Too Many Black Swans
Today’s risk managers make an important contribution to value-oriented corporate management
These are desperate times we live in: banks, even entire countries are about to go bankrupt. Tsunamis, nuclear disasters, and the fear of pandemics. Only a short time ago, we would have given little thought to many of these events, regarding them as highly unlikely. At least, we were not well prepared, obviously. The conclusion: today, risk managers must prepare for extreme situations and cope with their consequences more than ever before.
No one could have foreseen the attacks of 11 September, 2011. The nuclear disaster in Japan in the spring of 2011 was just as surprising.
Or was this perhaps not the case? Was it perhaps in the end a lack of circumspection, an inability to interpret facts and indications correctly and quickly enough or simply missing power to imagine the unthinkable?
Unlikely, but true
This is in any case the thesis proposed by the risk researcher and mathematician Nassim Taleb (Nassim Nicholas Taleb: The Black Swan. The Impact of the Highly Improbable. Random House, New York, 2007. Until the 17th century, Europeans believed that all swans were white. This idea did not change until black swans were discovered in Australia.). His “black swan” is a metaphor for an extremely improbable event which cannot (yet) be predicted by probability calculations, but which really does happen. It is a statistical outlier which is outside the scope of previous knowledge and normal expectations. And: its impact is enormous – in both a negative and positive sense.
The negative aberration from a goal or expectation defines the concept of risk. Extreme events such as financial crises, natural disasters, political unrest, or pandemics, but even less cataclysmic happenings such as legislative changes and modifications of regulatory requirements are among the risks which can bring tremendous pressure to bear on companies. Complete business models may suddenly become obsolete – or just as suddenly become possible due to black swans. This is the other side of the risk coin: opportunity, such as an unexpected chance for growth, is an aberration in the positive direction.
The present financial crisis in particular has cast an even harsher light on the significance of risk management, understood here to mean careful planning to deal with risks and their impacts. Within the context of modern corporate management, risk management should always be value-oriented and, according to the shareholder value approach, have its sights set on the achievement of corporate goals. Specifically, its aims are to determine the impact of risks on the company as concretely as possible and to ward off risks which are literally unpredictable. Ralph Klose, head of the unit “Group Risk Management, Insurance” at Deutsche Telekom AG, defines his business responsibilities as follows: “Of course the legal requirements for an early warning system which alerts us to major risks threatening our existence must be fulfilled. But this is not enough. Risk management must serve as an instrument for steering company decisions, especially during times of great volatility. With our so-called ‘risk cockpit’, we provide such an instrument to the Management Board. Besides the identification and assessment of specific risks which are relevant for a company, it includes a series of early warning indicators and a general, all-encompassing view of the risk position of the corporate group.”Next page