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Leadership

Leaders Know Black Swans Are Coming, They Are Just Not Getting Ready


U.S. companies face key economic risks in the near future but many corporate leaders are not preparing as they continue to focus on the past.

“There are biases that limit or impair your ability to react,” Patricia Buckley, managing director of economic policy and analysis at Deloitte. “There are things you understand may happen, but you are not preparing for today.”
 
Buckley made here comments during a session on “Black Swans” during Financial Executive International's Annual Financial Leadership Summit in Houston last week.
 
There are several Black Swan risks -- or risks that have a low probability and high impact -- that senior-level financial executives will face in the near term. Those risks include
  • Securing key talent,
  • Trade disputes pushing up the cost of “key inputs”
  • Inflation
  • Increased government and consumer debt
  • Recession
 
Getting the right talent is a risk that most U.S. companies are facinging at increased levels today, Buckley said. The U.S. economy is currently creating one job opening for every unemployed person and those in the workforce are feeling more secure in their positions than at any point in recent history.
 
Add to the mix that U.S. workers are less mobile and will not move to get a job  -  along with decrease in immigration into the U.S of skilled foreign workers --  is resulting in “our ability or produce the workforce that we need is getting harder and harder,” Buckley said.
 
However, the Deloitte economist said that risk she felt that financial leaders will be grappling with most in the near future will be a combination of inflation and recession.
 
“If there is one thing that you should keep eye on its inflation”, Buckley added. “The economy is more fragile than it has been in a very long time, and there  is a real cause if concern how companies react to recession. An event happens and there is an overreaction or insufficient reaction.”
 
That’s why financial leaders need to being now to plan for Black Swan events through a combination of scenario planning and “wargaming,” said  Andrew Blau, managing director of Risk & Financial Advisor at Deloitte. “Get your strategic options ready,” Blau said “When you look back at these risks we could have seen then coming, but looking forward we never do.”