PARTNER CONTENT
by ZURICH
This content was paid for and produced by Zurich in partnership with the Commercial Department of the Financial Times.

The Resilience Playbook – concrete steps to help prepare for tomorrow’s shocks

Introduction:

Satwant Pandher (SP): Hello, and welcome to this podcast sponsored by Zurich Insurance Group. The COVID-19 pandemic has laid bare governments’, companies’ and individuals’ lack of preparation for unexpected events.

In this podcast we shall take a look at the specific factors that go into building resilience within a company to any one of the numerous potential global risks that could strike, identifying clear and concrete steps that corporations can take today to be better prepared for whatever tomorrow brings.

I’m Satwant Pandher, and joining me today to discuss this are Eugenie Molyneux Chief Risk Officer of Commercial Insurance, and John Scott, Head of Sustainability Risk; both from Zurich Insurance Group.

Interview Questions:

1. The COVID-19 outbreak has understandably narrowed everyone’s focus on the risk of pandemics. Should businesses be preparing for another pandemic or is there a different global crisis that we should be focused on?

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If there is one lesson from COVID-19, it is that we need to focus on the totality of the risks landscape. The World Economic Forum’s Global Risks Report warned several times of the risk of a pandemic and yet because the risk, did not, perhaps, feel immediate, we were unprepared.

This should not be interpreted to mean that every risk on the risk landscape is relevant to your business. But, it does mean that both direct and indirect risks to your business do need to be considered. Including risks that may not immediately be on the horizon, but nevertheless need some early preparation to be mitigated. Right now businesses have an opportunity to learn what risk mitigants to put into place to ensure continued operation with both the next pandemic, and indeed other shocks.

2. What are the characteristics of a resilient company – and how do they differ from those of a company that is not sufficiently prepared?

If we go back in time, before companies focused on specialization (to achieve economies of scale, or efficiency); integrated supply chains; or just in time manufacturing, companies would have created some resilience through the diversity of its products, diversity of its distribution channels, the redundancy in its goods and supplies, or indeed even excess working capital. With the risks landscape we face, some of those old fashioned risk management techniques once again become critical.

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However, as those techniques are not cost free then how a company chooses to identify and mitigate risks is also a key factor. And here I do feel a key factor is to overcome bias.

But beyond that, what we do see is that companies with a strong ESG focus do tend to have a strength relative to others with respect to customer allegiance.

3. Looking at the global corporate landscape, do you see any geographies or industries as being clearly more resilient than others to global crises? If so, what explains that additional resilience and how did they achieve it?

The short answer is no. However, that is not to say that all geographies and industries are equal.

For example, while the world is subject to global warming, the differing starting points mean the effects of global warming will be felt variably. For example, every 1 degree Celsius of warming also contributes additional humidity. Therefore, the humidity for the already humid regions today, say around the equator, potentially go beyond human tolerance. Perhaps this causes migration and therefore corporates operating in these locations may need to consider alternative locations in the future.

As another example, in this year’s global risks report the risk of resource geopoliticization is seen as a possible mid term critical threat. But, resource availability, and consumption, differs by geography and industry, respectively. Therefore, if companies see this as a risk to their business, understanding, and potentially putting in place alternative supplies of critical materials would aid the company’s resilience.

4. We have seen the COVID-19 pandemic hit global supply chains with astonishing force. What are some of the lessons companies can learn from 2020 that will help ensure more resilient supply chains when the world confronts a crisis of a different sort?

Here, I would come back to some of the items I mentioned previously. Options for alternative suppliers are critical, and perhaps, specifically, nearshore options. Also increased stock of necessary components or resources. Having said that, consider just how much you will actually need. If you are in a business where your sales will also drop off in certain scenarios then perhaps you need less stock of your critical supplies than others.

In 2020, companies with greater technological capabilities were able to adapt faster than others. For example, financial service entities where the employees already had laptops (and not desktops), video conferencing capabilities and a strong VPN capacity were able to move to “working from home” rapidly. For a period, it was also key for those entities to have redundancy in those capabilities I just mentioned.

Also we saw that bricks and mortar retail businesses that already had a strong online sales channel (and delivery capabilities) were able to adapt faster than businesses without the online sales channel and associated capabilities.

5. One of the big takeaways from 2020 and the start of this is the importance of resilience within the workforce– ensuring that company employees feel secure while also ensuring that they are able to continue to do their jobs. What should companies include in their resilience programs to benefit worker wellbeing while protecting organizational productivity?

Naturally, one of the first concerns for most employees will be around their own job, followed by how things will work going forward, and how their needs will be met. So, if companies are able to provide some clarity and answer the questions employees have, then that will go a long way to addressing potential insecurities. Of course, in a situation like COVID, not all of the answers are available immediately, this means regular communication is needed. Ideally, also with frequent opportunities for employees to ask questions.

Just coming back to that last point around how the employees’ needs will be met…some of those needs will be articulated and some perhaps less so. Those needs will also differ by individual. For some people, it will be a physically secure workplace, for others it may simply be that their home is not suitable for home office (too many distractions); but for some it may be their mental health.

6. When crises hit, it quickly becomes clear that the private sector cannot solve the problem alone. Equally, it is not possible to outsource the solution to the government. Are there specific ways in which public and private sectors can work together to build resilience to future crises?

It is true that there are some risks that are beyond the private sector alone. COVID-19 demonstrated that. The extent of the health risk manes that the necessary protective actions caused an economic impact that was well beyond the private sector’s capacity alone.

While systemic risks do require public support, I do feel that large corporates may be required to be somewhat resilient to begin with. We did see examples of large companies requiring support in a matter of weeks after COVID-19 hit. Needless to say, most large companies could not withstand many months, or even years of disruption.

But, should they be able to withstand one month, two months, or three months of disruption? Also, what role would large corporates be expected to play with respect to continued employment of its workers during that initial period? I can imagine that any public-private solutions may include factors such as these, therefore it may be worthwhile for large corporates to consider those questions for themselves in preparation.

7. What are the practical steps companies can take to keep their resilience programs fresh, up to date and flexible enough to take into account what you call in this year’s Global Risks Report “frontier risks” - the potential risks that are less well known, such as accidental war, collapse of an established democracy and even geomagnetic disruption?

This is a great question.

For a start, it is to, at least, consider such scenarios. I imagine most businesses write such scenarios off pretty quickly as extreme. While they could be considered by businesses as low likelihood, given the potentially existential impact they are still worth considering. Most scenarios such as these require a company towards external factors. Perhaps companies can get tied up looking internally occasionally. The temptation is understandable as internal (or operational) factors are far more under a company’s control.

Once you have your landscape of risks and scenarios it is a matter of developing a thorough understanding of them, including (as best as possible) economic assessments. And, then deciding which risks to mitigate, and to what extent.

But the key is that your starting point, your landscape of risks, is complete. And here I return to the point I made earlier about bias. We can ignore risks because we are biased towards the short-term or biased towards what we have experienced (or know). One could argue that perhaps it was these biases that led us to ignore the warnings of a pandemic.

Outro:

SP: Eugenie, Peter thank you very much for sharing your insights. And to our listeners check out other episodes and related content at biggerpicture.ft.com

Related Links:

Global Risks Report 2021 (PDF)

Global Risks Report 2021 Executive Summary (PDF)

Learn more on the Zurich Knowledge Hub