As risks have evolved from being phenomenological occurrences in the natural world, the twenty-first century is in many ways the era of man-made risk and man-stoked fires. From cyber risk–which is increasingly mutating to impact all facets of the modern economy–to terrorism, climate change, and reputation risk, mounting a credible defense to these risks requires as much soft skill as it does technical risk and analytical capabilities. Moreover, twenty-first century survival depends very much on our ability to harness risk, encourage bounded risk taking, and improving overall organizational and societal resilience.
Like no time in human history, the priorities of risk and resilience have taken center stage. Yet, risk does not live in isolation, nor does it conform compliantly to the classification systems used by traditional risk management approaches. Rather, decision makers must view risk as a dynamic process that cannot be adequately contained with static tools. The placebo affect that can be created by believing that certain risks are “covered” through traditional approaches to risk management is often more dangerous than the risk itself.
The example of VW is instructive. Once considered a paragon of corporate governance and a leader in the automotive industry, in 2015 VW grappled with a rapidly eroding reputation and a precipitous decline in its market value due to an entirely preventable emission-rigging scandal . It turns out its alleged emissions-cheat device, which was set to reduce engine output while emission tests were conducted on diesel vehicles, was also connected to the company’s kill switch. No direct competitive force (perhaps other than the urge to cut corners and gain market share–all due to internal sources of pressure) and no discernible outside factor, caused VW executives to make these ill-fated choices. They did that entirely on their own.
In another era perhaps VW may have escaped the prying eyes of regulators and the public.