My Saturday afternoon started with a rather mundane experience I'm sure many of you have done yourselves: I called a friend on my cell phone while I was walking to the store. She answered, and we chatted while she watched her daughter play at the park.
Sounds ho-hum, right? But when you break down that process into its moving parts, you find that doing something even as simple as that—making a phone call while doing something else—is actually a complex exercise in managing risk. And it's an exercise worth considering, because when I tell you about the other, much larger example of risk management I watched later that day… well, compliance and risk officers everywhere will walk away with a queasy feeling. I certainly did.
First, the phone call while I was walking to the store. Twenty years ago I couldn't have accomplished that, because we didn't have cellular phones. Now I can, thanks to new technology. I have the freedom to be more efficient, and to do several tasks at once that I previously couldn't do. Likewise for my friend, who 20 years ago would need to take her daughter to the park first, and then call me later.
Engineers call this a tightly coupled system: the success of one action depends on the success of another. I have the ability to be more efficient, but that success rests on more factors I can't control. Both of our cell phones need to work. The cellular network needs to work. Even my friend has to be willing to answer the phone when I call. After all, 20 years ago, you didn't have the choice to answer a call at the park; you couldn't be on a phone at the park all. If any one of those risk failures happen, I can't accomplish my goal.
In other words, as technology advances and lets us be more efficient, we have less and less room to tolerate risk.
My example is primitive, I know. But today's globalized corporate world is full of systems coupled far more tightly than my phone call. The more efficient your business is, the less room it has to tolerate risk—and consequently, the more regulation you need. That regulation might be a formal rule from the government, or a standard operating procedure you adopt yourself. But either way, you need more regulation, because “less room for risk tolerance” and “more regulation of risk” are one in the same thing.
Now, enough with abstracting risk management principles from my phone call. Let's talk about what I saw later that day, which put a very plausible, frightening context around all these principles. I saw the film Contagion.
Suffice to say, if you're a chief compliance officer looking for a good team-building exercise, take your department (hell, take your board) to the nearest screening immediately. Not only do you get two solid hours of good acting and a riveting plot; you get an accurate portrayal of how the United States would try to control a deadly flu epidemic—both the complexity and importance of proper procedure, and how human nature would pressure us to violate those procedures all the time.
At its heart, Contagion is all about supply chains: supplies of information, supplies of vaccines, supplies of research, supplies of food. It exposes the fragility of our society, which now is so tightly coupled that any unexpected event can grind all those chains to a halt. To make our modern society work, we need all sorts of regulated behavior (see abstract analysis of phone call, above)—and Contagion depicts how all that regulation and procedure leaves us hyper-efficient and prosperous when things go well, and woefully inflexible and unprepared when they don't.
You see fights about budgets and union work rules. You see a media-soaked culture, with so many voices can tugging at governmental response in so many ways, the response becomes paralyzed. You see greed and crime, both organized and petty. (Even securities fraud makes a guest appearance!) I had the good fortune to see Contagion with a friend who studied epidemiology in medical school, and later went into ER surgery. Between her medical expertise and my watching government regulation for years, we agreed that all the chaos in the film isn't just unflinching; it probably understates the problem should this disaster ever strike us for real.
I'm sure at least some people—Tea Party nitwits, most likely—would argue that Contagion shows the problems of over-regulation; government can't get out of its own way to address some new challenge, and people suffer. But those critics ignore the reality that I outlined earlier: if you want a prosperous society, that necessitates more and more tightly coupled systems—with more and more points of risk, which require more regulation of how people behave if you want all those systems to work. It's not a coincidence that the United States and Europe are both the richest and most heavily regulated societies on Earth; it's an inevitable consequence.
And if you think that's bad, just wait until you're thoroughly engrossed in Contagion… and someone in the theater coughs.