In the age of pandemics, cyber crime, and other black elephant type risks, getting senior leadership to increase their involvement and commitment to ensure that ERM becomes integrated into all organizational activities is more important than ever. We start this article series by looking at the difference that good leadership makes in determining whether their organizations build the necessary infrastructure to pursue opportunities and absorb the shocks of doing business in an increasingly intertwined and interdependent world.

“America was not ready for a flu outbreak in 1918. The flu exposed this lack of readiness at both the governmental and the individual level. But there is one major difference between the situations we face today and the flu of 1918: We were far less knowledgeable about viruses in 1918 than we are today. Since 1918 we have learned a great deal about what causes viruses, how they spread, and how to stop them. Yet despite the great advances in knowledge about flu since 1918, there is still much that we do not know, which underscores the potential for a new and deadly outbreak . . . One specific area that could stand improvement is the development of coronavirus countermeasures. Both MERS and SARS were worrisome pathogens, and the world lacked the countermeasures to combat them. Fortunately, science has advanced to the point where effective vaccine platforms will typically allow us to develop vaccines for new strains of an existing disease. With respect to flu, for example, we have the ability to develop new vaccines to inoculate against rapidly evolving new strains. With coronaviruses, we do not yet have these platforms. The next president should put this effort on his or her to-do list.” - T. Troy, Shall We Wake the President? Two Centuries of Disaster Management from the Oval Office at 8, 25 (2016) (emphasis added).

Like it or not, we live in an age of globalization and interdependence where strong communities built upon mutual trust and collaboration matter more than ever. A type of thinking about community building has been slowly building in the business world since the early 1990s - a nascent field known as enterprise risk management (“ERM”). Using the coronavirus pandemic and cyber crime as examples, this article series will discuss why and how senior business leaders and ERM practitioners can use ERM to help their organizations become more resilient.

Let’s start with the importance of effective leadership.The coronavirus pandemic has caused severe economic disruption that has triggered a wave of bankruptcies that include iconic brand names such as Hertz, J.C. Penny and Neiman Marcus (N. Naughton, M. Wirz, and C. Lombardo, “Hertz Was Already in Terrible Shape. The Pandemic Finished It Off,” Wall Street Journal (May 25, 2020)). Looking beneath the surface of this wave reveals a more troubling conclusion - the companies most in trouble today are often the same ones that were troubled before the pandemic struck. Take Hertz, for example, the 102 year-old company had $19 billion in debt and had lost money the last four years before going bankrupt, including $58 million in 2019 (Id.). Years of strategic missteps, including cycling through four different CEOs in a short period of time, left Hertz in such bad shape that the pandemic simply finished it off.

When the coronavirus pandemic struck, like many, I wanted to learn about the deadliest pandemic in modern history - the H1N1 virus of 1918 (aka the “Spanish Flu”) that infected a third of the world’s population (then 1.8 billion) and is believed to have caused the death of 50 million people, including 675,000 Americans. The Great Influenza (2005) by John M. Barry, a professor at The Tulane University School of Public Health and Tropical Medicine, is considered a leading text on the subject. Among the stories that Barry tells is the leadership of Dr. Max Starkoff, the health commissioner for the City of St. Louis. Starkoff’s approach was multitiered: (i) he created an advisory body that included business leaders, medical experts, and educators; (ii) he pursued what he called “intelligent citizen cooperation” through community outreach; and (iii) he solicited widespread support to implement individual quarantines and ban public gatherings. In short, Starkoff’s leadership steered St. Louis to experiencing one of the lowest mortality rates of any large American city.

In contrast to Starkoff, Woodrow Wilson’s response to the 1918 pandemic is considered to be among the worst in two centuries of presidential leadership. Wilson did not listen to the warnings from his personal physician and the medical community. Further, despite the protestations from the chief of the U.S. Navy, he continued to ship American troops overseas even though World War I was nearly over. Wilson’s decision enabled the disease to spread rapidly to the point that influenza and pneumonia killed more American soldiers and sailors during the war than did enemy weapons (C. Byerly, The U.S. Military and the Influenza Pandemic of 1918-19, Public Health Rep., 82-91 (Suppl 3, 2010)). Even worse, Wilson never informed nor educated the American people about the pandemic and he did not mobilize the federal government to help the civilian population.

Wilson’s poor handling of the pandemic may have also altered world history. There is an emerging theory among historians and public health experts that Wilson contracted the H1N1 virus in April 1919 when leading the American delegation in the negotiation of the Treaty of Versailles to end World War I. Why did Wilson becoming afflicted with the virus matter so much? In the estimation of Professor Barry and Tevi Troy, a leading expert in crisis management, (Tevi Troy’s book entitled Shall We Wake the President? Two Centuries of Disaster Management from the Oval Office (2016) is a comprehensive survey of how American presidents have dealt with disasters.), a pre-illness Wilson may have prevented the Versailles Treaty from becoming so onerous to Germany, the terms of which contributed to the conditions that led to the rise of Adolf Hitler and the death of another 60 million people in World War II.

Let’s close this essay by looking at a checklist that Tevi Troy created to help future American presidents decide when they should get involved in decreasing the probability and severity of bad things happening to the United States or what we call “negative risk.” (Id at Appendix Two, pp. 193-195.) I have modified Tevi’s checklist to fit the needs of business leaders and it is set forth below:

  1. Is there consensus among our senior leadership and outside experts that a threat is serious and probable?
  2. Is a significant percentage of our business in danger?
  3. Can the source of the warnings be trusted?
  4. Do the short-term costs of the threat materializing exceed the cost of prevention or put differently, do the long-term costs of the threat materializing exceed the cost of prevention?
  5. Are the needed actions affordable?
  6. Will the preventative measures work?
  7. Is the threat increasing, instead of diminishing?
  8. Are there long-term benefits to the preventative measures?
  9. Will the psychological impact of the threat materializing harm the long-term psyche of our employees, customers, and key partners?

​ ​Note that this list can be revamped as a checklist for when senior leadership is needed to increase the probability and magnitude of good things happening or what we call “positive risk.” We will continue this discussion in the next section which focuses on the consequences of society and business becoming increasingly intertwined and interdependent.