The “Risk” in the California Forest Fires
*(Photo courtesy of Wally Skalij / Los Angeles Times)
By Waleed Abughazaleh,
September 17th, 2017
This past week – it was revealed that Pacific Gas and Electric (PG&E), California’s largest electric utility company, is under investigation for potentially being linked to one of California’s most catastrophic wildfires. Although it is currently unknown whether PG&E will have any liability associated with the fires that have raged on since October 8th, PG&E lost more than $6 billion in shareholder value in less than a week!
Earlier this year, PG&E was faulted and fined $8.3 million for negligence in events leading to past fires and, as such, the company has taken a very public role in addressing the current wildfire events. But does this prevent corporations such as PG&E from making the same mistakes? Does this address the issue? What is the core issue?
In most corporations, the investment in risk event prevention is as much at the core of risk management as containment and recovery efforts. Unfortunately, deeply rooted sentiments of what a risk management competency should be stands in the way of building robust internal risk management processes.
Business momentum, or business as usual, is a natural impediment to any change management initiatives. Larger corporations are built for incremental change. This is further complicated with survivability biases – i.e. “it has worked in the past, so why must we change?” As such, any change management effort will take time before it becomes part of an organizational identity, however, the extent of upper management’s support will define the success and speed of this change.
Another obstacle in building strong risk management programs is talent and scope of influence. Organizations may embrace the need for risk management; however, the tendency to build the competency by promoting within undermines this effort.
Notably – a star employee that rose through the ranks of a corporation is vested in the status quo that led to her success. And a “project manager” has much to contribute to a risk management effort but does not equate to a “risk manager”.
In essence, the real risk that corporations face is the failure to recognize the importance of a robust risk management program and the effort it would take to build a strong enough risk competency to prevent accidents from becoming a catastrophe.
While it is currently unknown whether PG&E would have any liability with the fires that continue to rage, the revelation of an investigation raises many questions about risk management and mitigation capability within any and all corporations. The business justification is strong for investment in risk event prevention and recovery processes that would emphasize public safety above all, as well as operational and financial strength of corporations.