Grey Swan events may be unfamiliar, but their impact can be both lasting and devastating on the unprepared. On this episode of “On Aon,” host Senior Vice President of Health Solutions & Large Market Sales Leader Joey Raheb is joined by Chief Executive Officer of Aon's Multinational Client Strategy (International) Jason Disborough for a discussion about the Grey Swan event — how to prepare for one, mitigation of various scenarios, and steps to successfully managing through one.
Additional Resources:
Respecting the Grey Swan compiled by Pentland Analytics
Mentioned on the episode:
Tweetables:
“The vast majority of these scenarios are Grey Swan events. The companies knew they could potentially occur, they just weren’t prepared for them” — Jason Disborough
“If you’ve had a major crisis and you don’t get it right, the impact that can have on your organization and shareholder value can be immense.” — Jason Disborough
“The way to build organizational resilience through these Grey Swan scenarios is with practice.” — Jason Disborough
“There is a future and it’s potentially bright if we work our way through this in the most responsible and positive way.” — Jason Disborough
Voiceover:
Welcome to “On Aon,” a podcast featuring conversations between colleagues on, well, Aon. This week, we hear from Jason Disborough, talking about Aon’s latest report on Grey Swan events. And now, this week’s host, Joey Raheb.
Joey Raheb:
Hello everyone, my name is Joey Raheb, and I've been a colleague at AON for approximately eight years. Today we're talking about the black swan events, lesser-known cousin, the gray swan event. AON recently released some research on gray swan events, and what companies can do to mitigate them. If you haven't heard of a gray swan event before, don't worry, keep listening, because my guest today, Jason Disborough, is an expert on the subject.
Joey Raheb:
Jason has been with us since 2001 and currently serves as chief executive officer, multinational clients, international. His experience contributing to the firms', respecting the gray swan report gives him unique insights into today's topic. Jason, thanks for being with us here today. First, we've never met so nice to meet you, as we're talking about gray swans here, tell me what color most accurately captures your current mood.
Jason Disborough:
Thanks Joey, and look, it's great to meet you and it's great to be invited to join this podcast series. As you can probably tell I'm Australian and I've relocated back to Australia only a few months ago after spending several years in London. Probably the color that best describes my mood right now is... it's April in Brisbane in Australia, and I'm feeling really optimistic and happy because the sky is blue and the sun is shining. So, we have lots of days of complete sunshine and blue skies in this part of the world, Joey. It's hard not to be positive, optimistic, and happy when you're living in a country that has a good climate most of the time during the year.
Joey Raheb:
That's amazing, and it's great to have you again. Maybe let's start with the very basics for those of us who don't know what a grace swan event is. Can you talk a little bit about what they are and how they're related to what we are probably more familiar with the black swan event?
Jason Disborough:
Absolutely, Joey, so many of our listeners may have actually heard or read the book produced by Taylor Bond, black swan events, probably over a decade ago now, even longer. Black swan events are really what we call unknown unknowns. They are inherently unpredictable and we never thought they could happen. At the other end of the spectrum compared to a black swan, you have a white swan event and these are our regular predictable events that we will have lots of data for.
Jason Disborough:
Good examples are injuries or sickness to our employees in the workforce, motor vehicle incidents in a large car fleet for a large organization, et cetera. But in between the black swans and the white swans, we have what are called the gray swan events. So, if you think of a risk distribution, you've sort of got the black swans at the extreme ends of the curves, almost outside the curves. You've got the grace horns right at the boundary, and then you've got the white swans in the middle, the more predictable events.
Jason Disborough:
These gray swan events have been imagined and discussed, but we remain under-prepared a lot of the time for these gray swan events, Joey. Even though we've discussed them, we've imagined them, we've thought about scenarios about them, we still remain unprepared for them. So as a result, whilst Taylor's work on the black Swan, talked about these extremely unpredictable events. It's the gray one that really forms the basis of this research.
Jason Disborough:
We've been doing this work with Pentland Analytics now for several years, Joey, and they have over 40 years of data relating to individual crises. And in this particular instance, we have over 300 individual crises that they've particularly monitored over the last 40 years. So, a rich database of terrific insight around why companies fail after a crisis or in fact why some succeed. And interestingly, when you go across those 300 scenarios over the past 40 years, the vast majority of them are gray swan events.
Jason Disborough:
The companies knew they could potentially occur. They just weren't prepared for them, Joey. So, this whole discussion around gray swan is extremely relevant for our clients in terms of how they prepare for a gray swan event, how they mitigate these types of scenarios and then how they try to manage their way through them, Joey.
Joey Raheb:
Thanks, Jason, that's interesting. I mean, can you talk a little bit more about COVID-19, the pandemic specifically, as a gray swan event?
Jason Disborough:
Absolutely, Joey, so to COVID-19 is what we call a classic gray swan event. Now it effectively was a scenario that we knew could potentially occur, because people had talked about pandemics for many, many years prior to COVID-19. I think some of you would probably remember Bill Gates doing a TED Talk about six years ago to a global audience, around the fact that a pandemic scenario is likely to occur in the next few years coming up. A good example of this, that had already occurred in the past are scenarios such as SARS and Ebola. They were the early warning scenarios that told us that a more wider scale pandemic could have a huge impact right across the world at a particular point in time, if, and when it was going occur.
Jason Disborough:
So, we had the data to know something bad was potentially coming at some point, but unfortunately we weren't able to mobilize and utilize our resources properly to deal with it as quickly as we possibly could, Joey. As a classic gray swan event, COVID-19 caught us off guard because we weren't really as prepared or ready for what we would say is a potential event as we could have been.
Joey Raheb:
That's really interesting, I mean, it sounds like data is the key. And having access to data and being able to interpret or sift through it, and being able to do something with it is how organizations come through this. What can be done with the data to help organizations avoid future gray swan events?
Jason Disborough:
Sure, absolutely. Before we dive into data, Joey, I want to go back and talk about what we call biases, cognitive biases of decision makers. Because what happens here is the cognitive biases of decision-makers within companies can cause them to actually ignore gray swan events. So, there's a particular cognitive bias called the normalcy bias. And it's where people underestimate the severity of a particular event because they don't think it could happen to them or to their organization.
Jason Disborough:
People could be just ignoring negative information also to avoid stress. This is what we call the ostrich effect. You stick your head in the sand because if you focus on the event itself, it will cause you stress or alternatively, they could just be going along with the herd to avoid conflict. So, in this particular instance, you might talk to peers and other companies and say, oh, pandemic, no one else is really doing anything to prepare themselves for that either. So, we don't really need to do anything, it's not a major concern across my industry or my key group.
Jason Disborough:
So, biases sort of sit before the data itself around how people tend to sort of view these types of scenarios and how they may start to think or prepare for them. And in some instances they won't prepare at all. So, if we have a look at data, data becomes really critical in this space. And we're very fortunate to have access to Pentland Analytics research over the past 40 years when they've looked at these specific crisis scenarios around the world. And Dr. Debra Pretty, who's been doing this work and who's a great friend of AON's, and has been doing this work with us for several years now. Has actually dedicated her career to actually analyzing crises of, of particular companies and how those crises can impact on the organizations and the way that Pentland have really analyzed this is by looking at shareholder value, Joey.
Jason Disborough:
So, what the Pentland research has done is it's focused on publicly listed companies only. And what it has done is looked at; what is the impact on an organization on the listed companies' performance, up to 12 months after the crisis occurs? So, if you think of a particular scenario, it might be a product contamination, a major fire, a social media attack, a cyber event, a pandemic. What the panel data analytics worked out is it looks at share prices of companies both at the time of the event because, and they monitors it for one full year after the event. And what's interesting is the algorithm that is used, Joey, removes market noise from the market, so that you're just looking at the true net impact of the crisis. And that's the uniqueness of this data. So, the data is normalized to take out a market noise so that you just looking at the net effect of the crisis itself.
Jason Disborough:
And here's a staggering statistic, over the 40 years of data that's been collected. If you look at all of the 300 crises that have been analyzed in specific detail, over $1.2 trillion of shareholder value was destroyed in the first 12 months that a crisis occurs. Furthermore, 10% of those organizations that have had those crisis, can lose up to 50% of their market capitalization within the first 12 months of the incident occurring.
Jason Disborough:
So, if you've had a major crisis and you don't get it right, then the impact that that can have on your organization and the impact that can have on your shareholder value can be immense, Joey. So, what the data tells us is that there's a series of steps and techniques and things that you can do in order to be able to make sure that those impacts, those numbers, I've just quoted are not going to have an impact on your organization.
Jason Disborough:
This is where the Pentland Analytics research talks about this concept of organizations that prosper after a crisis, and organizations that perhaps aren't successful after a crisis. And it really comes down to two to five key areas that the data is telling us. Five key areas that have stood the test of time over the last 40 years. They are number one, preparedness, making sure a company is prepared and ready for a scenario like a pandemic. Number two is leadership, so it's having strong, visible leadership from the CEO down on how to manage the crisis. Number three is communication, making sure it's prompt, it's accurate and it's effective. And that the disclosure that you're making are the right disclosures that need to be made. Number four is action, so often taking rapid fast action can create credibility in times of a crisis. And the final point, Joey, what the data tells us is one of the key values or key drivers of value recovery after a crisis is actually change.
Jason Disborough:
So, it's actually when an organization shows true remorse, if they've done something wrong and a commitment to meaningful change. So, some crises we've studied are accidental. It could be an act of God, others could be deliberate through corporate misconduct. And in some instances, this ability to show remorse if something has occurred can also help you to get back onto that path of value recovery after an event. So, at the end of the day, we've also found, as I mentioned that when organizations get it right, their shareholder value can be recovered very quickly by going through those hallmarks of being able to survive a crisis. But when organizations get it wrong, it can have a huge impact on their shareholder value over time. And there is almost like an algorithm or a methodology you can follow, that can almost provide you with a good level of confidence that if you follow the steps I've just provided, you can hopefully manage your way through a crisis, Joey. So, I hope that gives you a bit of an insight into what the data's telling us.
Joey Raheb:
Yeah, that's really interesting, and I also want to ask you a question, because I think there's some relation here to a previous podcast we've released on resilience. Can you speak a little bit to how organizational resilience has also helped to build a support during these events for organizations?
Jason Disborough:
Yeah, great question, Joey. So, I think resilience is really key here for organizations to survive a major crisis. You need to be resilient, and a lot of organizations have found that with COVID-19 in the last 12 months. Those who were the most resilient are the ones that have come through and done well. I mean, able to maintain if not increase their business activity.
Jason Disborough:
But what we found is how you build organizational resilience around these gray swan scenarios is through practice. So, going through your organizational risk register, that your risk team has put together, looking at the scenarios that could occur and saying to yourself, okay, what is the probability of likelihood of these events? What's the financial consequences if they occur? But now most importantly, what controls can we put put over the top of these events, these scenarios, so that we can mitigate the risk if, and when it occurs? Or most importantly, we know how to respond to it when it occurs.
Jason Disborough:
So, we have a plan in place. We have a contingency plan that we can pull off the shelf and say, right, we've had an adverse social media attack, or we've had a cyber attack, or we've had a major fire at a key manufacturing location. And these are the processes or steps we now need to follow in order to be able to manage this crisis in the most effective way. So, what you'll often find is a lot organizations that have been studied in this research actually knew what to do and had a plan in place that would enable them to survive and withstand the crisis because they were prepared through building resilience over time, Joe.
Joey Raheb:
Yeah, thanks, Jason, that's really good insight. Let's get to something a little bit more personal and get to know you a little bit more. If your colleagues and peers had to define you or speak about you at a cocktail party, how would they describe you?
Jason Disborough:
Thanks, Joey, and then by the way, this is on the spot. But what I'd probably say is my colleagues would describe me as optimistic and positive. And I think that quality has been quite important for all of us in the past 12 months. Because I think we can all see that there is a future and it's potentially bright if we work our way through this in the most responsible and positive way. So, I'd say my colleagues would probably say optimistic and positive, Joey.
Joey Raheb:
That's great. I mean, I think I've heard you speak a few times and I think those are very accurate descriptions. How about something that you've learned or changed through the pandemic? Is there something that you've done there that you think might be everlasting as you come out of this and return back to normal?
Jason Disborough:
That's a great question, Joey. I would say the most significant change that I've experienced in the last 12 months is the nature of my role. I was living in London for three and a half years in my role. And I only just relocated back to Australia at the end of last year to make sure my 12 year old son could go to an Australian high school. It's something that was important to me. What I realized very quickly in the last 12 months is all of the travel, and all of the commuting that I used to do is now no longer always necessary. I think face to face interaction with clients and colleagues is very important, but I think we were at an extreme where we were traveling and we were commuting and we were spending so much contact time in office environments or in client environments that I think the pandemic has taught us that there's another way, that there's a better way.
Jason Disborough:
There is, what we would call at AON a new better. In how to effectively do things in this new way of working. And for me, that means I'm not doing 150 flights a year. I'm not spending, you know, 120 nights away from my family in a hotel room because I can do most of the work now from my home office environment, which is just wonderful. I'm sitting down here in Australia, I'll be at the time zones, can continue to stretch at times, but for me that's a new better.
Jason Disborough:
And I think when I look at all of our colleagues around the world, we're getting more time with our families, we're healthier and happier as a result. And I think it potentially means we have a more engaged workforce, although as we return to work over the next three, six, nine, 12 months, depending on where you are in the world. I think we'll fall back on a hybrid scenario, Joey, which we'll hopefully remind all of us, that there is a better way to doing things moving forward. Where we can keep a better balance with our minds, with our bodies, with our families, with our colleagues. And hopefully we won't forget that because I think there's some important lessons in all of this. And most importantly, I think the impact that it has on the world's carbon footprint, you know, could be redefining if we are prepared to maintain some of the new habits and the new, better scenarios that we've been practicing in the last 12 months. So, that would definitely be my key learning, Joey.
Jason Disborough:
I've enjoyed the fact that I can do a lot more of these discussions online and digitally and meet a lot more colleagues rather than spend time on airplanes, and in airports, and in other parts of the world. So for me, it's been an enlightening experience, or be it, at the same time I recognize the significant impact in the tragedy that the pandemics had around the world. And how we have to try and help our clients to transition to the new better, to this next phase as we try and work our way through the pandemic. So, I think all of us would look back on the last 12 months and have an impactful insight. And for me that's my one, it's being more effective, more productive and not having to travel as much.
Joey Raheb:
That's very inspirational, and I share some of that benefit I'll be it, I didn't spend a hundred, some odd flights. I did spend in about three to four days a week in my car or traveling to clients. So, I do appreciate some of that time back and some of these types of conversations, which I find I've actually been more personal in some form or another, that's all been really good. One fun sort of question, is Foster's really Australian for beer?
Jason Disborough:
You know what, funnily enough, it's not really, Joey, no. So, you might remember the movie Crocodile Dundee with Paul Hogan in it many years ago, fosters was a beer brand back then. Some people may not know this, but Carlton United breweries who produce Fosters actually sold that brand to another beer manufacturer many years ago. So, it's actually not even made in Australia anymore, but don't tell anyone that.
Voiceover:
This has been a conversation “On Aon” and the impact of Grey Swan events. Thank you for listening. If you enjoyed this week’s episode, tune in in two weeks for a discussion of Aon's inclusion & diversity efforts. To learn more about Aon, its employees, solutions and news, check out our show notes, and visit our website at Aon dot com.
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