The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore

The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore by Michele Wucker, St. Martins Press, 304 pages, $27.99, Hardcover, April 2016, ISBN 9781250053824

Lawmakers in Argentina recently approved a settlement to end a series of court battles with the country’s creditors. That agreement ended 14 years of lawsuits that began when the country defaulted on approximately $100 billion dollars worth of loans in 2001.

Michele Wucker was on the ground in Argentina when it all went down. A financial journalist specializing in Latin America at the time, she assessed the situation and wrote an article about a proposal being floated by academics and Wall Streeters for creditors to reduce the debt by 30 percent. The banks did not heed that advice, Argentina defaulted, the currency collapsed, and most ended up taking Argentina’s hardball offer of around 30 cents on the dollar later on. So, in the end, those “that didn’t want to give up 30 percent ended up losing roughly 70 percent of their money.” (The holdouts that are being repaid at better rates now are funds that bought up the debt on the cheap during the crisis and held out for better terms.) And yet, this could have all been avoided had they heeded some good, prescient advice.

Seeing a similar situation playing out in Greece, Wucker once again took up her pen and published a paper for the New America Foundation which argued that “Greece needed to learn from Argentina’s failure … and respond to a highly probable financial catastrophe by restructuring its debt sooner—before it was too late.” And it did. And while not perfect, the result has been that a larger crisis has been avoided.

The contrast in those two stories and how they played out formed the genesis of her thinking on a phenomenon that would eventually lead her to write The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore. “A Gray Rhino,” she tells us, “is a highly probable, high-impact threat: something we ought to see coming, like a two-ton rhinoceros aiming its horn in our direction and preparing to charge.”

Since the release of Nassim Nicholas Taleb’s The Black Swan: The Impact of Highly Improbable and its extraordinary timing just ahead of the 2008 finacial crisis, many people in financial markets and policy circles have obsessed over Black Swan or Fat Tail crises—that is, events that individually may be highly improbable but which as a group occur far more often than most people realize. Yet those analysts and planners don’t have a similar way to focus their energies on things that were dangerous, obvious, and highly probable. To me, it seemed that behind many Black Swans was a converging set of highly likely crises.

 

As I began to look for examples of Gray Rhinos, it became clear that so many of the big crises of the past had started as highly obvious by ignored threats, and that the biggest challenges today are also obvious but ignored.

And it’s not just in arenas like global finance or global warming where the consequences of inaction are obliviously unheeded. Wucker quickly connected her two gum surgeries and a string of very preventable pedestrian traffic deaths on the streets of her neighborhood in New York City to the Gray Rhino phenomenon. Each had clear signals—unpleasantness and even ongoing tragedies—associated with them, yet were ignored until a crisis point hit.

“The problem,” Wucker tells us, is “not weak signals but weak responses to signals.” Those weak responses come from both the “quirks of human nature” on a personal level, and a set of systematic incentives on a societal level that encourage us to ignore noticeable looming threats in favor of short-term gain or savings. But it doesn’t have to be this way:

[T]he consequences of the grim unfolding of human nature and perverse incentives—the Enrons, WorldComs, Long-Term Capitals, collapsed building and bridges, and disasters of all kind that litter our history, from the geopolitical to the humanitarian and the personal—are not inevitable.

The book opens with a story of how Dynegy’s chief risk officer, Glenn Labhart, saved the company from what would have been a catastrophic bid to buy Enron just before it collapsed. He could not convince the company to stop the $25 billion deal from progressing, and Dynergy had sunk almost a billion dollars into Enron before it collapsed, but he did convince the company to include a contingency clause that gave it ownership of Enron’s only pipeline—it’s most profitable physical asset—an asset which, when they took control of it in 2002, stabilized Dynegy when it’s exposure to the Enron debacle caused its own stock price to wobble. Of course, if Dynegy had halted the deal entirely as Labhart would have like, no one would have heard of it.

And I must say that, without companies like Enron and Long-Term Capital, and journalists like Bethany McLean and Roger Lowenstein writing their stories, my reading life would have been much less rich over the years. But I suppose I would give up great books like The Smartest Guys in the Room and When Genius Failed if the human and financial wreckage left in those companies collective wake could have been allayed and avoided. But how do we do that?

In recent years, behavioral economists have identified many of the cognitive biases that keep us from acting in our best interests, and helped draw much needed attention to the ways in which warped perceptions and emotional and irrational motivations shape the decisions we make.

So Wucker has set out to explore those biases and strategies to counter them. But, as noted above, our personal flaws are only part of the problem.

An equally difficult challenge … is the set of perverse incentives, structural obstacles, and crass calculations of self-interest—the tragedy of the commons—that prevent individuals, businesses, and governments from acting in time even when we recognize the many problems that face us.

The Gray Rhino, in addition to being a perfect complement to the Black Swan concept, addresses what we can do when bad decisions have already led you into dangerous territory. Wucker uses a clever metaphor of someone who has wandered too far from a group on safari trying to get a prize photo of a baby rhinoceros, only to end up disturbing its mother instead. What do you do as it charges?

If there is one thing you must remember about what to do when a rhino charges, your guide has told you, it is this: Do not stand still. Freezing is not an option. … Thinking about facing a rhino’s charge is very much the way many leaders approach an impending threat, whether it’s a tectonic geopolitical shift with implications for the future of the world as we know it; a market disruption or a management challenge that affects the future of a company, organization, country, or region; or a personal decision with consequences for us and our families. When crisis looms, leaders need to make decisions quickly.

Michele Wucker’s book is more than just a clever metaphor, though; It is a carefully crafted argument in favor of concerted action in the face of our biggest challenges and most obvious dangers. And it can do more for business leaders, policy makers, and individuals than helping them avoid catastrophe, because learning to embrace rather than ignore a looming threat can transform it into an opportunity. Not only can we avoid being trampled, we can learn to ride Gray Rhinos into previously uncharted territory and unprecedented growth in our personal lives, in business, and in society.

A.O. Scott’s recent review of a new documentary on Hannah Arendt, Vita Activa: The Spirit of Hannah Arendt, had a line in it that has stayed with me these past few days:

 

Totalitarianism rested, in Arendt’s view, above all on the systematic refusal to engage reality …

If you replace “totalitarianism” with “crisis” (as I think one could), I think you have a good summation of the message in Michele Wicker’s new book. And in The Gray Rhino, she helps us engage reality more proactively and productively. It helps us avoid crisis by engaging more thoroughly with reality, recognizing obvious threats and our own biases, and working to overcome them.