What Are Lessons for Leaders from This Black Swan Crisis?

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SUMMING UP

In What Ways Will the Pandemic Stimulate Research in Leadership?

Preparation for Black Swan events, to the extent that it is even possible, has to be balanced against the demands for short-term results. It may be a fruitless effort. But in the case of the current pandemic, doubts were expressed by readers of this column about whether it even qualifies as a Black Swan. Let’s turn to some of the responses.

“We are not dealing here with a Black Swan,” Tom Coyne commented. “The potential for, and impact of, a global respiratory disease pandemic … has been recognized for years… The greatest COVID-19 failure was clearly the failure to adapt in time to an emerging threat.”

Bill Wallace said, “I’m calling the COVID-19 pandemic a White Swan: inevitable through global mobility and the absence of safeguards, frighteningly predictable based on extrapolations from past outbreaks … Climate change and its ensuing environmental, economic and social disasters is the next White Swan.” JSD saw a possible motive behind the debate when he opined that, “In the corporate sector, the continuing effort to brand the COVID-19 pandemic as a Black Swan is a retroactive attempt to protect unprepared boards and CEOs from responsibility so their companies won’t be sued.”

“In the corporate sector, the continuing effort to brand the COVID-19 pandemic as a Black Swan is a retroactive attempt to protect unprepared boards and CEOs”

Regardless of what we call it, what might leaders in the public and private sectors learn from the events of the past few months?

In the public realm, Sandeep Yadav concluded, “It is only by sharing … resources globally that we can distribute the burden of fighting the next Black Swan.” The lesson for leaders, he continued, “is the reminder that we are on this small rock together.” WH Kolkman added: “We also need to give more attention to mitigation, which will be greatly helped by cooperation, resilience, innovation, pragmatism and speed. In a crisis like this, perfection is the enemy of effectiveness.”

Advice to leaders in the private sector included that of Gaetan, who said, “we can prepare to be prepared… we should stimulate the use of less debt and more equity and therefore accept a lower return or otherwise fully accept regular destruction of businesses, unemployment, etc…” Jan was more specific: “In terms of financial preparedness, there is a simple guideline, that every 10 years or so, expect a major disruption. So you need 6 months cash on hand to weather it.” Larry recommended contingency planning. As he put it, “Operational contingency plans are unlikely to be helpful. But financial contingency arrangements can be made and worked into the fabric of normal, ongoing organization financial management… (it) buys time to figure out what is happening and what it means to the organization.” Jacob Navon suggested, “Perhaps corporate thinking going forward will shift to emphasize resiliency versus cost optimality… Diversifying geographically, including some home grown production capacity will ensure a much more resilient operation.”

Among other things, Chris Taylor suggested that leaders in this crisis will have learned that it paid to be calm in bearing, decisive and timely, and selfless, avoiding “making yourself comfortable at the expense of others.” Philippe Gouamba predicted that, “The leaders and organizations that do the right things by their employees will rise to the top.” Nassim Nicholas Taleb himself is reported by Mac to have tweeted a lesson right out of his book: “This 2 page paper should put the nail in the coffin of ‘evidence based’ science and risk management.”

Krishnaswamy Sathyamurthy mused, “ interested in knowing as to how many corporations have ducked the pandemic and are going to emerge unscathed.” It suggests a range of questions regarding leadership. How did some corporations emerge unscathed while direct competitors in the same industry suffered? To what extent did leadership policies and practices account for this? What were the consequences for leaders who were blindsided?

In what ways will the pandemic stimulate research in leadership? What do you think?

Original Post

While sheltering in my condo recently, I took the opportunity to reread Nassim Nicholas Taleb’s book, The Black Swan. In it, he defines a Black Swan (always capitalized) as having three characteristics: “rarity, extreme impact, and retrospective (though not prospective) predictability.”

While some argue that communicable virus pandemics are generally predictable since they seem to occur every decade or so, the specific nature of the COVID-19 virus—and therefore the ability to prepare a vaccine for it—could not.

True advocates of Black Swan thinking may scoff at the very premise that there may be lessons for leaders in this one. It leads to a syndrome of always preparing for the last Black Swan, a somewhat chimerical chase in search of the nonexistent. But stick with me while I throw some candidate lessons into the pot.

For example, think of all the wasted time spent in corporate strategic planning over the past year or two. All of it is now down the drain as 80 percent of the economy shuts down while the other 20 percent operates beyond its supposed capacity. What’s the lesson here? Be careful of how much time is devoted to this kind of effort?

Preparing for the unknowable

Instead, should more time be devoted to thinking about modes of recovery that might support responses to a number of potential Black Swans? For example, almost every Black Swan will have some kind of extreme effect on demand for nearly all goods and services. In the face of the unknowable, are there basic contingency plans that can be kept fresh for generic, not specific, demands on various functions of the organization (such as 100 percent increases or decreases in short-term demand)?

Black Swans appear to have one increasingly predictable characteristic: they have multinational if not global impact. Does that mean they require global responses? For instance, in the current pandemic, could more international cooperation have helped moderate the impact? Is there a role for business leaders, especially those in global organizations, in their counterparts in the public sector to work together on proactive contingency planning? Or is it too naïve to even suggest this?

Does this pandemic teach us anything about cooperation between business and government to address generic issues? We all know, for example, that actions to develop a specific vaccine for COVID-19 are at the center of the critical path for ending the calamity caused by this Black Swan. Economics takes a back seat to medical research here. Rather than spending time trying to predict what the next virus and associated pandemic might look like, should we be working instead on faster vaccine development once we know the shape of the virus? Rather than take risks with human lives, should we be giving more attention to the development of human substitutes for testing vaccines, substitutes that are disposable (even if expensive) and don’t require legal protections in the event of failed experiments? Could this speed up the vaccine development process?

Some may conclude that it’s a fool’s errand to look for management lessons from anyone Black Swan. For the rest of us, the question is: What are the lessons of this Black Swan for leaders? What do you think?

Reference:

Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable (New York: Random House, 2007).