether an organization evidences the traits of conditional optimism, we should assess three things. First, good leaders convey empathy and compassion and they come across as a teammate. Who can forget the iconic newsreel images of Churchill walking through bombed sections of London following a raid and the people flocking to him? Second, effective leaders project confidence in the long-term future of the organization. Think of Churchill rallying the UK Parliament and the world one month after becoming prime minister with these words:
“Even though large tracts of Europe and many old and famous States have fallen or may fall into the grip of the Gestapo and all the odious apparatus of Nazi rule, we shall not flag or fail. We shall go on to the end, we shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our Island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender, and even if, which I do not for a moment believe, this Island or a large part of it were subjugated and starving, then our Empire beyond the seas, armed and guarded by the British Fleet, would carry on the struggle, until, in God’s good time, the New World, with all its power and might, steps forth to the rescue and the liberation of the old.” (Prime Minister Winston Churchill’s Speech in the House of Commons, June 4, 1940.)
Third, good leaders put forth a plan that engages everyone to contribute in a way that brings meaning and purpose to each person. We call this total engagement and it’s our next subject.
“The World Health Organization tracked 1,483 epidemic events in 172 countries between 2011 and 2018. It has raised the alarm that the world is not prepared for the next pandemic, despite viral outbreaks being such a clear and present danger. In a September 2019 report, WHO called for concrete actions to lessen the risk, including stronger commitments by heads of state, countries and regional bodies to invest in preparing for pandemics; regularly tracking preparedness; increasing funding, particularly for developing countries with weak health systems; [and] improving international coordination.” - Michele Wucker, Stop Calling the Coronavirus Outbreak A Black Swan, LinkedIn Newsletter “Around My Mind” (January 23, 2020).
In the previous section, we talked about how the Great Plague of Athens led to the collapse of the Athenian democratic state (arguably the first of its kind) because the citizenry no longer trusted their institutions, their leaders or themselves. Why did this happen? What caused Athenians to adopt such a pessimistic and fatalistic mindset?
The answer lies in the difference between complacent optimism and conditional optimism. Complacent optimism is the feeling of a child waiting for presents. Conditional optimism is the feeling of a child who thinks about building a treehouse; “if we get some wood, and my friends help me do the work, we can build something really cool.” In the first example, what leaders say and the policy options they offer don’t matter. The second example, in contrast, depicts an active, problem-solving mindset. Which way a community or an organization leans depends a great deal on the accountability of leadership.
For more, we turn to the work of Michele Wucker, a Chicago-based strategist and author of the book entitled The Grey Rhino: How to Recognize and Act on the Dangers We Ignore (2016). Similar to Adam Sweidan, the British investor and environmentalist, who coined the phrase “black elephant” to describe a high-impact scenario that is likely to occur (e.g., a pandemic or cybercrime) yet leadership does not act in a responsible manner, Wucker wondered why so many leaders turn a blind eye to obvious warnings of impending harm. Inspired by Elizabeth Kubler-Ross, the Swiss-American psychiatrist who theorized that terminally ill patients experience five stages of grief, Wucker devised a five stage model to explain why too many leaders are biased towards short-term decision-making and kicking the can down the road.
Wucker argues that we are better off thinking of a gray rhino instead of a black elephant because it conveys an image of a big, obvious thing that’s coming at you. Unlike an elephant standing still that lets everyone ignore it, the grey rhino, stomping the ground and getting ready to charge with its pointed horn, presents a choice. You can choose to get trampled, you can get out of the way, or you can hop on the back of the rhino and use the crisis as an opportunity to change things for the better. The choice we make is influenced by our decision-making structures and systems which are inherently flawed because of incentives, biases, and other psychological aspects of the human condition (e.g., very homogenous groups are less likely to engage in constructive debate).
Wucker’s five stage model is designed to help leaders assess where they are in relation to the grey rhino and what they need to do next to help their organizations become more resilient. Wucker’s first stage is denial, a condition often exacerbated an absence of diverse inputs and missing or quiet stakeholders that can point out biases and missing or wrong metrics. If leaders recognize the problem but come up with reasons not to do anything, they are in the second stage known as muddling, often because they fear they don’t have enough resources or they don’t know to get additional resources. Diagnosis is the third stage in which people begin to make plans to solve the problem. If leaders are unable to come up with a realistic plan, they are apt to panic which is the fourth stage of Wucker’s framework. Panic is helpful in that it impels action but it is also harmful in that it impairs our judgment which causes us to make bad decisions or be susceptible to misinformation. Action - the fifth stage - is the desired place to be and in this stage, the questions often concern who has the power and ability to do what?
Past sections have discussed the exemplary leadership of Paul O’Neill at Alcoa and General Stanley McChrystal, the former head of the U.S. Joint Special Forces; both are shining examples of how leaders helped their organizations face daunting challenges. Another example is Winston Churchill’s first year as UK’s prime minister during World War II when England withstood nine months of bombing raids that killed almost 45,000 British citizens. Noted author Erik Larson explores the nature of Churchill’s leadership in his book entitled “The Splendid and the Vile” (2020) in which he opines that Churchill didn’t make the British people brave. Instead, Churchill allowed their courage to come forward by teaching his nation how to become fearless. Larson concludes that fearlessness is a learned skill.
Larson is right. Good leaders help people shift from complacent optimism - a state of learned helplessness - to conditional optimism, a different set of learned behaviors in which people feel a sense of control to change things for the better. Learned helplessness is what happened to Athens when its leaders and institutions failed to respond to the plague.
In holding leaders accountable for whether an organization evidences the traits of conditional optimism, we should assess three things. First, good leaders convey empathy and compassion and they come across as a teammate. Who can forget the iconic newsreel images of Churchill walking through bombed sections of London following a raid and the people flocking to him? Second, effective leaders project confidence in the long-term future of the organization. Think of Churchill rallying the UK Parliament and the world one month after becoming prime minister with these words:
“Even though large tracts of Europe and many old and famous States have fallen or may fall into the grip of the Gestapo and all the odious apparatus of Nazi rule, we shall not flag or fail. We shall go on to the end, we shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our Island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender, and even if, which I do not for a moment believe, this Island or a large part of it were subjugated and starving, then our Empire beyond the seas, armed and guarded by the British Fleet, would carry on the struggle, until, in God’s good time, the New World, with all its power and might, steps forth to the rescue and the liberation of the old.” (Prime Minister Winston Churchill’s Speech in the House of Commons, June 4, 1940.)
Third, good leaders put forth a plan that engages everyone to contribute in a way that brings meaning and purpose to each person. We call this total engagement and it’s our next subject.
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