Learning about Risk
The blind man is not afraid of ghosts.
Burmese Proverb1 Al Stoller's decision not to take the risk of confrontation differs little from an executive neglecting to make a decision because he can not or will not recognize the long-range implications. Several years ago an executive faced a difficult decision at his chemical company's coking plant. Coke making requires a gigantic battery to cook the coke (a derivative of coal) slowly and evenly for long periods. The battery is the most important and expensive piece of equipment used in the process. This particular plant's battery showed signs of weakening. A replacement would cost $6 million. Such a large expenditure would adversely affect the bottom line that year. Pressured by a recent corporate decree to cut unnecessary expenditures, the businessman tabled the request to replace the battery. Instead, the existing battery was patched and held together for four more years. When the battery finally collapsed, however, the company, unable to produce coke for several weeks, was sued for breach of contract by a steel producer. The Environmental Protection Agency cited the firm for violating pollution regulations. Eventually, the total bill, including lawsuits and replacement, exceeded $100 million. In hindsight, of course, we can see the executive should have replaced the battery earlier. Had he acted decisively, millions of dollars would have been saved. He took what appeared to be the risk-free way — and ended up risking not only his leadership but the very existence of his business.2 Contrast that account of indecision with a story told about Calvin Coolidge. During his term as governor of Massachusetts, the Boston police force went on strike. The police commissioner responded by ...
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