There was evidence the wolf was already in the herd, if only the shepherd had taken a closer look

In the midst of the Covid-19 crisis, many claimed to have spotted a “black swan”. But was it really the right animal metaphor to use in this case?

In one of Aesop’s fables, the boy who cried wolf had a dreadful fate: a brutal lesson on risk communication. The boy lost his credibility by creating false alarms, whether intentionally or not, and so wasn’t listened to when the real event happened.

In the case of the Covid-19 pandemic, we actually had evidence that the wolf was already in the herd, if only the shepherd had taken a closer look.

Warnings from a range of credible institutions should have been listened to. 

Epidemiologists had warned in the 2019 Global Preparedness Monitoring Board report the chances of a global pandemic were growing and the world was unprepared for a fast-moving, virulent respiratory pathogen pandemic.

The latest UK National Risk register identified pandemic influenza as a top high impact, high likelihood event. Then, in October 2019, the US-based Centre for Health Security organised an eerily prophetic pandemic simulation involving a coronavirus similar to COVID-19.

With these pre-existing expert scenarios, can we still call COVID-19 a black swan and why were those warnings missed?

Know your swans (and rhinos)

Nassim Taleb popularised the expression, defining the event as impossible to predict; having a major effect; and seems obvious in hindsight. A typical example would be the attacks on the Twin Towers on 11 September, 2001. This pure definition is problematic, as the prediction impossibility sets the bar really high.

Either we relax his definition and re-write his first condition as ‘an event that is difficult to predict’, to allow a stretch of imagination to spot some very low probability, very high impact risks. 

Or we accept that most black swans spotted by people nowadays are actually “grey swans”… renowned climate modellers Lin and Emmanuel (2015) define grey swan tropical cyclones as high-impact storms that would not be predicted based on history, but may now be more likely due to climate change.

Another animal you may encounter more and more is the ‘grey rhino’, coined by Michele Wucker, which is a cross between black swans and elephants in the room. Contrary to the low-probability black swan, the grey rhino is a high-impact, high-probability event usually ignored for various reasons.

Climate change is a typical example, which until recently was discounted by investors, policy makers, corporates and wider society.

The grey rhino theory has many attractions. Rather than focusing on hindsight, it asks whether we will do something about it. 

Having diverse, multi-disciplinary boards can ensure a less blinkered review of risks, especially if the organisational culture values the input of the ‘Tenth Man’ (or Devil’s Advocate).

‘Group think’ allows statements such as “impossible to predict”, so a risk register review by external advisors is a good idea, bringing fresh perspectives. Wargaming and red-teaming are also useful techniques successfully imported from battlefield to boardroom.

An extensive historical review, going back to 1000 AD underpins the taxonomy of threats behind the work of the Cambridge Centre for Risk Studies and their established Lloyd’s City Risk Index. Obviously, new threats (such as drones) need to be factored in.

The real black swans 

The best strategy to plan for the real ’unknown unknowns’ may be to maintain a constant state of preparedness, irrespective of the specific nature of the threat.

Increasing our ‘threat-agnostic’ resilience could be a good investment, allowing citizens, corporates and governments to prepare for a national crisis without knowing exactly what the contingencies will be.

Recognising that crises should be expected enables better preparation. Robust business continuity plans are a sure way of improving resilience – designed properly, tested and updated regularly, they may be your best insurance against the next ‘black swan’.

Grey rhinos are more common. Focusing on spotting them would promote a proactive rather than a fatalist approach to risk.

A holistic approach to risk management and resilience is a good way of turning ‘grey rhino’ risks into opportunities, and corporates can ask their risk managers or CROs to coordinate a cross-departmental approach.

Hélène Galy is director of the Willis Research Network.