CRO POV: The CR Equation
Corporate responsibility officers and the cruel art of probabilities
By Jay Whitehead
CROs, CIOs, CTOs, CSOs, CFOs and CEOs all have puzzled over a similar problem: should we prepare for a low-probability, potentially catastrophic event more or less vigorously than we prepare for a high-probability event that is painful but not deadly?
Nuclear weapons experts think about this question all the time. Right now, in fact, the Department of Defense is screening thousands of checkpoints worldwide for signs of a highly unlikely but dangerous load of fissionable nuclear material. At the same time, writer Steve Coll reported in a recent edition of The New Yorker that the DoD is doing very little to defend against the far more likely yet relatively less deadly possibility that someone would use the 54,000 licensed batches of low-level radioactive material in the U.S. right now to make a “dirty bomb” that might kill dozens to hundreds of people.
In a corporate responsibility officer’s calculus, the question might be, do we use a cheap but slave labor-using supplier and gain a huge cost advantage? Getting away with it might mean a momentary edge on the competition and a few quarters of higher profits. But getting caught might mean a large fine or even a scandal that destroys a brand. What if the odds of getting caught are 50:1, and the cost of getting caught is 50 times greater than the profit potential? Does that make it an even bet? Or too risky to take the gamble?
Another one: do we go public with our discovery of a bribery incident and publicly fire the offenders, an action that has a three times greater risk of damaging the brand than by staying quiet, but carries a 5:1 likelihood of improving customer trust?
The corporate responsibility officer is as much a Vegas odds-maker as an integrator of multiple stakeholders’ interests. Often, decisions about transparency, governance or sustainability are just simple math. If it has been a while since you last took a look at your old college statistics texts, now might be a good time to brush up on your probabilities and regression analysis. Sure, we have all heard the cynic’s view that there are lies, damn lies and statistics. Then again, having a numerical basis for what-if decisions can never hurt.