George Orwell said, “To see what is in front of one’s door needs a constant struggle.” Business leaders must continually look beyond the door. What do they see now?
Corporate annual reports are a good place to see how companies adapt to disruption. The narrative can be as entertaining as a Stephen King novel (“we’re cannibalising our product line”) and as insightful as a Walter Isaacson biography (Warren Buffet reads them to learn about the person running the business). The content must be an earnest account of the prior year and a sober outlook for the year ahead.
The Risk Management and Risk Factors section examines how companies seek to bring chaos into order. It’s the core section for management discussion and analysis. Specifically, risk identification, and what countermeasures the company is plotting to control and track risk.
Typically, risk analysis centres on competition and market disruption. In the past year, however, the discussion features something that had no traditional nexus to internal operations: the lingering 2019 pandemic.
Like a good story, annual reports show, they don’t just tell. The 2020 Annual Report of one Thai public company explained the specific actions it took to address Covid-19’s cosh, including a reduction of advertising and promotions, optimisation of supply chains, and renegotiation of contracts.
The report enumerated 40 risks in all, covering economic, social, and environmental risks. Twelve pages of commentary followed. The company runs ‘risk clinics’ where risk issues are proposed. Teams conduct simulation models to deal with everything from climate change to talent retention.
The clinics are a novel approach to risk management. Team leaders discuss the ‘almost mistakes’ too. Managers scour their internal systems for the near misses to prevent mistakes from actually occurring. This way, they recalibrate systems with layered and overlapping defences.
A Franz Ferdinand Moment
Companies can use a microscope to tweak for internal incidents or within an industry, but they need a telescope to see the patterns outside their industry. Patterns outside an industry can be more important than those inside an industry.
Looking for danger on your own doorstep tells you little about the wider shifts in society. The assassination of Franz Ferdinand set the wheels in motion for WW1. Strict travel rules and government surveillance followed from 9/11. Covid-19 too, brings with it changes that are prolonged and profound.
In this current time, risk management requires big levers. Here are some big changes taking place.
People Flow Disruption
Lockdowns forced companies to adopt WFH policies. This was not just a matter of switching to Zoom meetings and tracking employee productivity. Adobe now allows 50% of its staff to work from home, Apple 100% for some positions, and Amazon two days per week.
Cities are now at risk of multiple businesses and industries making workforce adjustments. The closure of one manufacturer can disrupt an entire city (think Detroit or Oshawa). Workforce location economies are moulded around the vast flow of people to and from their workplace – billboards, digital screens and transit ads capitalise on daily migrations to reach customers on their commute. Restaurant and retail outlets rely on commuters once they arrive.
Travel and tourism didn’t just drop a few percentage points in a few countries, it fell to zero everywhere. Supply chains and distribution networks were not just disrupted in on one country, but across regions. International shipping rates quadrupled or more.
Essential Workers are Nearly Half the Labour Force
During lockdowns, only essential workers were permitted to travel to and from their workplace. But who are they?
It turns out there are as many definitions of essential workers as there are lawyers. The definition was intensely debated because it determined who could leave their home and who would receive government benefits.
The Economic Policy Institute lists twelve essential industries. One assumes that healthcare, emergency services, public transit, and agriculture would qualify. But there’s also energy, critical manufacturing, building facilities, shipping, and more.
It turns out that, no matter how you define them, essential workers make up a significant amount of the workforce, maybe half, depending on your definition. Walmart was declared an essential retailer; yet other retailers were forced to close. Essential workers keep the lights on and shelves stocked, but they take perceived and real health risks without the hero accolades.
Health Problems Can’t be Solved with Economic Solutions
Disasters always have a political dimension. Nobel Prize Laureate Amartya Sen argues that it’s always politics that drives the outcome. Famines may start with an initial crop failure, but they’re exacerbated by urban economic booms and rising food prices. Cities are permitted to flourish at the base of volcanoes; populations nested along rivers are flooded by improper dam management.
During the pandemic, health professionals didn’t make recommendations with one voice. Further, they failed to implement lessons learned from prior pandemics.
Dr. Joseph Saba, a former senior clinical researcher of infectious diseases at the WHO and UNAIDS, and both Founder and current CEO at Axios International, a healthcare access company that facilitates affordable medical treatments amongst low-and-middle income families globally, says, “The medical community failed to implement the lesson learned with HIV. The lesson there was to take a targeted approach to the high-risk population, the vulnerable, and protect them.” Isolation measures, he says, “must be nuanced, in the case of Covid-19, to isolate the elderly and infirm.” That didn’t happen.
In the absence of uniform recommendations, and without a vaccine, governments attempted to solve a health problem with an economic solution. Lockdowns are a last resort when you fail at the beginning. For reasons stated above, lockdowns aren’t scalable, and they don’t work over the long term.
Quarantine rules varied internationally, and within national borders, by zip code. Governments bumbled. A cascade of socioeconomic problems continues.
Preparing for the Next Big Risk
We can’t predict the future, but we must still prepare for it. Risk events often start without a bang. Small red lights flash for risks we know are coming, then sirens scream all too late. We almost never get the disaster we expect. By definition, we can’t predict a black swan. And there are too many grey rhinos; they can’t all happen.
Retailers tend to focus on retail, hoteliers on hospitality, bankers on the financial sector. Looking at a narrow view of your own industry is risk myopia. Countries, cities, and companies must rethink their value and risk profile. When a Franz Ferdinand change is afoot, the universe of risk can’t be viewed looking through a door keyhole. Consequences have a knock-on effect that is not measured in months, but years. How we think about risk now cannot be the same as pre-Covid-19.
Author: Greg Beatty, J.D., Business Development Consultant. For further information please contact gregfieldbeatty@gmail.com
Series Editor: Christopher F. Bruton, Executive Director, Dataconsult Ltd, chris@dataconsult.co.th. Dataconsult’s Thailand Regional Forum provides seminars and extensive documentation to update business on future trends in Thailand and in the Mekong Region.
