Finagle’s Law and the Gulf Oil Crisis

Yesterday’s admirable piece by Michael Skapinker in the Financial Times about BP’s crisis in the Gulf got us to thinking about what really good reputation risk management looks like.  Skapinker rightly recommends that boards of directors pay careful heed to what Bob Dudley, the new CEO of BP had to say about the Gulf disaster at a Confederation of British Industry conference this week.  Perhaps, but they will need to re-read carefully the passage in which he talks about “a series of interlinked failures” as the cause of the spill.  If they do so, they might begin to apply “Finagle’s Law,” the gold standard of disaster prevention.

Finagle’s Law, an elaboration of Murphy’s or Sod’s Law states that “if anything can go wrong, it will go wrong, at the worst possible moment.”  It is hard to reconcile a complete understanding of this principle with the way most companies practice crisis prevention today, with their reliance on fail safes not themselves failing.  In fact, Murphy himself or rather Air Force Colonel Stapp who coined the phrase in the 1940s, understood that Murphy and Finagle were not simply articulating a fatalistic point of view but recommending a critical series of thought experiments — imagining the worst case scenario for every sequence in a chain of events and the failure of its back-up, in order to engineer effective safeguards.

With apologies to Mr. Dudley, “low probability event” and “unimaginably devastating” are not quite the same thing.  We’ll talk tomorrow about how companies can stress test their entire value chain in order to uncover hidden risks.

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