The big lesson of 2020

The big lesson of 2020: Companies can’t count on government to deal with unanticipated risks.

No one could have predicted the health crisis at the beginning of the year. Indeed we must continually face various threats.
As seen with the Covid-19 crisis there are also “unknown unknowns” that can sink companies and industries in no time and with no warning.

If there is one management lesson from the US experience with Covid-19, it is that the public sector should not be expected underwrite enterprise risk.
Fiduciaries should integrate that they are primarily responsible for institutional risk management and reconsider the risks their companies face.

In order to develop mitigation strategies and create a durable risk-management culture, organizations can start by examining widely accepted shibboleths old-fashioned and heterodox ways.

The author highlights some Potemkin principles:

• Supply chains are frictionless. The value of control has been largely forgotten, under the assumption that components could be outsourced as easily as they could be produced or managed internally. Today, because of the Covid-19 crisis, there is greater distrust between countries and with a policy focus on domestic self-sufficiency.

• A functioning global order will facilitate international trade. This vision largely true of the bipolar world, it is in doubt today. Transnational organizations and the international economic order are facing challenges as never before.

• U.S. military and geopolitical primacy will continue unchallenged.
We just have to look to the privations of less-developed regions absent the writ of U.S. military and diplomatic power to appreciate the difficulty of enterprise under such conditions.

• Climate science provides a clear road map to the future. Only coordinated global action can avert a global warming disaster. Companies must make responsible decisions and be support a post-Trump America that will join the Paris Agreement.

• Technology is an unalloyed good. History is full of examples of technological advances doing great harm. Companies that adopt technologies to exploit new markets may face threats that were previously inconceivable.

• America will have a stable, predictable economic and political culture. Even if the U.S. has often been blessed with deep and functioning capital markets, believing the situation will calm down “after Trump” or “post-Covid” is to be obstinately ignorant of the undercurrents contributing to the current divide, to which commerce is not immune.

In order to build resilient organizations, fiduciaries should understand the reality of their companies, in the sense of mission, core competencies and competitive advantage.
The most important is understanding the fundamentals of a firm's value proposition, the needs the firm meets, and how such value can be offered in different circumstances.

Risk assessment should be undertaken across an organization, but the final responsibility for driving these efforts rests with directors. The risk culture must be developed within the company. It can be by valuing diversity of background, experience or by encouraging and rewarding forward thinking and initiative in executing strategy.

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