Dealing with Crisis
Risk management has two important phases. The first phase is Between Crises (BC) and the second phase is During Crises (DC). The skills and activities needed for these two phases are totally different. This post will talk about the DC phase.
During the Crisis, the concentration of the risk manager must shift to survival. Much has been made of the famous saying from Baron Rothchild
“Buy when there’s blood in the streets, even if the blood is your own.“
But Rothchild famously made his own luck by arranging that he was the first to know the outcome of the battle of Waterloo. And when the crisis hits, that is what you will hope that you, or your predecessor did before the crisis – make some of that sort of luck.
One of the things that often happens is that the organization will seem to shift right out from under you. The norms and objectives that you thought were agreed are no longer in place. You will be judged by a set of rules that are being written right now.
An old (1938) article by Robert Merton, SOCIAL STRUCTURE AND ANOMIE, suggests that there are five ways that people can react to situations where they are unhappy with how the rules and norms are working:
Conformity means that they simply continue to operate under the old rules and norms as if nothing has happened. In many cases, risk managers act as if this is the only possibility however.
Innovation means that they try to come up with a new way to solve their problem within the same structure that was in place. Innovation may or may not work and if it does not work, then one of the other responses will be next. Often the risk manager is trying to innovate the way out of the crisis.
Ritualism means that they start to go through the motions of following the old rules, even though there is a strong sense that those rules no longer work as that had been working. Things get more rigid and hierarchical. Stepping on the wrong person’s toes has become a more significant infraction than it had been.
Retreat means that the organization freezes. In some cases, it is the CEO who retreats, simply disappearing from the scene and lines of authority become blurry.
Rebellion means that the old rules and norms of the company are overthrown and new rules and norms replace the old quite rapidly. This is most often accompanied by major management personnel changes. But sometimes not.
The risk manager needs to be aware of these possibilities and make plans accordingly.