Juvenal, a Roman poet writing around the beginning of the 2nd Century AD, stated in one of his Satires that “a perfect wife is a rare bird in the land, and rather like a black swan”.
Those of us tempted to credit Juvenal with egalitarian views of women, or at least with a genuine devotion to his own wife, should bear in mind the context in which these words were written: in the 2nd Century, and for the next 1500 years, the black swan was regarded by the Romans and their descendants as non-existent.
The first Europeans to record seeing such a ‘rare bird’ were Dutch explorers in Western Australia in 1697. If they also saw unicorns and fire-breathing dragons, their record of having done so has not survived the intervening years; and to the best of my knowledge they were sufficiently diplomatic to restrain from unflattering comparisons with their own significant others.
The phrase “black swan event” is credited to Nassim Nicholas Taleb. In 2008, Taleb used the phrase in his book, The Black Swan: The Impact Of The Highly Improbable (Penguin, 2008).
He argued that the world’s financial markets are impacted disproportionately by events that are rare, but in retrospect should have been possible to predict.
In the same way that our ancestors assumed that swans were invariably white because they had never seen a black one, financial markets suffer damage caused by poorly evidenced assumptions, bad decision-making based on those assumptions and the impact of extreme but predictable real-world events.
Taleb’s arguments gained particular traction because the devastating financial crash of 2008 occurred just as his book was being published.
The Covid-19 pandemic is a textbook example of a black swan event. Although scientists and doctors had been warning of such an epidemic for many years, most of the world appears to have been caught on the back foot. Likewise, many companies lacked the equipment, IT infrastructure, training and processes necessary to smoothly transition to remote working.
The problem is not that companies do not have contingency plans for a range of threats. Most major organisations have long-established ‘disaster plans’ (BCPs or Business Continuity Plans) which provide them with reliable fall-back options if a building catches fire, or floods, or the business has a serious IT failure. The problem in early 2020 was that few organisations have prepared for a scenario in which none of their staff would be able to share the same physical space with another person.
There are a number of standard approaches to risk, but most boil down to an assessment of two factors: how likely is it that an event will happen and how bad would the impact of that event be.
This may be reduced further to a simple equation: Risk = impact x probability. If the cost is high and the probability is high, then an organisation will invest in measures to avoid, mitigate or insure against the risk; if the cost is low, or the probability is vanishingly small, they will not bother.
This approach is known as ‘risk weighting’ and is widely used across law enforcement, security and the corporate world to assess, and thereafter prioritise resources expended on, real-world risks and threats.
The problem of risk managing a ‘black swan’ event like Covid-19 is not simply that the risk weighting is imprecise. Most ‘risk’ can be assessed and quantified to the extent that it can be planned for and mitigated against.
The problem for many businesses is that in the early days of 2020, the idea of a global pandemic confining the entire workforce to their homes was so improbable that it did not warrant serious consideration as a risk at all.
Most businesses – most people – were blind-sided by a situation so unlikely that weeks previously, they would have discounted it as ridiculous.
The consolation prize of a black swan event is that the sensible naturalist can draw the obvious conclusion: if a black swan swims past your ship on the way into harbour, then it is very unlikely to be the only one in existence.
It might reasonably be assumed that there are others out there, and if you sail on far enough you will see a second, or a third, or an entire colony. If you were going to bet one way or the other, you would be pretty foolish to put your money on never seeing another black swan.
In the wake of the pandemic, well-prepared businesses will have adjusted their expectations, and therefore their plans, based on the assumption that there will be another along at some point.
Some on the other hand, perhaps for financial or resourcing reasons, will hang their hat on the hope that there won’t be another any time soon; and the most intransigent and unreasonable businesses will simply refuse to believe that there can be two black swans.
Of course, the black swan does not only represent global pandemic; it represents the unexpected. The trusted employee who takes a bribe; the sanctioning of a long-established Russian client; the extortionate gas bill at the end of the year. Black swans come in varying shapes, sizes, species and colours.
What is your black swan event? How will you manage it if it swims into your pond? How can you mitigate the risk now?
Meaningful risk assessment involves taking a broad view of your business and thinking about what the worst is that might happen. Even the biggest disasters can potentially be managed if you have considered and planned for the possibility that the unexpected might actually happen.
Which leaves only one remaining uncertainty: what did Juvenal’s wife say when she read his Satire? One can only hope that she pointed out the obvious flaw in his assertion about the nature of wives: the real imperfection is that of the observer, not of the swan.