The Handbook of Board Governance, 2nd Edition

26Governing Boards, Risk Management, and Deliberative Thinking

Michael Useem

Professor of Management, Wharton School, University of Pennsylvania

Three hurricanes hammered the United States in just two months in 2017, leaving a $200 billion swath of destruction from Puerto Rico to Texas. Several months later, a raging wildfire destroyed more than 8,500 buildings in Northern California. It was a frightful year abroad, too. A magnitude-8.2 earthquake rocked Mexico, monsoon flooding killed 1,200 in Bangladesh, and extreme temperatures scorched India.

But 2017 was not the worst year on record. That dreary distinction belonged to 2011, when the costs of natural disasters worldwide exceeded $350 billion. Yet the long-term trendline is unhappily and unmistakably upward: The inflation-adjusted expense of global calamities half-decade by half-decade has been rising, and the cost is now up more than fourfold from the early 1980s. The World Economic Forum sounded the alarm in 2019: “Global risks are intensifying but the collective will to tackle them appears to be lacking, [and we] are drifting deeper into global problems from which we will struggle to extricate ourselves.”¹

Companies worldwide have certainly felt the intensifying impact of natural disasters. In the case of the largest tropical storm on record, for instance, Hurricane Sandy in 2012, an ocean surge inundated more than 23,000 companies in New York City, knocking a third of the smaller firms out of business. Firms have also ...