Life seems to flow a little easier when we have things we can count on. Perhaps it’s that hot cup of coffee from the corner shop each morning or football games on Sunday afternoons. It might be the same old haircut from your barber or a weekly phone call from a close friend.
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November 17 was an unseasonably warm and humid day in Washington, Illinois, a small city outside Peoria with a population of about 16,000. It was a Sunday, and that morning many of the city’s residents were attending church. The sun was shining, and Thanksgiving was around the corner. All was right in the world. In the skies above, however, a warm front swept up from the Gulf of Mexico and collided with a cold front descending from the Great Lakes. The conditions were perfect for disaster.
At 10:59 a.m., a half-mile wide EF4 tornado (the second- strongest possible) touched down in Washington. With winds peaking at 190 miles per hour, the tornado zig-zagged through the city at more than 60 miles per hour. Within a half hour, the storm had passed. Three people died, dozens were injured, nearly 600 homes were destroyed, and more than 1,100 other homes were badly damaged. The city sign reading “Washington” was found 90 miles away in Streator, Illinois, and residents’ personal possessions were found as far north as Chicago. With 564,000 cubic yards of storm debris, Washington residents faced an apocalyptic landscape.
While the devastation was severe, in some ways, Washington was lucky. Had the tornado struck at night, the number of people wounded and killed could have dramatically increased. There was also rapid response from public and nonprofit groups. One of city’s biggest advantages, however, came from the multinational corporation that calls the Washington area home.
A procurement department, seeing an opportunity to reach their cost-reduction goals, switches the source of a sub-assembly to another supplier. This seemed perfectly logical; the quality and specs met the requirements. Unbeknownst to procurement, this supplier was noted for delivery outages due to poor infrastructure and transportation systems in its country. So, while the procurement department hit its financial targets by driving cost out of the supply chain, it may have inadvertently also increased the overall company’s exposure to supply chain risk and undue threat to profitability.
The implications for risk management and leadership in today’s increasingly complex world are clear. Leaders need to continually question the assumptions on which plans are based and introduce wild card scenarios into drills and exercises that increase complexity.
Success has become a tricky word again in the business world. Robert Reich, a former secretary of labor and professor of public policy at the University of California at Berkeley, considered the paradox of success more than 14 years ago. He saw that the notion of success triggered polarizing reactions in American society, and he argued that both the critics and optimists were right.
The topic of success has resurfaced today. Since 2011, the Occupy Wall Street movement has spurred the social cry of “We Are The 99%,” causing a backlash against the top income earners in the United States and leading to an uneven yet heated debate on questions of opportunity, privilege, and power.
Access to capital and liquidity are the lifelines of any business—whether it's an enterpreneur using his personal credit card to fund his startup business, a mid-size company launching an initial public offering, or a large global company drawing on its line of credit from its bank.
Hardly a day passes by without a headline related to infrastructure—from the interest in “smart cities,” to calls for increased investment, to a focus on economic prosperity and competitiveness, to ongoing recovery efforts following major disasters.
Recently, some colleagues and I worked on a board risk oversight project that resulted in interviews with numerous corporate board members about their perspective on the board’s role in enterprise risk management (ERM). During that project, one board member suggested that my next risk research project should be called “good, great, going, gone!” —a risk project about companies that thought they were doing well but somehow ended up failing. He was motivated because he served on a board of a company that went bankrupt and wondered, after the idea of ERM came along, could the company have been saved? Could management and the board have seen the risks coming? Could they have seen them sooner or understood them better?
The best way to ensure the highest value for our economy is to allow the market to work in the manufacturing and energy sectors.