Published On: May 7, 2021

This article first appeared on the Resilience First news website on 3 May 2021.


Aon and Pentland Analytics have published a report titled ‘Respecting the Grey Swan’ which details the impact that crises have on reputation and shareholder value. This document is the successor to a decade-old research that is still often quoted by resilience and business continuity professionals.

The original work by two academics, Knight and Pretty, looked at major companies that had been hit and how the company share price fluctuated over 250 days. The work was reviewed in the November 2019 edition of the Resilience First newsletter.

The latest report by one of the original authors, Dr Deborah Pretty, analyses data from 300 corporate crises from the last 40 years and identifies key lessons learnt. It categorises crises into three sorts and examines their impact on shareholder value while identifying the drivers of recovery. There are Black Swan events (unprecedented, unimagined), Grey Swan events (conceivable but neglected) and White Swan events (reasonable frequency, inherently preventable). Examples given of the Black Swan are the First World War and the October 1987 stock-market crash. This report focuses, however, on the Grey Swan.

Grey Swans are long-tail risks, known but thought highly unlikely and hence organisations have often neglected to invest scarce resources to prepare for them. Many extreme events, such as the 9/11 attacks, the 2008 financial crisis, and, most recently, the Covid-19 pandemic, are considered Grey Swan events because of the size of the impact and the many warning signs that were ignored. Other types of Grey Swans come from within an organisation including, for example, governance crises or product failures.

Punctuating the analysis are four selected case studies: the Boeing 737 MAX air crashes, the Vale Brumadinho dam disaster, the ransomware attack against Norsk Hydro, and the Ocado warehouse fire. In each case, the post-event year completes prior to the outbreak of Covid-19, ensuring that the analysis is free from potential coronavirus effects. The paper offers some valuable lessons on each and concludes with some thoughts on how we might respond to the threat of Grey Swan events, with a view to building our reputation resilience.

The report also draws attention to cognitive biases and explains how ambiguous and uncomfortable data are easy to ignore, how the impact of Grey Swan events is substantial and enduring, and how value recovery is a function of critical pre- and post-loss decisions. (See also National Preparedness Commission report ‘Building Better Resilience’ which looks at cognitive biases.)

Dr Pretty highlights the financial value of reputation – in over 10% of crises, more than half of shareholder value is destroyed – and directors and officers face increased risk exposure, especially following a Grey Swan event. On average, shareholders can expect to lose 26% of value at some point during the post-event year.

The key observations made in the report are:

  • Limited, ambiguous and uncomfortable data are easy to ignore. We neglect preparing for low-probability, high-severity events.
  • The impact of Grey Swan events is substantial and enduring.
  • Value recovery is a function of critical pre- and post-loss decisions. Grey Swans require focused attention and investment.

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