Like most people, I've been generally supportive of the Egyptian revolution we've all been watching for the last two weeks. Can't say I'll stick with my idea to see the Pyramids on vacation later this summer, but overall as an American I tend to like democratic impulses bursting into the world scene.
From a more professional perspective, however, the Egyptian revolution comes across as the painfully logical conclusion of miscalculations and poor planning by that country's executive management. Compliance officers and risk managers can draw plenty of lessons from what we've witnessed in Cairo—and most likely, will witness again elsewhere in the Arab world sometime soon. Let me dwell on three in particular.
Risk assessment. This applies more to Washington than Cairo, but the point is a powerful one: All the United States' strategies for handling Middle East issues—Iranian aggression, Israeli-Palestinian peace negotiations, Al Qaeda extremism and more—hinged on the assumption of a stable Egyptian government. That assumption evaporated in 10 days, and nobody in Washington knew what to do. The New York Times quoted one nameless State Department diplomat who said it best: “We've had endless strategy sessions for the past two years on Mideast peace, on containing Iran. And how many of them factored in the possibility that Egypt moves from stability to turmoil? None.”
I can already picture all you avid readers of The Black Swan by Nassim Taleb nodding your heads in agreement. Taleb rode to fame in 2007 arguing that the largest risks (to businesses, governments, investors in subprime mortgages or anyone else) are typically those nobody bothers to consider: that terrorists might obliterate the World Trade Center one bright Tuesday morning, that a few Stanford University post-grads might launch a new company called Google, and so forth. Once a black swan risk does happen, however, everyone stands around saying, “Geez, why hadn't we thought of that before?”
That last question is the only part of the black swan analogy I'm buying. Hosni Mubarak has been president of Egypt since 1981 and is 82 years old. We just witnessed another popular revolt in Tunisia that sent a long-time dictator packing last month. The United States employs battalions of diplomats and security analysts to game out various scenarios. The bottom line is that Mubarak's departure from the Egyptian scene wasn't unthinkable—it was just really hard to think about, so nobody bothered to include the idea in their analyses of Middle East politics.
Warren Buffett is famous for his assessment of businesses, and he has a simple approach: let people develop an idea, and then apply the converse of every single assumption they make. What if the technology fails? What if the economy tanks and revenues collapse? What if a new competitor arrives? What if a current competitor collapses? It's rigorous, but it works. Risk managers everywhere—including those in the State Department, and those down the hall from you—would do well to adopt it.
CEO succession. Time and again, management gurus say the hallmark of a strong leader is his ability to cultivate talent and groom lieutenants who could succeed him. Time and again, however, we also see executive departures that look like an amateur production of King Lear. I understand that grooming successors in a dictatorship carries risks of its own, and hence Mubarak had been queuing up his son Gamal to take power sooner or later. But now Gamal has reportedly fled to London, and Egypt is left to negotiate with protestors under the leadership of a vice president selected only days ago from the ranks of the Army.
In the corporate realm, the situation is often just as ham-handed. Hewlett-Packard has been the prime example of poor succession planning, caught unprepared for ugly CEO departures with no heir apparent twice in five years. Starbucks brought its founder, Howard Schultz, back into the CEO job in 2008, eight years after he first retired, to rescue the company from recession. We've seen the same at Home Depot and elsewhere: founders build a great company, give the keys to someone else, and those successors drive the company in the ditch. Then the founder returns because nobody else can do the job well. CEO succession is one of the sleeper issues in boardroom management, but wow, Egypt is a stinging reminder of just how costly that neglect can be.
Managing workforce culture from the bottom up. Mubarak and his regime had no grasp of how frustrated Egyptians actually were; that above all is the most disquieting lesson compliance officers can draw from all this. You can devise all manner of corporate goals and nifty policies to achieve them—but without the support of the rank and file, none of those policies will mean much. Yes, you can also craft processes to force compliance, which Mubarak did, with guns, secret police and unlawful detention. But you can only force corporate behavior from the top down for so long. Eventually you end up firing so many employees that you ruin the company, and get fired yourself.
That's another lesson Mubarak going to learn the hard way, probably in the next few days.