Tag Archives: risk taking

Hindsight is Foresight Foregone

It’s not that we can’t see the future; it’s that we don’t bother.

Granted, none of us can predict it, nor do I presume that some magic algorithm applied to some special pile of Big Data can ease the Fog of the Future.

In part, it’s laziness. Here in the USA, we’re predisposed to the here and now and me, and the rest will sort itself out.  As indeed it does.  But often not as we hoped.

In part it is because we know from abundant experience that too many pious prognostications by proselytizers of progress have turned to sink-holes of time, effort and money.  So why bother.

In management we have evolved the discipline of ‘risk management’ which is part institutionalized experience and part pseudo-science.  ‘Risk management’ is somewhat of an oxymoron like ‘military justice’, ‘artificial intelligence’ and ‘virtual reality’. It trades on a figment of truth to create the illusion that it is more than it is.

Risk management has some level of foundation in its effort to deal systemically with known and knowable risks, but today’s world is increasingly subject to unknowable risks for which there is no statistical basis of quantification of either loss, cost of prevention or remediation.   But that’s not the real problem.

Many in my profession of accounting and auditing gravitate to the  ‘risk management’ mantra, and strive to incorporate it into their mission statement. After all, if you can’t be a ‘risk taker’, being a ‘risk manager’ or a ‘risk something’ is the next best thing. It’s sexier than mere accounting and auditing.  And besides, there’s plenty of precedent for the need for ‘risk management’ given the losses that businesses have incurred for themselves, and more frequently for others in their carefully contrived relationships.

But, truth be told, even the growing cadre of risk management acolytes have trouble peddling their wares to the C suite where hype and hope too often trump (no pun intended) reality and even the crudest calculations of probability.

Let’s take a few examples out for a test drive:

  •  Does anyone see any problem with Jeff Bezos and Elon Musk and Larry Paige and the other space cadets filling the skyways and byways with their latest magical brain-farts without benefit of adequate regulation and incubation for proof of concept within laboratory controlled settings, much less in the free-fire environment of that freaky place we call the ‘real world’?
  • Is the latest episode of the Theranos melodrama really a surprise?  Or was it the highly probable outcome of a flaky premise sold to incredibly greedy people willing to believe and suspend critical judgment?
  • And let’s not beat unduly on Theranos. It’s just one of a number of Unicorns in the magical kingdom of Silicon Valley and other tech redoubts where people with more money than brains can throw it at the wall, hope that something sticks in the lottery of high-tech chance,  and praise themselves that their failures are really essential tuition and down-payment for future greatness.  In their magical kingdom, failure is virtue.  In the real-world, failure gets you fired.
  • Where is China going, and where is it taking us?  The West lost that gambit four decades ago with an essential, but ill-conceived opening of relations.  The drive of corporate greed for access to a billion consumers overtook any attempt of western governments to modulate the normalization in a manner that would minimize the foreseeable disruptions we have experienced economically and strategically.  Accordingly, China has grown into an unruly adolescent (in modern world terms, its considerable historical lineage notwithstanding).  Given its desperate economic and environmental constraints, and it’s likely belief that its salvation is in expansion, military conflict with its neighbors and the West seems inevitable in the near to intermediate term.  Trump and China should easily understand each other: a coercive bully that believes he\it has a right to dominance on its terms without obligations to others. I suspect that this is in part an act China has found it can get away with because, unlike with Trump, no one has yet drawn a firm line in the land, the water or the air that they are prepared to defend (although we are beginning to with questionable allied support). Corporate executives are now marveling at how they could possibly have lost their technological edge (which they often willingly gave away in many cases for access to that one-billion consumer market)  and now are losing the market itself in a tightly controlled totalitarian environment where the ‘rule of law’ is more a farce than even a mere political fig leaf of cover.  Who’d a thunk?
  • Was the Shell Oil retreat from the Arctic really a surprise,  or merely unfettered stupidity colliding with reality?  When we have so much evidence of failure to properly engineer and install  and monitor and regulate and mitigate such ventures in much less hostile and much more stable environments, what would make any prudent executive or government think that Arctic exploitation would be just another hole in the ground?  Did BP’s experience give anyone in Shell’s HQ pause for concern?
  • How about them GMOs?  Scientists are complaining that the average clod on the streets is unjustifiably suspicious of the risks of GMOs.  But when we look at the recent history of our ‘conventional’ food supplies, the engineering of obesity, the evisceration of regulatory oversight and quality control, is there not reasonable cause for concern by the public of what will next be foisted upon them in the guise of progress at their ultimate risk and cost?  This is actually a case of the person on the street exercising ‘risk management’ in the suspicion that those in the Corporate suite will not. At least, not in the consumer’s behalf.
  • And then there’s fracking; a mindless grab for resources beyond any exercise of prudence, with costs to society measured only in financial terms to date, with studied ignorance of the collateral environmental, social and economic costs beyond the measure of defaulted securities.

There are a number of simple questions that executive management could ask itself and save a lot of grief when contemplating a new venture or circumstance, or coping with an existing or intractable situation  (like Palestine):

  • Has the situation ever happened before, and what can we learn from it.
  • Are there any parallels, if not direct precedents, to this situation that can give us a clue of dynamics and outcomes?
  • Do we understand the context (historical and present circumstances) of our intended act, and do our assumptions take that context into account?
  • Have we tested our assumptions about what should happen if we take this action?
  • Have we defined performance standards for our expectations that will give us quick feedback if we’re going off the rails of our expectations.
  • Have we asked ourselves how the opposition/competition/stakeholders/regulators are likely to respond, and have we taken appropriate steps to address reasonable concerns.
  • What could possibly go wrong, and what’s the worst that could happen….?
  • ….and if it does, what are we prepared to do about it?

These are so simple, they don’t even deserve to be sexified as ‘risk management’.  They’re basic management, or even common sense.  Yet the frequency with which they are ignored and often even disdained by the supposedly educated meritocracy has numbed us of any sense of amazement.  Rather, it has implanted a cynicism and contempt and suspicion of all forms of authority: legal, moral, scientific, political, religious, social that accounts more for the rise of Trump, Sanders and Br-Exit than any conventional political explanation.

We could go on, but I’ll trust the point is made, if not accepted.  In the corporate, government and personal world, risk-taking trumps risk management more often than not, and often with predictable consequence.

It’s not that our capacity for foresight is so bad.  It’s that we don’t bother to seek answers we know we’re probably not going to like. And when they’re thrust upon us, we often find ingenious ways to ignore them rather than to deal with them.

So, to say that hindsight is 20/20 because we have the benefit of knowledge that is not previously available is at best half the truth.  As often as not, we just don’t give a damn.

*  *   *

Word of the day:  de-escalate.

Onward

20160710

 

Advertisements

The Myth of the Job Creators, Risk Takers…and Other Capitalist Fairy Tales

It should be clear to all by now that the notion of Business as job creators is a myth.  Really, it always was.  But it was a myth on which the business community has built its privileges, perquisites and general sense of entitlement.

The truth is, it is the consumer who is the job creator:  until the consumer has a need or want to be fulfilled, there is no need for supply, and no need for jobs to create that supply.  There is no business. We might add: the biggest consumer is the government, on behalf of the rest of us.  I didn’t place the order for the latest aircraft carrier, the Gerald R. Ford, but I’m glad it provides its measure of protection in a hostile world.

But there is a strange irony today.  There are many needs and wants, but still not enough jobs to fulfill them.

And why is that?  Because the consumer has been substantially stripped of the wherewithal to support those needs and wants with the loss of jobs, the stagnation of incomes, the deterioration of asset base, and the resultant lack of security about the present and future, in the shadows of a past darkened by deception.

Meanwhile, we are told that the 1%, ensconced in their cyber-castles, are sitting on a Trillion in cash, wringing their hands about where to deploy it in the world of uncertainty they created while amassing it.  These self-styled risk takers are afraid to take risk.

In their corporate modality, we are told that US companies are parking $2 trillion in cash off-shore to avoid taxes.   Where off-shore, I wonder, if they’re concerned about risk?  Europe, Japan, Russia, China, India? Or some lesser entity perhaps, with even less substance and safeguards against a black swan event that might reduce those safe-havens to financial sink-holes?

Yet the economy is slowly clawing back because the Little People, as the late Leona Helmsley so affectionately referred to them, are slowly clawing their way back.

This might happen faster if the self-styled economic elite were to swallow their fears, reinvest their funds in their society, and reap the benefits that come from that good old velocity-of-funds transfer thingy that we learn about in Econ 101.  But that would take some brains, and faith in the system that served them so well while they studiously rigged it to their advantage, and then abandoned it..

Meanwhile, they sooth their fears by  consuming luxuries for affirmations of their status, going home to read how the luxury end of the markets in cars, homes, restaurants and Other Stuff, is out-performing all other segments, and satisfying themselves that they’ve made a contribution to the general improvement of the economy.

I could talk about the myth of competition too, but I’ll save that for a later time.

I have no animus against capitalism, the private sector, free enterprise and competition.  The latter three are critical to a functioning democracy, and a vibrant economy.  But Capitalism, like Communism before it, is rapidly becoming a brittle, failed economic religion that its high priests can no longer defend with credible results.

The question then is what comes next.

*  *  *

Every so often, I look back on blogs past to see if my thoughts of yore have been ratified or rebuked  by subsequent events.  Below are links to a set of blogs I dubbed ‘Capitalist Papers’, posted between March, 2008 and January, 2011. I will leave you to be the judge.

Onward

20150308

Capitalist Papers 1 – Random Reflections on the Decline of Capitalism

Capitalist Papers 2 – Corpocracy and Agency

Capitalist Papers 3 –  The Cost / Benefit of Trust 

Capitalist Papers 4 – Eulogy for the Consumer – TEOTWAWKI

Capitalist Papers 5 – Information Please – Reconsidering the ‘Efficient Market’ Hypothesis

Capitalist Papers 6 – The Price of Everything and the Value of Nothing

Capitalist Papers 7 – CPR for the US Economy 

Capitalist Papers 8 – Capitalistic Cannibalism – Self-Destruction by Self-Consumption

Capitalist Papers 9 – Asymmetric Class Warfare

Capitalist Papers 10 – The Future of Capitalism