Corporate boards face risks, and sometimes those risks are catastrophic. Those of us who serve as directors, and those of us who advise directors, whether as outside counsel or as corporate counsel, recognize that catastrophic risks, which can destroy companies, livelihoods and even lives, are always with us. Although corporate boards make many decisions, only a few of the many decisions, or lack of decisions, may have devastating consequences.
When a catastrophic risk is present, the profound consequences of making a poor decision, either by act or omission, and the complex human dynamics that attend issues of this magnitude, demand a risk analysis process that requires discipline, wisdom and most importantly, the courage to act in a manner that may counter to the company’s and board’s culture and expectations. This is particularly true if the magnitude of the risk is not readily apparent. While we ordinarily may take comfort in the use of increasingly sophisticated planning and risk avoidance processes, the best practice for the avoidance of catastrophic events lies in the consistent use of a three-part strategy:
- Understanding the reoccurring human qualities that have resulted and will continue to result in catastrophe,
- Recognizing the bias that exists when information is presented and received, and
- Daring to be dumb enough to understand and avoid those situations that may result in a catastrophic event.
This strategy is important when facing a known catastrophic risk, but it is essential when the risk is unknown, or more dangerously, thought to be understood. In sum, since the nature of any given risk is, at best, is uncertain, this strategy should always be consciously employed.
It is false comfort to conclude that a catastrophe was no one’s fault-it could not be prevented- it was a 100 year storm- the perfect confluence of overwhelming negative factors. It is true that sometimes, some catastrophes cannot be avoided no matter how much able planning is done. More often, however, the fault continues to lie with ourselves, and in the repeated display of those human frailties that singly and in combination lead to catastrophe: Greed, arrogance, complacency, obsequiousness, fear.
Discussed below are a number of well-known decisions, in numerous areas of human endeavor that ended in catastrophe. All of these catastrophes, all the lives ruined, and in some cases the lives lost, could have been avoided, or at least mitigated, if the pre-event analysis had been 1/100th as thorough and rigorous as the deep and reflective post-event studies have been. For us, in retrospect, they present obvious questions: what common factors affecting decision-making are present; what processes could the decision-makers have engaged in that might have avoided the catastrophe; and what decision-making processes should we employ to avoid catastrophes for those entities for which we are responsible.
In these examples we see the repetition of familiar patterns of all too human behavior: the arrogant, single-minded leader, the timid subordinates, the failure to pursue obvious red flags and the pursuit of misunderstood goals. The people involved in these events were not unsophisticated, inexperienced or naïve. To the contrary, they were some of the smartest, best educated, experienced and accomplished people of their time or any other time. The flaws and frailties that they showed are ours, and the traps they wandered into await us all. As we review these examples, we might consider whether or not, if we had been present, would we have had the wisdom and courage to stand against the prevailing institutional culture until the risk was recognized and avoided.
In 1912, one of the greatest vehicles ever designed for the transportation of people set sail. A few days later Royal Mail Ship Titanic sank and 1500 people died. One of the explanations suggested for the catastrophe was the arrogance of the Captain, and others who encouraged him, who, it is said, steered the ship at high speed through the iceberg lanes in an effort to show the speed of the marvelous, new ship and reap the publicity and acclaim that would follow. But pointing an accusatory finger at one or two persons is not the whole answer. Equally profound was the group decision of the owners, designers and builders who provided a wholly inadequate, but legal, number of life boats, based on the ship’s tonnage without regard to the number of persons on board.
In 1944, one of the greatest armies ever assembled, the Allied Expeditionary Force, was pushing across Europe while its commanders considered how to cross the Rhine into Nazi Germany. One of the most fabled generals in the Allied Force hit upon a brilliant, but completely unworkable, plan to parachute some 10,000 men behind the Nazi lines to capture a bridge across the Rhine. The main army would then mount a two day attack and relieve the paratroopers, who were to hold on at this distant bridge. In deference to or in fear of the great commanding general, and those supporting him, no one vigorously challenged his assumptions or criticized the plan’s numerous flaws, including the assumptions that the area around the bridge would be lightly defended and that the isolated paratroopers could be reached by the main army in two days. Nine days after the attack began, when the main army finally reached them, the 2000 surviving paratroopers swam and rafted back across the river. A bridge across the Rhine would not be seized by the Allies for another six months.
In 1986, one of the greatest vehicles ever designed for the transportation of people was launched. Seventy three seconds later the Challenger space shuttle exploded. NASA concluded that its personnel were too focused on maintaining the launch schedule, and that those who were concerned that the cold temperatures at launch might jeopardize the space shuttle were either too intimidated or too unsure of themselves to object vigorously and, to the extent that anyone dared to speak out, they were over-ruled. This, NASA said, would never happen again in NASA’s new climate of safety.
In 2003, one of the greatest vehicles ever designed for the transportation of people, the Columbia space shuttle, disintegrated during reentry. The specific cause of the catastrophe was a hole punched into the left wing at launch by falling foam. But, the underlying causes were identified as a desire by NASA management to present the space shuttle missions as relatively safe and even routine that could proceed on fixed schedule, a flawed and untested belief that foam falling on the space shuttle at launch was harmless even if outside safety parameters, a refusal to consider that the space shuttle design might be inherently flawed and significantly less safe than understood, and publicly presented, and a desire not to be the one who would stand up and challenge any of the foregoing assumptions.
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