Sir Brian Souter: The lessons we can learn from life's surprises
Business is tough and unpredictable, often requiring swift and decisive action, but that’s why it’s so enjoyable and exciting, argues Sir Brian Souter.
“Expect the Unexpected” is the theme of the ICAS Conference on 20 September. For me, the unexpected is what makes life interesting. How boring life would be were we able to predict the future.
Forecasting is fraught with difficulty. It was former US Secretary of Defense Donald Rumsfeld who first coined the expression that there were “known knowns, known unknowns and unknown unknowns”.
In 2008, the Queen - quite rightly - asked “why no-one saw the credit crunch coming”, and certainly only a few of the thousands of economic models run around the world had predicted a global financial recession.
The theory behind “unknown unknowns” and the weaknesses of modelling and forecasting have also been considered in academia.
The explosion of social media, online shopping, “fake news” and smartphone apps would have been difficult to predict only a couple of decades ago
High-impact, hard to predict, rare events that cannot reasonably be predicted, but can appear predictable with hindsight, are now referred to as “black swans”, so called because Europeans assumed that all swans were white prior to the discovery of black swans in Australia.
Some developments, such as electric vehicles or flying cars, have been foreseen by inventors and sci-fi authors.
Others, such as the internet and the accompanying explosion of social media, online shopping, “fake news” and smartphone apps, would have been difficult to predict only a couple of decades ago.
Most ICAS members have stories to tell of challenges in their careers. As Chairman or Chief Executive of Stagecoach for 37 years, I have faced a few myself including:
- War: The Gulf War in 1991 led to fuel prices increasing by 133% and tipped the US and Canada into recession.
- Terrorism: The 9/11 terrorist attacks had a dramatic impact on the fortunes of airlines, including Scot Airways, in which I was a major shareholder.
- An untreatable virus: The outbreak of SARS led to a significant drop in revenue at Stagecoach’s bus operations in Hong Kong and its toll-road company in China.
- A bad acquisition: In 1999 Stagecoach made its ill-fated, highly leveraged acquisition of Coach USA, a quoted company audited by Arthur Andersen’s Houston office – the same office that audited Enron. Coach USA nearly brought down Stagecoach.
- Technological change: The internet and the smartphone have provided new opportunities, but have also spawned new competitors.
Not all of the above were black swan events but they were all unexpected. In each case, the skills I learnt as a CA provided the tools needed to address each challenge. We need to analyse the problem, determine whether a structural solution is more appropriate, reach a conclusion on what management action is required and then act swiftly. It is essential not to procrastinate over the decision.
In the cases above, following rigorous analysis, different management solutions were adopted, including recapitalising and selling off overseas operations and entering administration in one case.
These were often painful decisions involving redundancies, but the action taken preserved many more jobs. Like many entrepreneurs I accept that it is sometimes necessary to take a backwards step, rationalising or restructuring a business, before growing again.
Businesses and markets are dynamic organisms and we need to be on the lookout for the next challenge. This is what makes business life interesting, enjoyable and exciting.