Dear ATCA Colleagues

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

We are grateful to:

. Dr Thierry Malleret based in Geneva, Switzerland, for "The Lesson of Humility in dealing with Black Swans;"
. Andrew Leung based in London, UK, and frequent visitor to China, for "The China Black Swans"; and
. Prof Jean-Pierre Lehmann based in Ouchy and IMD Lausanne, Switzerland, for "Integrating The Black Swan in Corporate Global Trends Analysis";

in response to the ATCA presentation, "Low Probability High Impact and Black Swan Events -- Considerations for Future Scenarios -- The Opportunity and Risk of Asymmetric Globalisation."

Vasudaiva Kutumbhkum

As an intervention in response to the ATCA submission by Dr Malleret, we would also like to point out the ancient Sanskrit philosophical saying "Vasudaiva Kutumbhkum" -- which means that for a wise person the entire world is one family -- in dealing with Black Swans. On a macro- and micro-scale this truth is also confirmed by the Advaita Vedanta philosophy by its main conclusion that "there is a fundamental unity in this Universe and this basic unity interconnects all matter, mind and consciousness."

Thierry Malleret is Managing Partner at Rainbow Insight headquartered in Geneva, Switzerland. Rainbow Insights is an advisory boutique that provides tailor-made intelligence to investors, business leaders and high-net-worth individuals. Until March 2007, Thierry headed the Global Risk Network at the World Economic Forum, a network that brings together top-end opinion and policymakers, CEOs and academics to look at how global issues will affect business and society in the short- and long-term. Thierry has organised Davos and spoken at global, industry and regional events for several consecutive years. Prior to that, he worked in investment banking (as a Chief Economist and Strategist of a major Russian investment bank), think tanks and academia (both in New York and Oxford) and in government (with a three-year spell in the Prime Minister's office in Paris). Thierry has written several business and academic books, and has also published four novels. He has appeared on numerous network television programs (including CNN and CNBC) and has been widely published, among other places, in: the International Herald Tribune, Wall Street Journal and Time Magazine. His new book: Global Risks - Business Success in Turbulent Times, will be published by Palgrave Macmillan shortly. He was educated at the Sorbonne and École des Hautes Etudes en Sciences Sociales in Paris and St Antony's College at Oxford. He holds a PhD in Economics. He writes:

Dear DK and Colleagues

Re: The Lesson of Humility in dealing with Black Swans

As the original ATCA contribution states, black swans cannot be predicted, let alone prevented. True -- but they can be successfully managed (as we will see below, nobody predicted 9/11, but a few companies dealt with the shock much better than others).

At the end of his ATCA submission, Prof Jean-Pierre Lehmann enumerates five different ways that can help companies to prepare for black swans - in our opinion all these lead to the critical notion of resilience. In our highly connected, nonlinear and volatile world where relatively small disturbances can combine to produce large discontinuities that result in severe disruption of business, resilience is the only possible response. Resilience has to do with the ability and capacity of the firm to withstand systemic discontinuities and adapt to new risk environments.

In the tragic 9/11 episode Cantor Fitzgerald, an international fixed-income securities firm, lost most of its workforce and its US headquarters in the attacks, but it was able to resume trading when markets reopened less than a week later. The two key features that one can derive from that incredible experience are:

1. Effective preparation ("Chance favours the prepared mind" as the French scientist Louis Pasteur used to say); and

2. A way of organizing corporate systems as "heterarchies" (instead of hierarchies). In a hierarchical system, power and knowledge flow vertically down through a fixed sequence of positions. Heterarchical systems, by contrast, are characterized by interdependent relationships, laterally distributed authority, empowerment at all levels, knowledge sharing that promote decentralization. In a world of black swans, of increasing complexity and volatility and accelerating change, the companies who succeed are those who brace for the certainty of turbulence, and rise to the challenge of skillfully managing the risks attendant on operating in unpredictable environments.

How does one skillfully manage risks in an unpredictable environment? We have been looking at some great success stories and some big failures. Based on the analysis of these, we came to the conclusion that all the organizational elements that are key to success (such as: making risk thinking part of the company's culture; aligning risk assessment, management and communication; assessing all the vulnerabilities, building partnerships) are indeed essential, but they are unlikely to confer lasting competitive advantage, the reason being that these well-defined policies must be implemented by any company competing globally. On the contrary, attitudinal elements can bring sustainable competitive advantage because they reflect the qualities and traits of those who lead the business. There are four critical ones:

1. Building and using knowledge and networks. Knowledge and insight make the difference between good and bad outcomes whether one is dealing with religious radicalism, the proliferation of WMDs, natural catastrophes, financial market volatility or climate change. Those business and political leaders who grasp the essence of complex causal chains are much better placed to reduce the probability of a risk materializing, and to reduce the severity of its impact if it does. Networks are the best instruments for this purpose because they offer the most effective organizational response to complexity. Good networks are built on the "strength of weak ties" and are most effective early-warning system conceivable.

2. Being aware of the cognitive biases. Simply because awareness of one's weaknesses is a good first step to overcoming them! In particular, in our universe of increasing black swans, the like-the past fallacy is an absolute killer!

3. Puncturing denial -- being prepared and acting fast. This looks like a pretty mundane recommendation, and yet this is probably the most effective factor for dealing with risk successfully. Denial is the most common strategy when we confront threats (look at the troubles that recently plagued the Airbus 380: "people were in denial" said the Chief Salesman of Airbus).

4. Displaying humility - not a great topic in the business literature, and yet humility is particularly appropriate in the context of black swans. Humility comes more easily to self-confident leaders who know their strengths and relative weaknesses. Such people usually surround themselves with people who complement and challenge them, and actively seek the insights of others with expert knowledge which they lack.

[ENDS]

We look forward to your further thoughts, observations and views. Thank you.

Best wishes


For and on behalf of DK Matai
Chairman, Asymmetric Threats Contingency Alliance (ATCA)
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ATCA: The Asymmetric Threats Contingency Alliance is a philanthropic expert initiative founded in 2001 to resolve complex global challenges through collective Socratic dialogue and joint executive action to build a wisdom based global economy. Adhering to the doctrine of non-violence, ATCA addresses asymmetric threats and social opportunities arising from climate chaos and the environment; radical poverty and microfinance; geo-politics and energy; organised crime & extremism; advanced technologies -- bio, info, nano, robo & AI; demographic skews and resource shortages; pandemics; financial systems and systemic risk; as well as transhumanism and ethics. Present membership of ATCA is by invitation only and has over 5,000 distinguished members from over 100 countries: including several from the House of Lords, House of Commons, EU Parliament, US Congress & Senate, G10's Senior Government officials and over 1,500 CEOs from financial institutions, scientific corporates and voluntary organisations as well as over 750 Professors from academic centres of excellence worldwide.

The views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. Please do not forward or use the material circulated without permission and full attribution.
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Intelligence Unit | The Philanthropia, ATCA, mi2g.net

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