ResilienceFacing “a new era of catastrophes,” book by Wharton profs offers tips for business leaders

By Lauren Hertzler

Published 3 July 2018

Wharton’s Howard Kunreuther and Michael Useem’s recent book Mastering Catastrophic Risk: How Companies are Coping with Disruption dives into the ways top companies have rebounded after their own worst-case scenarios. “The ‘unthinkable’ has gone from not being on anyone’s radar screen to now being central,” says Useem. “But to think about it, you need tools, and wisdom.”

For firms large and small, with each day comes a new possibility for disruption. Perhaps there’s a natural disaster, a terrorist incident, or an economy-wide shock, like the 2008 U.S. financial crisis. Threats can emerge within a firm’s own walls, or through a government regulation, or even come in the form of a technological breakthrough—overturning business models that have been in place for years.

No matter the cause, there’s little doubt about the trend: The country, and world, face “a new era of catastrophes,” says Howard Kunreuther, the James G. Dinan Professor at the Wharton School and co-director of the Wharton Risk Management and Decision Processes Center. Kunreuther, along with Michael Useem, the William and Jacalyn Egan Professor of Management at the Wharton School and the director of the school’s Center for Leadership and Change Management, recently published Mastering Catastrophic Risk: How Companies are Coping with Disruption. The book showcases what Useem calls the “hidden story” within S&P 500 companies that have ramped up risk-management after being overcome by their own worst-case scenarios, including catastrophes like the 9/11 terrorist attacks, Hurricane Katrina in 2005, the financial crisis of 2008-09, and the Japanese earthquake and tsunami in 2011.

“We wanted to find out what’s going on, in-depth, inside these companies,” Useem says.

By interviewing leaders at over 100 large, diverse global companies about their most adverse risks—and, importantly, how they rebounded from them—Useem and Kunreuther were able to identify effective practices for catastrophe risk management, distilling important information for other business leaders, their governing boards, and decision makers at all levels, including those in nonprofit organizations and government agencies.

Interestingly, since they’ve finished writing their book, Useem says, the issue of catastrophic risk for companies has “become all much more evident.” He notes, specifically, the disasters that have struck Facebook, Volkswagen, and Wells Fargo. “Seeing this happen repeatedly to others is causing companies to double down on their own risk management.”

Kunreuther and Useem end their book with a “mission-critical checklist” as a means of “transforming deliberative thinking into deliberative action.”