Lessons in risk management from General Stanley McChrystal

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Hello and welcome to today’s FT Future Forum and Board event. I’m Andrew Hill, senior economics editor at the Financial Times. And I’m delighted to be able to interview and introduce you this afternoon to four-star General Stanley McChrystal, who I was embarrassed to see had a shorter biography than mine.

But since he has been described as one of America’s greatest warriors by the US Secretary of Defense, there isn’t much to add to that. So the general allowed me to address him as Stan. I mention this because an audience member once chided me for not addressing an officer on a panel over which I presided by rank.

But more relevant to today’s discussion of risk is his latest book, Risk: A User’s Guide, a very readable primer on how to manage risk. And he writes: “Although there is little we can do to avoid or eliminate many of the threats we encounter in daily life, our ability to defend ourselves effectively against external risks is something we can control. ” But now we have a real war in Europe. So Stan, welcome. How would you advise our audience to go about coping with or defending against the many current risks?

So what I would say is that we have to start by recognizing that we are going to face a series of crises or risks. And so there are a few options. You can put yourself in a fetal position, get into a corner and quietly sob until everything is gone. Or you can prepare for what’s to come.

I’ve joked with a lot of people, and it’s only partly a joke. If I were again in command of Afghanistan, what would I suggest as preparation for strategy? And I would say I would take the president, the vice president, the director of the CIA, myself, the secretary of defense and go rafting. And I’d take several cases of beer, and go out for five or six days. And I wouldn’t talk about war or politics. I would just take this team and go through something that binds them together as individuals, builds some trust, builds some empathy between them.

Does a plan do anything for risk preparedness?

Dwight David Eisenhower, General, then President of the United States, said something that I believe is absolutely true. He says, “The value is not in the plan. The value is in the planning. Because in my experience, you come up with a plan, and it seems like a great plan, but it never works out the way you hoped. But when you go through the planning process, you find out the situation. You learn what your abilities are. You basically develop a range of things that you can do.

And therefore, the plan is really just a starting point. While we’re kidding, everyone has a plan until you get punched in the face, and you always get punched in the face. But if you are in good physical condition, if you know how to box, if you know all these other things, it is not fatal. It’s planned.

We sometimes talk about moral license and so on. If we make one person responsible for something, it essentially absolves the rest of us of all responsibility. In the book, we describe the case of Lehman Brothers where they created a Chief Risk Officer. But this director of risks, despite all her expertise and her responsibilities, was not integrated into the investment committee.

Another audience member asks – and this is a version of what we were talking about at the beginning – how do you judge the risk-reward ratio in complex real-time environments? And what are the key criteria for deciding whether the risk is worth taking? I mean you’re talking in the book of 10 dimensions.

How weak are we making ourselves? First of all, when we understand – and we’ll take Covid – what failed Covid first? I would say the first thing that failed was communication, starting with China, then between different governments, then communication between public health agencies and the public, especially in my country. This communication has become problematic because it has lost its credibility with the population.

Now, in some cases, these were unintentional errors. In some cases, it was politics. But the reality was that we hadn’t communicated what the situation was, what we needed to do about it, and then established a narrative around which essential leaders could mobilize the population to effectively mobilize activity.

And there was a critical moment, probably and I’ll call it two months or so, where they could have got it right – maybe late December to February. And at the end of February 2020, this trust was broken. And so now people had different narratives about what the threat was and what we should do about it.

I’m just wondering how you would suggest dealing with…and I’m talking about the Ukraine-Russia situation here…dealing with an unpredictable leader, an unpredictable adversary, Vladimir Putin in this case. Are there ways that the same techniques of preparing for unpredictable risk work against an unpredictable individual?

There is no single world leader who will determine what ultimately happens in Ukraine. Putin is the most powerful leader because he is disproportionately powerful in Russia. And so, at least in the short term, he can deliver what Russia is going to do.

Look at any of the other international leaders, whether it’s President Biden, Macron or Johnson, none of them have the capacity to carry out their country’s foreign policy without doing a lot of coordination, agreements and so on. They are constrained because they operate in pluralistic situations. And then nobody can deliver NATO because it is also a set of agreements.

Now there is strength in that. But the reality is that there are also exceptional limits to this. But to personalize that, at the same time, I would turn around and say people matter a lot because individual egos, individual slights, even in meetings, will affect how a person reacts to a situation.

But there’s a question from the audience that just points to the potential dark side of this question, do you have any practical tips for avoiding groupthink?

The leader must create an environment where they have people around them who not only feel they can speak up, but feel an absolute responsibility to point out things that have not been brought up, to point out things that are perhaps counter-arguments or dangers in a situation. And you can’t count on luck bringing in a stranger who will. You need to create a dynamic within your own team that flushes that out, that ensures the prospect is always on the table.

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