KARL MOORE – This Is Karl Moore of the Desautels Faculty of Management at McGill University, Talking Management for The Globe and Mail. Today I am delighted to speak to Michael Useem, from the Wharton School of the University of Pennsylvania.
So, Mike we see catastrophic events, like the earthquake in Japan, come along and absolutely rattle the world. You have been thinking about how should executive teams and how should organizations deal with that. What are some of the things you have come up with?
MICHAEL USEEM – Maybe above all, after 9/11 and then Katrina, among the more then 100 companies in the U.S. of the largest 500 by market value that we have spent time with on this project, a large number now have become, let’s call it, “pre-emptive.”
KARL MOORE – Mike, can you give us an example of this?
MICHAEL USEEM – Deutsche Bank, the great German-headquartered and New York-headquartered as well and one of the world’s great financial institutions, had a significant footprint in Tokyo at the time of the terrible earthquake and Tsunami and the nuclear reactor meltdown at Fukushima in Japan.
Deutsche Bank, having given quite a bit of thought in advance to what would happen if the unthinkable did happen, put into play a system that was already there in which one person, a chief risk officer, devoting all of his time to thinking about what was happening – but consulting with the management board [and] in active dialogue with the people in Tokyo – was able to work through the following pair of problems critical for catastrophic risk management.
Tactically, you have got to be really smart. Do you have an evacuation plan of those 1,200 people in Tokyo in case there is radiation drifting from Fukushima into Tokyo, and, by the way, do you have a place to put them? These are the enormous tactical questions that are vital to have thought through, and Deutsche Bank had much of that in place and ready to go.
Strategically though, here was another equally important issue. At a moment when Germany itself began to tell German nationals to think about leaving Japan, CNN had it’s staff leave Japan in anticipation of bigger problems that could erupt from Fukushima, and needed to be out of there before those problems got too big or else you are going to be evacuating with 20 million people, and it would not easy to get out at that point.
A huge issue was if Deutsche Bank did leave Tokyo, it trades in all kinds of securities in Tokyo for customers throughout the region, including the Japanese government. How would the Japanese government, longer term, feel about that particular evacuation when it was saying, ‘Don’t evacuate?” Germany was saying evacuate but Japan was saying don’t.
A big issue that Deutsche Bank was concerned with and thought a lot about is ‘if we did pull out, what is that going to do as a maker of the markets in Japan?’ With that in mind, Deutsche Bank decided to hang on in there as long as it could, a strategic decision, and as it turns out Fukushima, it still is cooking there a little bit, but finally came down, no evacuation was called for, and longer term the Japanese government and it’s relationship with Deutsche Bank – because of that strategic preparedness to think through all these implications – that relationship did endure.