Top executives seem to be cursed with a common failure to anticipate unusual cataclysmic events which could have a major impact on the bottom line and future health of their company. But the good news is that current attention can prevent or mitigate the disastrous consequences of previous management inaction. Its never too late to grapple with the possibility, no matter how remote, of an event which has the capability to badly damage a company – as long as the axe has not yet fallen.
Target allowed a contractor remote access to part of its computer system – not too unusual these days – but its software, and hence Targets, was vulnerable to hackers who stole personal data from as many as 100 million Target customers. That wont kill the company, but it has put a big dent in its public image and profitability. It takes a lot of advertising, soothing statements and store discounts to recover from a blow like that.
The Jan. 9 chemical leak at Freedom Industries bulk plant on the Elk River caused widespread water contamination outages because its tanks were old, with limited exterior containment, and too close to the river. Apparently no one had been concerned that it was located only a mile upstream from a major water treatment facility. Nine West Virginia counties and 300,000 residents lost their fresh water supply for an extended period of time, and the company filed for total liquidation bankruptcy. This failure to anticipate can be spread broadly across the owners of the tank farm, those responsible for the water and chemical plant locations, and government regulators who had no idea of what the ill effects of that leaked chemical might be.
BP is a smaller oil company as a result of its 2010 Deepwater Horizon drilling rig disaster in the Gulf of Mexico. Financial responsibility is still being litigated, but there is plenty of blame to go around. There were employee and contractor communication failures, lack of management attention to lower-level concerns, questionable testing of a device to prevent blowouts, and general executive disinterest in major disaster possibilities. Billions of dollars later, BP is now a poorer but wiser company.
And who can forget the 1989 Exxon Valdez catastrophe? It was reported at the time that management knew the ships captain had an alcohol problem. With inoperable radar and a smaller crew than normal, the third mate steered the crude tanker onto an Alaskan reef while the captain, who had been drinking, was sleeping below. Claims are still being litigated, billions of dollars and decades later.
What were talking about here is not the usual risk avoidance effort. Its bigger than that. In disasters of this kind, a huge problem has been that of blocked feedback from lower-level employees; this has to be corrected. In addition, there is an urgent need for a formalized program, strongly supported by upper management, to regularly analyze and quantify the corporate effects of future enormous but low-probability risks.
Some say, It cant happen here, but believe me, it already has.