Davos 2024 Preview: Rebuilding Trust in the Black Swan Era
January 10, 2024
Trust is in short supply.
In the past few years, we have seen war, sanctions, energy price shocks, supply chain disruptions, cyber attacks, a banking crisis, and political and corporate scandals, to name a few. Add the lightning-quick developments in artificial intelligence, and it is no wonder that the bonds of trust among governments, social institutions, businesses and the public have frayed.
That is why I am particularly looking forward to this year’s World Economic Forum Annual Meeting, with its focus on “Rebuilding Trust,” as an opportunity to discuss how all stakeholders can take a crucial step to address the challenges and moments of truth of our time.
One pillar of rebuilding and maintaining trust is the ability of businesses and societies to effectively handle shocks and crises. In fact, this is now often more important for leaders than developing strategy and optimizing operations. The number and range of black swans make the probability of any major company facing zero crises over a five-year period almost zero.
The bottom line is that crisis will hit. How a company handles a crisis — especially the rare black swan event — can be the largest single determinant of its market value, as well as its reputation.
A few years ago, FTI Consulting looked at 100 black swan events over a 20-year period and found the tangible impact of mishandling them:
- 32% of senior executives lost their jobs
- $200 billion of total value was destroyed
- 14% of the companies studied went out of business
Leaders are not powerless, however. They can adopt a “positive paranoia” mindset — worrying not just about the bad that can happen, but scanning the horizon and looking around corners to mitigate risks and maximize opportunities. Through proactive risk management, investment in areas of vulnerability and a heightened sense of curiosity, senior leaders can ensure that their business is resilient to future shocks and can innovate.
When crisis does strike, companies can take several steps to maintain their reputation and trust with stakeholders:
- Demonstrate — in action and words — urgency, accountability, transparency and intention
- Engage with law enforcement agencies and regulators
- Be transparent in actions and communications with customers, investors, employees and media
- Show compassion and concern
- Learn, with processes and structures to assess and act effectively
Transparency is becoming more important every day — not just in moments of crisis. As reporting requirements proliferate, from the SEC’s cybersecurity reporting rules to California’s Climate Corporate Data Accountability Act to the EU’s Corporate Sustainability Reporting Directive, businesses need to prove they are delivering on what they say they are doing. Their stakeholders will hold them to it.
Solving the challenges ahead requires a collective effort. Rebuilding trust is the first step. Let’s get started.
January 10, 2024
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