Four

People

Each natural hurricane has a wide range of interested parties who are affected in various ways. This chapter explores how different groups of people are involved in the occurrence of a hurricane. Following our analogy, we then reflect on the various stakeholders with an interest in a Risk Hurricane, looking at how and why they might be interested, and how they might be affected by a Risk Hurricane. In both cases, the perspective of each stakeholder group is determined by their position in relation to the hurricane (or Risk Hurricane).

PEOPLE INVOLVED IN A NATURAL HURRICANE

When a natural hurricane occurs, our thoughts turn first to those on the ground whose lives and property are directly impacted. There are, however, others outside the immediate zone of the hurricane itself whose involvement is more indirect. Finally, there are experts of various sorts with a professional interest in the hurricane. Before we consider what equivalents these groups might have for a Risk Hurricane, let’s briefly remind ourselves of how each one relates to the natural hurricane.

Direct Impact

It seems right to start our examination of the people involved in a hurricane by considering those directly affected when the storm arrives. The degree of impact experienced by each group of people depends on their position in relation to the hurricane, so first we need to understand the structure of a natural hurricane, as illustrated in Figure 4.1.

A natural hurricane is a massive phenomenon whose dimensions are truly impressive. Typical hurricanes are about 300 miles wide (500 km), although the diameter of the storm clouds can reach up to 600 miles (almost 1000 km), with a height of up to 9 miles (15 km). At the center of the hurricane is an area of very low air pressure called “the eye,” which is generally about 20 to 40 miles across. There are typically no clouds in the eye and the wind is calm. Around the outside of the eye is a wall of very heavy clouds with the highest sustained wind speeds, reaching up to 155 mph (250 km/h). The “eye wall” is the most dangerous part of the hurricane. Above ground outside the eye, there are large spiral bands of rain that can drop huge amounts of rainfall, causing flooding when the hurricane hits land. Wind speeds at the outer edges of the hurricane are lower than at the center, decreasing as the distance from the center increases.

We’ve noted that the level of impact experienced by individuals and groups within the hurricane zone depends on their position. Perhaps surprisingly, those within the eye of the storm experience the lowest level of direct impact, as this area is characterized by conditions of apparent stillness, with low air pressure, calm winds, and no clouds. As long as these people remain in the eye, they may appear to be unaffected.

Unfortunately for them, as the hurricane moves on, they will be exposed to the eye wall, where the danger is at its highest, due to extreme wind speeds and high levels of rainfall. The degree of damage felt by people on the edges of the storm depends on the distance from the center: the further they are from the eye, the more the impact decreases.

Indirect Effect

A wide range of other people are also involved when a hurricane occurs, in addition to those directly affected on the ground. These include the following:

• Family members. Relatives of those directly caught up in a hurricane experience a range of impacts, as they worry about the health and safety of their loved ones. Their anxiety and concern are often not helped by inaccurate and sensationalist reporting from the media.

• Utilities. The wider infrastructure outside the direct hurricane impact zone is often also affected, including power, water, transportation, and communication. As the hurricane causes inevitable disruption, utilities struggle to maintain services, exacerbating the problems experienced by those under the hurricane.

• Emergency service providers. First responders are called on to provide emergency assistance to those caught up directly in the path of a hurricane, including ambulance, fire, and police services. This may require acts of courage and heroism as professionals find themselves called into action to help others.

• Media. Both mainstream and social media have an important role to play in informing the wider watching world about what’s going on, although reporting accuracy can vary considerably. This means that consumers of media outlets need to exercise vigilance and discernment when accessing hurricane news due to the apparently insatiable appetite for (melo)dramatic headlines and readership numbers, as well as likes and shares on social media.

Professional Interest

The final group of people involved when a natural hurricane occurs are the professionals. Their expertise gives them a unique perspective on what’s happening, and it also enables them to offer unbiased advice and information to support those people who are involved either directly or indirectly. Two groups of professionals have a particularly important role:

• Expert meteorologists. These trusted and respected professional scientists have a key function in providing accurate and timely information to interested parties on the development and current status of a hurricane, as well as simulating and communicating possible future outcomes. They have access to powerful forecasting models, considerable amounts of historical data, and international networks of peers, all of which inform and shape their expert opinions. They also use a wide range of communication platforms to ensure that their message is heard, including mainstream and social media, websites, and emergency broadcast mechanisms. Their input is sought by national and local government, large and small corporations, transportation and infrastructure authorities, social and community organizations, and individuals, and the information they provide forms the basis of precautionary prior planning as well as immediate and post-event responses.

• Global Monitoring Centres. The World Meteorological Organization (WMO) maintains the World Weather Watch Programme (WMO, n.d.) to observe and exchange meteorological data, producing analyses, severe weather advisories and warnings, and related operational information. This program takes data from a network of Regional Specialized Meteorological Centres (RSMCs) and Tropical Cyclone Warning Centres (TCWCs), each covering a designated country or area, tasked with providing official warnings and information on severe weather, including hurricanes. For example, the U.S. National Hurricane Center (NHC) is the recognized RSMC responsible for tracking and predicting tropical weather systems in defined areas of the northeast Pacific Ocean and the northern Atlantic Ocean. The NHC stated mission is “to save lives, mitigate property loss, and improve economic efficiency by issuing the best watches, warnings, forecasts, and analyses of hazardous tropical weather and by increasing understanding of these hazards” (National Hurricane Center, n.d.a).

PEOPLE INVOLVED IN A RISK HURRICANE

A wide variety of people and groups are affected when a natural hurricane occurs, and the type and level of impact depend on their position in relation to the center of the weather event. The same is true for the Risk Hurricane. A Risk Hurricane is defined as circumstances of extreme risk exposure in business that lead to major disruption. Many people will feel the effect of a developing corporate crisis, but the degree of impact from the resultant disruption will be different for each group.

Taking our cue from the people involved in a natural hurricane, we consider in the following sections who might be caught up in a Risk Hurricane, what the effect on them might be, and what actions they need to take. As for the natural hurricane, we look first at those directly impacted when a Risk Hurricane occurs, followed by consideration of the people where the effect is more indirect. Last, we turn to those with a professional interest in corporate crisis and disruptive extreme risk exposure.

DIRECT IMPACT—WITHIN THE EYE

When we consider people who are situated within the direct path of a Risk Hurricane, it’s helpful to distinguish between the ones who find themselves in the eye of the storm and those who are further from the center.

The eye of a natural hurricane is a place of relative calm, with low wind speeds and air pressure. Similarly, when an organization is experiencing a Risk Hurricane, there is often a place of apparent calm and stillness at the center. This is where we find members of the board, the executive committee, and other senior business leaders. As the organization around them is being buffeted by the effects of extreme risk exposure, it’s quite common for leaders to be shielded from the full force of the uncertainty. This may be due to the protection afforded by multiple reporting layers between them and the work-place, with information being filtered on its way up the hierarchy, and intermediate levels of management absorbing some of the pressure before it reaches the boardroom. It’s also possible that they have only limited visibility of the intensity of impact being experienced by their colleagues further out from the center. Sitting at the top of the organization (perhaps within an executive ivory tower built on the apex of the corporate pyramid), they may survey the chaos and disruption below with a sense of detachment and objectivity.

This privileged position of relative calm for senior leaders can lead to one of two contrasting outcomes: clear thinking or complacency. The former is essential if the organization is to survive the Risk Hurricane, and the latter must be avoided at all costs. Important decisions must be made, often with limited time or information, and this requires decision-makers to be calm and unflustered. This can be difficult when the organization is in turmoil, when colleagues are stressed, and when normal business processes are failing to work as normal. But it is precisely at this point that clear thinking is most vital, and the position of senior decision-makers in the eye of the storm can provide much-needed respite from the worst effects of the Risk Hurricane while they consider their options.

If you are a senior leader, you and your leadership colleagues have two key responsibilities when your organization is experiencing extreme risk exposure from a Risk Hurricane:

1. Protect and survive. Your role is to take the strategic decisions that will preserve the integrity of the organization and enable it to survive the storm.

2. Recover and thrive. This means exploiting all the reserves of resilience that exist within and beyond the business, in order to support a robust and sustainable recovery.

To do this, you need information that will allow you to make good decisions under conditions of extreme uncertainty. Much of this information will come from within the organization. You’ll be dependent on your colleagues and staff to provide accurate and current details in a timely manner. The information must tell you what you need to know that you don’t currently know (attention) and what you need to do that you’re not currently doing (action). This requires effective channels of communication to have been established well before the arrival of a Risk Hurricane. A full information needs analysis can define in advance what information is required by whom, who will produce it and from which sources, when and how it will be delivered, and how it will be used. This should form part of your corporate communications strategy, which covers how to communicate both in normal business circumstances and in times of crisis.

In addition to accurate and timely information, good decision-making in situations of high risk exposure requires a robust process that takes proper account of risk, and a degree of self-awareness and behavioral literacy that allows decision-makers to moderate their gut-level instinctive reactions with intelligence and intentionality. An approach to making this type of risky and important decision is outlined in Figure 4.2.

The process summarized in Figure 4.2 shows that before you can make a risky and important decision, you need to understand the decision context (which includes both the decision information and the decision-makers). You also need to estimate the level of risk associated with each decision option, which is driven by your (possibly unreliable and biased) risk perception. Finally, you need to understand your risk appetite, expressed in measurable risk thresholds, which must lie within the overall risk capacity of your organization. Armed with this information, you can then choose a decision option that lies within the approved risk thresholds. If no decision option falls within risk thresholds, it’s possible to intentionally adopt a different risk attitude and modify thresholds accordingly, allowing a compliant decision option to be chosen. (Further details of making risky and important decisions are covered in Murray-Webster & Hillson, 2021.)

It’s easy to say that senior leaders need accurate and timely information in order to make the strategic decisions that are necessary to cope with the arrival of a Risk Hurricane. And it’s (relatively) easy to draw a flow diagram such as Figure 4.2 outlining a process for making decisions under conditions of extreme uncertainty. But how do business leaders get such information, and where can you find help with running the decision-making process? This calls for someone who is responsible for supporting strategic management of risk at the corporate level, who can gather and provide risk information and facilitate risky decision-making.

In some large organizations, this role may be filled by a dedicated senior executive called the Chief Risk Officer (CRO). Alternatively, it might be part of the responsibility of the Chief Financial Officer (CFO) or Finance Director (FD), or possibly the Chief Operating Officer (COO) or Company Secretary. Other businesses may look to someone who sits outside the executive suite, such as the chair of a Risk & Audit Committee, perhaps a Head of Enterprise Risk Management (ERM), or someone leading a Governance, Risk & Compliance (GRC) function. If you fulfill a role like this, you’ll know how important it is to gather risk information that supports robust decision-making and then to communicate it promptly and effectively to decision-makers, especially during the type of corporate crisis that a Risk Hurricane represents. You may also be called on to facilitate the decision-making process to ensure objectivity and counter bias where possible.

If you’re a leader in an organization that doesn’t currently have this type of risk-related role, you’ll need to consider how to obtain the information you’ll need to support you in making crucial decisions. Remember that during an active Risk Hurricane, your colleagues beyond the eye of the storm will be coping with the impact of extreme risk exposure, and they may not be in a position to respond to requests for risk information if communication channels have not been established in advance.

DIRECT IMPACT—AT THE WALL

Moving out from the eye of the storm, we first encounter the “eye wall,” which is the place of maximum danger, beyond which lie rain bands and circulating winds. In a natural hurricane, the intensity of the rain and the speed of winds decrease as we move further from the center toward the outer edges, and the severity of impact similarly reduces, being proportional to the distance from the eye. For the organization in crisis, the level of disruption experienced by staff is also dependent on how far they are from the center.

The eye of a Risk Hurricane is a place of relative calm, with low pressure and rate of change. By contrast, the eye wall is the most dangerous part of the Risk Hurricane. Just as for the natural hurricane, where both the highest sustained wind speeds and the most intense rainfall occur at the wall, those closest to the center of the organization but outside the eye will be most affected.

This is where we find upper management and senior directors who report directly to the board and executive committee. They include functional leaders, departmental heads, regional directors, and operational leaders; staff with senior responsibility and account-ability for significant aspects of the overall business. If this is your role in the organization, you have much to fear from a Risk Hurricane. You will be under maximum pressure, sitting as you do between the most senior leaders and the rest of the business. The bosses will be demanding accurate and timely information from you about what’s happening across the organization. At the same time your colleagues and staff will be looking to you for leadership and advice to help them cope with the disruptive effects of the corporate crisis as it impinges on their own areas of work. You can easily end up being squeezed hard from above and below, as colleagues on both sides look to you for support.

If you find yourself at the eye wall of a Risk Hurricane, you’ll need to draw on all the reserves of resilience at your disposal, including personal, professional, and corporate. Each of these resources will of course need to be in place before they’re required so that they are ready to support and sustain you when the corporate crisis hits. This is when you’ll reap the benefits of proactive preparation in times of relative calm, before any hint of an approaching storm arises. (We’ll address preparedness and resilience in more detail in Chapter 6.)

DIRECT IMPACT—BEYOND THE WALL

Everyone in an organization that’s in corporate crisis will feel the effect to some degree or other. But their experience of disruption will vary considerably, depending on their position in the business. For people caught up in a natural hurricane, impact decreases with distance from the center, and the same is true for the Risk Hurricane.

In general terms, we can track this variation across the corporate hierarchy, with the highest levels of effect being felt at the top, and only minor disruption at the lower reaches. Indeed, for many organizations in the throes of corporate crisis, it’s common for senior leaders and managers to be losing sleep and working hard to contain the damage, while staff at the operational/functional workface or working on projects and programs may only experience minor bumps along the way, blissfully unaware that their bosses may be fighting for the survival of the business.

Although “distance” is most obviously measured by the number of levels of corporate hierarchy between you and the top, another factor is equally important in determining the degree of impact felt by different staff members when a Risk Hurricane strikes. We might label hierarchical distance as proximity, where high proximity means that my position in the organization is close to the top. An equally powerful driver of impact is propinquity, a related but distinct form of closeness. Where proximity equates to closeness in space, propinquity measures it in terms of how much something matters. High propinquity means that I am personally interested and involved in something and that I would therefore feel significantly affected by any change, either positive or negative. I might describe this as “skin in the game,” though it doesn’t necessarily refer only to financial investment. Propinquity might arise from my personal identification with the corporate mission or from the importance I attach to my career or professional status. I may be pressured by my family to do well at work, or my sense of propinquity might be driven by values such as altruism or a strong work ethic. Given the distinct nature of proximity and propinquity, they are not always correlated. In other words, it’s possible for a staff member with low proximity (many levels below the top of the business) to experience high propinquity (disruption is keenly felt because the organization and their role in it matters a great deal to them). Similarly, a boss at the top (high proximity) may not feel too bothered by a corporate crisis (low propinquity) if they have other sources of income or means of support, so the disruption may not affect them significantly.

In the same way that the impact and disruption experienced by any particular member or group of staff is directly proportional to their proximity (hierarchical distance from the top of the organization), it is also influenced by propinquity (how much the business matters to them). This means that it’s not always immediately apparent who within our organization is likely to be most affected by a Risk Hurricane. This is important when it comes to protecting and supporting members of staff during corporate crisis, as the levels of felt impact may be substantially different from what we might predict from their hierarchical position in the business alone.

INDIRECT EFFECT

While attention and concern naturally turn first to those people within an organization who are directly affected by the arrival of a Risk Hurricane, many others can also feel the effects. We listed those groups who can be influenced or interested when a natural hurricane occurs, and each of these has a counterpart in the case of a Risk Hurricane.

Family Members

We can use this term to describe other organizations that are related to the business that is being hit by a Risk Hurricane. It covers members of the broader stakeholder network, including clients and customers, shareholders, regulators, government, the general public, competitors, market analysts, and so on. It might also include other members of a corporate group, if the entity is part of a conglomerate. The degree of impact felt by members of this “wider family” of stakeholders will be driven by both proximity and propinquity, as discussed previously, reflecting the stake they have in the affected business. In the same way that relatives of those directly caught up in a hurricane worry about the health and safety of their loved ones, stakeholders of a business undergoing a Risk Hurricane can experience high levels of anxiety driven by concern about the ongoing viability of the affected business, but they’ll also be worried about the extent to which their own interests might be adversely affected.

Utilities

This category covers those who provide essential services to the organization, notably members of the supply chain. In the same way that damage to infrastructure from a natural hurricane can affect people some distance from the epicenter, so the disruption from a corporate crisis can ripple through the supply chain to affect businesses a long way off, perhaps in different industry sectors or other countries. In some cases, supply chain impacts can be more disruptive than the original crisis, as the ripple effect spreads outward from suppliers to other unrelated businesses. The interconnectedness of modern business exacerbates this propagating influence, sometimes producing unpredictable and unforeseen effects far from the original disruption. In addition to the impacts felt directly by suppliers to an affected business, there can be a knock-on effect as they struggle to maintain normal service levels.

Emergency Service Providers

When a Risk Hurricane strikes an organization, the first responders are often insurance providers, banks, and other financial institutions, who are called on to provide emergency assistance to the business in trouble. They may also include investors and shareholders, depending on the circumstances of the organization. The assistance from these providers often takes the form of short-term financial interventions that would not be considered under normal circumstances. Sometimes governments may get involved, especially if the organization is in a critical sector such as infrastructure, energy, defense, or communications. Assistance might also be provided by consultants specializing in business recovery. With this wide range of emergency services available, the business suffering from the effects of a Risk Hurricane must be careful not to accept offers of short-term help that might create longer-term problems when the immediate crisis is over, as it’s quite possible for emergency interventions to have unintended consequences for the ongoing health of the business.

Media

As for natural hurricanes, both mainstream and social media play a pivotal role in informing the public about developments in a business that’s experiencing corporate crisis. But the business media are prone to the same tendency for sensationalism and partial reporting as other elements of the media. As a result, organizations need to have robust media-handling and crisis communications strategies in place as part of their Business Continuity Plans, aiming to manage the story as far as possible while the crisis continues, and in its immediate aftermath.

PROFESSIONAL INTEREST

The final group of interested parties when a Risk Hurricane occurs are those who take a professional perspective. For the natural hurricane, this includes both expert meteorologists and Global Monitoring Centres. These each have their equivalents in the world of the Risk Hurricane.

Expert Risk Practitioners

The counterparts to trusted and respected professional meteorologists are the risk experts and analysts who can offer impartial and effective advice to those directly impacted by a Risk Hurricane. Whether they are external risk consultants or in-house risk specialists, these experts offer unique skills that enable them to understand the factors that give rise to corporate crisis and that help them to identify the key drivers of extreme risk exposure. Their expertise allows them to recommend effective and proven practical strategies for addressing uncertainty, enabling the organization to both survive and thrive, not only protecting value but even creating value in the midst of disruption.

Professional weather experts use sophisticated forecasting tools to predict how a hurricane might develop. Similarly, skilled risk practitioners know how to use powerful analytical tools to model the effects of uncertainty on the business, and to assess the effectiveness (or otherwise) of proposed response strategies. Their expert advice draws on historical data and experience from a wide range of similar and disparate situations. They know how to communicate effectively about risk, ensuring that the key messages are heard and understood by those who need to know and to act. Their input assists with precautionary prior planning as well as immediate and post-event responses.

If you hold a risk-related role in your organization, you’ll be aware of what level of support you can offer to your senior colleagues. You should also know the value of risk information in shaping business-critical decisions, and you’ll understand how important it is that business leaders take full account of risk as they deal with the immediate threats and opportunities that confront them. However, although you may be clear about how you can help in the midst of a full-blown Risk Hurricane, your colleagues may be so absorbed by the disruption of corporate crisis that they forget about what you can offer. In these circumstances, you need to take responsibility for communicating risk information proactively. Two risk communication principles are important if your vital message is to be heard, received, and understood by busy senior leaders:

• Speak their language. Communication requires information to be passed from one party to another, involving both transmit and receive processes. The passage of information is made easier where these processes require minimal translation. Like all specialist disciplines, risk experts use jargon and technical terms that are understood by their colleagues but may be incomprehensible to others. When you’re communicating about risk to business leaders, such tech talk must be avoided (no mention of probabilities, criticality analysis, percentile confidence levels, or Bayes’ theorem!). Instead, your risk advice should be expressed in terms familiar to your intended audience. For example, the impact of key risks should be related to board-level objectives.

• Focus on required actions/decisions. Risk communication has two primary goals: to tell people what they need to know that they don’t currently know (attention); and to tell them what they need to do that they’re not currently doing (action). When senior leaders are dealing with existential disruption arising from a Risk Hurricane, they need accurate information fast. They probably don’t have the time, patience, or mental capacity to listen to the results of your detailed risk analyses and how these were obtained. They just need to know what you’ve discovered and what you recommend them to do. When you’re delivering a risk briefing, keep it brief!

If you’re a risk expert from outside the organization, you have another challenge if you want your message to be heard. In addition to ensuring clear risk communication, you need to build trust with the senior leaders whom you’re advising. For people facing the prospect of a natural hurricane, whether business owners or the general public, the weather forecaster is a trusted professional who can be relied upon to tell the truth when it matters. By contrast, if the leaders of a business facing corporate crisis need to seek risk-based advice from outside the organization, they have to proceed carefully. Unfortunately, the ranks of external professional consultants include some whose sales pitch exceeds their ability to deliver. When choosing a risk consultant, you need to be assured that you’ll be working with a trusted professional.

The Risk Management Professionalism Manifesto (Hillson, 2002) provides ten criteria that risk practitioners and their clients can use to determine whether the risk services being offered are “professional” or not (see Table 4.1). These criteria provide a checklist that senior leaders can use when seeking support from an external risk expert. Each principle should form the basis for a conversation between the organization and candidate risk consultants, with the aim of establishing trust through a shared understanding of each other’s responsibilities, as well as agreeing ground rules to be applied in case of disagreement. Table 4.1 also includes a set of test questions that illustrate how each professionalism principle might be applied in practice.

Global Risk Bodies

The weather profession has established a global network of Regional Specialized Meteorological Centres under the auspices of the WMO, tasked with providing official information on severe weather. This network allows early warning that a natural hurricane might develop, as well as providing expert advice on how to protect and preserve life and property when a hurricane occurs.

There’s little doubt that we need a “WMO for risk,” an internationally recognized single global body that is responsible for monitoring developing risk exposure and predicting the potential for a Risk Hurricane to arise. It would also be helpful if such a global risk organization included a network of “regional monitoring centers,” each providing advice relating to a defined industry sector.

Table 4.1: Risk management professionalism: principles and tests

(Adapted from Hillson, 2002.)

*Note: The term “client” is used throughout the table to denote the person or party who receives advice from a risk management professional.

The nearest risk equivalent to the WMO is the Global Risks Practice, which forms part of the World Economic Forum (WEF, n.d.). The Global Risks Practice is a public-private collaboration comprising commercial organizations, academic institutions, and an advisory board of distinguished expert members. The aim is to identify and analyze critical global risks and communicate these to stakeholders and the wider public. This is primarily achieved through publication of the annual Global Risks Report (World Economic Forum, 2022), which is based on the Global Risks Perception Survey, completed by over 650 members of the WEF’s diverse leadership communities. In addition to the work of the Global Risks Advisory Board, WEF has recently established the Global Future Council on Frontier Risks in an effort to understand and mitigate future risks and to amplify weak signals of coming disruptions in the decades ahead. Finally, WEF has launched a Chief Risk Officers’ Community, bringing together CROs from the private sector and major institutions to share their perceptions of global risk and proven methods of tackling it effectively.

The WEF Global Risks Report includes an assessment of risk proximity, with a “Global Risks Horizon” that lists risks across various time frames from short-term “clear and present dangers” (0–2 years), medium-term “knock-on effects” (3–5 years), and long-term “existential threats” (5–10 years). The “Global Risks Landscape” presents a prioritized map of risks ranked by likelihood and impact, in five risk categories: economic, environmental, geopolitical, societal, and technological. A “Global Risks Network” indicates causal relationships between risks, revealing key risk drivers. Following these graphical summary representations, detailed discussions of key themes are presented in a series of focused chapters.

Given the scope of its coverage and the depth of its analysis, the annual WEF Global Risks Report provides a firm basis for organizations across the world to scan the current horizon for conditions that might give rise to a Risk Hurricane in their area of business. Indeed, the abundance of information provided by the report can appear overwhelming to busy business leaders, which is where risk experts come in. In the same way that professional meteorologists take data from the WMO and feed it into their weather models to produce forecasts that inform their users, so risk management professionals will be able to apply relevant findings from each Global Risks Report to identify the early warning signals that a Risk Hurricane may be on its way. The average person in the street doesn’t need to read reports from the WMO to know if they need an umbrella or sunscreen; they simply listen to the weather forecast. Similarly, senior business leaders need not be fully familiar with output from the WEF Global Risks Practice if they have reliable and trusted professional risk experts to interpret the data for them.

Another risk professional body deserves mention here as a potential source of valuable global risk information. The International Risk Governance Council (IRGC) describes itself as “an independent non-profit foundation that aims to improve the understanding and management of risks and opportunities by providing insight into systemic risks that have impacts on human health and safety, the environment, the economy and society at large” (IRGC, n.d.). Its mission includes anticipating major risk issues and providing policy advice for key decision-makers, drawing attention to ignored, neglected, and emerging issues using international scientific knowledge from both the public and private sector. This mission positions IRGC as a predictor of possible Risk Hurricanes as it scans the uncertain future and provides independent advice to policy-makers and decision-takers in both public and private sectors, as well as offering detailed information to risk practitioners. This advice comes in the form of various publications, including white papers, policy briefs, detailed reports, concept notes, and opinion pieces.

In addition to the WEF Global Risks Practice and the IRGC, useful information on the global risk environment can be obtained from other global bodies such as the United Nations (UN) and its various specialist organizations, the World Trade Organization (WTO), the International Monetary Fund (IMF), and the World Bank. While these organizations are not specifically focused on risk, they can provide important contextual information about conditions that might give rise to a Risk Hurricane.

Despite the existence of these global sources of risk information, there is no single global risk body that parallels the role of the World Meteorological Organization (WMO) for natural weather phenomena such as natural hurricanes. There is in fact no “WMO for risk,” with an equivalent network of “regional specialized monitoring centers” providing official warnings of emerging Risk Hurricanes in particular areas. This absence of a single recognized global source of risk-related advisories and information makes it more important for businesses to have their own way of scanning the risk horizon, drawing on all available resources to ensure that they are not caught unawares by a Risk Hurricane. (We’ll discuss how to predict Risk Hurricanes in the next chapter.)

CASE STUDY: POLLY PECK INTERNATIONAL

The following case study illustrates the differing effects a Risk Hurricane can have on the various people involved, both within an affected organization and beyond.

Polly Peck International (PPI) began in London in 1940 as a small British fashion house founded by a husband-and-wife team to sell her designer clothing. Things changed in 1980 when it was bought by an investment company headed by Turkish Cypriot entrepreneur Asil Nadir, who used it as a growth-by-acquisition vehicle to build a widely diversified portfolio of businesses, including a packaging company, resort hotels, mineral water bottling, textiles, electronics, and homeware. By 1989 PPI had become a holding company for a worldwide group of over 200 subsidiaries, with market capitalization of GBP £1.7 billion, net assets of £845 million, pre-tax profits of £160 million, and over 17,000 employees.

Despite this success, there were rumors of accounting irregularities, and the UK Serious Fraud Office (SFO) started an investigation in 1990. Initial concerns about insider trading proved unfounded, but the SFO found evidence of massive transfers of funds out of PPI and into its subsidiaries, authorized by Nadir, totaling about £150 million. PPI also had over £100 million in short-term debt, with other long-term loans. As the investigation continued, the board filed for voluntary administration in October 1990, and the company collapsed in 1991 with debts of £1.3 billion. PPI was placed in administration, and most of its assets and share capital were purchased in 1994 by a competitor.

Charges were brought against Nadir for 70 charges of false accounting and theft, which he denied, and while on bail in 1993, he fled from the UK to his home country of Northern Cyprus, where he remained until 2010. He then returned to the UK to clear his name, but he was subsequently jailed in 2012 for theft. Nadir served less than four years of a ten-year sentence before being transferred to Turkey in 2016, where he was released after just one day.

This chapter has looked at the effects of a Risk Hurricane on a wide range of people, which vary depending on their position in relation to the organization. The PPI scandal and collapse illustrate this variation quite clearly.

• In the eye of the storm. As chairman and CEO, Asil Nadir sat at the center of the organization as the crisis at PPI developed, in a position of relative calm. This was only made possible by his active role in the accounting fraud, since he was one of very few people who knew what was actually going on. As the storm raged around him, he alone had all the facts, understood the situation, and was able to make rational decisions on what course of action to take. Even after he was charged with criminal mismanagement, he retained sufficient initiative to be able to skip bail and flee the country. He took the decision to return to the UK on his own terms, setting conditions under which he would face justice. Throughout the entire episode, Nadir gave the impression of being in control of events, even when they weren’t going in his favor.

• At the eye wall. The senior management team of PPI bore the brunt of the uncertainty as the scandal emerged. During the period of rapid growth, Nadir had remained firmly in control, able to make payments without board or other management approval, and delivering astonishing profits through a complex and opaque structure. Several PPI directors had been concerned about the financial structure of the organization but had been unable to obtain sufficient details to confirm their suspicions. In early 1990 PPI’s financial stability and its ability to pay debts were called into question. The board confronted Nadir about money transfers to subsidiaries and banks in Northern Cyprus, and they asked him to return the funds, but he refused. At Nadir’s trial, the prosecution told the jury that the PPI board had been thwarted at every turn when they tried to work out what he was doing. Despite this, board members were held accountable for the organization after the scandal was exposed. Within a very short period of time, they went from being senior leaders of a highly respected and successful global enterprise to presiding over the collapse and liquidation of the group, with a consequential effect on their professional reputation and standing.

• Beyond the wall. Unsurprisingly, employees of the many PPI companies suffered directly when the organization collapsed. Few details have emerged into the public domain about the impact on management and staff at subsidiaries, but many lost their jobs, pensions, and career prospects as a result.

• Indirect effect. The impact of the PPI scandal beyond the organization itself was very wide. Shares boomed in the period 1980 to 1990, but shareholders and investors lost funds as the share price fell dramatically; share trading was suspended and PPI defaulted on its loans. Creditors eventually received about 10 percent of the £550 million they were owed. Suppliers were impacted as businesses ceased trading, and competitors benefited from the withdrawal of PPI from several different markets. PPI’s group auditors Stoy Hayward were fined £75,000 with £250,000 costs. One British government minister resigned due to his close links with Nadir. Perhaps the most substantial impact was in the regulatory arena, as PPI’s collapse in 1990 was one of several corporate scandals that led to the reform of UK company law, resulting in the early versions of the UK Corporate Governance Code. This has ultimately affected all future companies that have listed on the London Stock Exchange. Current best practice includes separation of the roles of chairman and chief executive and an active, majority-independent board to oversee executives, neither of which were in place at PPI. Indeed, if your business is subject to corporate governance regulations, you’re experiencing the outer reaches of the Polly Peck Risk Hurricane, still affecting people over 30 years later.

CLOSING CONSIDERATIONS

Many people feel the impact of a Risk Hurricane, not just those within the affected organization. But the degree of disruption experienced is different for each group of people. This chapter has reviewed the level of effect felt by business leaders who find themselves in the eye of the storm, as well as by senior management, risk specialists, and other stakeholders, both inside and outside the organization. Each has a particular role to play when a Risk Hurricane strikes, and we all need to know in advance what will be expected of us when the time comes. The actions of business leaders and risk management professionals are especially critical in situations of major business disruption.

If you’re a senior leader, you must make key strategic decisions to ensure the survival of your business during a corporate crisis and its sustainable recovery when the Risk Hurricane has passed. This will require clear thinking in the midst of chaos. The following steps will help you to make risky and important decisions effectively:

1. Establish in advance the sources and channels of risk information that you’ll need to support your decision-making. This may require you to commission an information needs analysis that specifically details how you’ll respond in times of crisis.

2. Ensure that you understand the organizational risk capacity and that you’ve determined your corporate risk appetite against each strategic objective.

Risk specialists both within and outside the organization also have two particular responsibilities:

1. Review the output from global risk bodies such as the WEF and IRGC, looking for early warning signals that might indicate the emergence of a Risk Hurricane.

2. If and when a Risk Hurricane occurs, provide timely and accurate risk information to decision-makers, expressing this in suitable terms that enable good risk-based decisions.

When each stakeholder understands and performs their role effectively, the dangers posed by a Risk Hurricane can be tackled with confidence, giving your business the best chance of emerging from the crisis with minimal damage, ready to move forward with the challenges of reconstruction and renewal.