Proactive risk management is a common buzzword nowadays and a hot topic in the corporate world. The execution, however, is not as easy as it may seem. We essentially live in a world of “wild uncertainty” instead of neat probabilities. What should managers do about it? The book explores different basic approaches – high-level strategies – for navigating in such a world. It argues that getting organizational culture and analytics right is a key aspect of making firms less “swan-prone.” It explains and maps out the three generic strategies for increasing resilience/antifragility: insurance, buffers and flexibility. Intriguingly, however, resilience and antifragility may not be the primary goals of some firms. There may in fact be a case to be made for engaging in “big-wave surfing” and maximising exposure to the swans. The book also covers some fascinating theories about risk-taking in firms, showing that the BSP is about more than just minimising risk.
The book will:
- Explain in detail, and using examples and stories (e.g. Norwegian, Netflix, Texas energy retailer Griddy, private equity sector, BP, etc.), how the commonly misunderstood Swans function, and the mechanisms that bring them about.
- Extend the typical focus on individual biases to analyse Swans as an organizational problem
- Elevate the Swans to the level of strategy and explains how Swans are make-it-or-break-it moments for firms
- Discuss important differences between different kinds of Swans
- Illustrate various practical applications and tactics related to the generic strategies of insurance, buffers and flexibility
HÅKAN JANKENSGÅRD is Associate Professor of Corporate Finance at Lund University where he teaches Corporate Valuation and Corporate Risk Management. He was formerly a corporate risk manager at Norsk Hydro and has published research on risk management in the Journal of Banking & Finance and Financial Management.
Prologue 3
Chapter 1: The Swans Revisited 7
The nature of randomness 8
The Moving Tail 11
The role of expectations 16
What makes us suckers? 20
The relativity of Black Swans 24
Meet the preppers 28
Chapter 2: Corporate Swans 31
The Board’s perspective 31
Swans attack 33
Strategy Swans 35
The Swan within 39
The growth fetish 42
The fear factor 47
The Chief Executive Swan 49
Swans on the rise 52
Chapter 3: The Black Swan Problem 60
Tail risk and firm value 60
Understanding wipeouts 65
Strategy disruption 71
All you zombies 76
The affordability issue 78
The conundrum 84
Chapter 4: Greeting the Swan 90
Randomness redux 90
The roads not taken 98
Functional stupidity 102
The Swanmakers 108
On tools and models 112
A Swan radar for the Board 116
Chapter 5: Taming the Swan 122
Drawing the line 122
Distance to wipeout 129
Risk capital 131
Stress testing 140
The exit option 146
Resilience vs endurance 150
Quantitative models 155
Liquidity is king 162
Chapter 6: Catching the Swan 166
Antifragility 167
Restoring the true path 170
Buying on the cheap 173
Opportunity capital 176
Flight to safety 182
Risk as strategy 187
Chapter 7: Riding the Swan 192
Risk shifting 192
A beautiful strategy 199
Fuel for growth 203
Narcissism redeemed 208
A tail of two companies 211
End of the ride 215
Swans to the rescue? 217
Epilogue 221
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