Column: Risk Management

A Recipe for Rebellion Risk

By: | August 1, 2013

Joanna Makomaski is a specialist in innovative enterprise risk management methods and implementation techniques. She can be reached at [email protected]

When control is thought to have been taken away from the populace and decisions made autocratically, the risk of rebellion increases. Sudden changes in the political sphere can disrupt our families and our dreams. Are we prepared for this? Should risk managers worry about the impact of a severe political unrest, be it business interruption from public protest, property damage, or worse?

Even the best risk mitigation strategies would be challenged when a passionate response to governmental action is a looming possibility.

Let’s consider Detroit, for example. Under tremendous financial strain, the city decided to stop making debt repayments this summer. It is offering to compensate lenders at 10 cents on the dollar. Imagine experiencing a 90-percent financial haircut.

The city also advised government pensioners to prepare for income and benefit reductions. The city can’t meet the obligations that previous administrations made. Those elected officials made unwise deals with public sector unions and then kicked the can as far down the road as possible.

Detroit is the new southern European nation and many other United States cities could be following in its footsteps.

The current Detroit city leadership making these decisions was appointed by the state governor, with a mandate to do anything that is necessary to get things back into financial order.

No matter that they were given an impossible situation to manage, these appointees were not elected.  The electorate did not choose this strategy. It was not a community decision to reduce pension payments or to default on debt, even though the buck had to stop somewhere with someone.

The average taxpayer or pensioner won’t be able to recall the myriad poor decisions, including the deals with public sector unions, that led to this harsh day. All they will know is that their pension check is getting cut, or their museum is being sold off.

With so many local and state governments in debt, it appears that substantial changes like those being faced in Detroit are going to be more widespread.

The public pain is going to be severe and there is going to be some degree of social unrest as a result.

Ten years ago, most U.S. risk managers would find it difficult to imagine needing a mitigation plan that considers domestic social unrest.

It all sounds unreal; I agree. But yet the reality of it can’t be ignored.

I look at the images of Turkey and Brazil, and realize we might be only a small spark away from such major unrest at home.

Will the people of Detroit continue to trust the establishment? Or will the economic situation in Detroit reignite simmering social unrest like that last seen during the Occupy Wall Street civil rebellion of two summers ago?

That was a relatively peaceful protest, but it spread throughout North America and around the world. The Occupy Wall Street protests and others like them highlighted some of the slow-boiling unhappiness that many are living with. Imagine how quickly that unrest could be reignited.

How should the private sector mitigate the risk of chaos and rebellion that is stemming from public sector mismanagement?

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