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Global risk expert Daniel Wagner on climate change, cybercrime and why Donald Trump will win

By NexChange
Capital Markets, Economy

Daniel Wagner, CEO of Country Risk Solutions, a Connecticut-based firm that provides businesses with global risk management services, recently spoke at NexChange’s 2nd Annual EMFX Trading Summit in New York about the growing threat that man-made risks pose to businesses in America and abroad. Wagner’s presentation drew on many of the points he makes in his forthcoming book Global Risk Agility and Decision Making: Organizational Resilience in the Era of Man-Made Risk, which he co-authored with Dante Disparte.

We caught up with Wagner a few days after the event to talk more about the operational threats of climate change and cybercrime, and why conventional wisdom can’t be used to predict this year’s presidential election.

NexChange: Let’s start with the presidential election since it’s on everyone’s mind right now. Barring an intraparty civil war at either of the conventions, it’s going to be Donald Trump versus Hilary Clinton – two candidates who are both racking up votes while somehow also remaining unpopular with the majority of Americans. But what does this election mean to foreign investors coming into the U.S.?

Daniel Wagner: I think that either way we’re in uncharted territory because until we know the composition of Congress we aren’t going to know what either president is going to be able to do or not do – and it seems to me that’s the most important point. Whoever’s sitting in the White House is important, but the composition of Congress is even more so. And that’s nothing new; but what is new is the choice we have between status quo and more of the same conventional approach to politics and global affairs, etc.; or something brash and new.

What I think is intriguing about Trump is that he seems to have caught a wave – rather than created a wave – of discontent among voting populations around the world. Certainly it’s new for the U.S. to have embraced someone who is so outside the box, but it’s not new to do so in countries like Argentina and the Philippines where they have both just elected people from outside the political arena who they specifically wanted to shake things up because they’re tired of business as usual.

Now, if I were a betting man today, I would bet that it’s likelier that Trump will win than Clinton. And I know that conventional wisdom based on history would suggest just the opposite – for example in ’64 with Goldwater and Johnson and Johnson won by a landslide. Well, times have changed. That’s 50-plus years ago and it seems to me that the country is very much ready for something completely different.

But I think it’s underappreciated the constraints that either candidate would have to work under; not only vis-à-vis the composition of Congress, but also the centrifugal forces that are circling around them and the United States. There are so many things we don’t have any control over: We don’t have any control over climate change or pandemics or what’s going on in politics in the rest of the world, which all impacts what a president can or cannot do.

NexChange: Do you think people tend to overestimate the power of the presidency? Because as you say a lot of it has to do with the makeup of Congress and all these other outside forces.

Daniel Wagner: Yes, I do in fact. And while the presidency is of course extremely important on lots of different levels, at the end of the day the important thing to me is not who is in the White House but how do we break the gridlock in Congress and start getting things done. So Trump can want to change a hundred different things, but if he can’t get Congress to play along then none of it’s going to matter and he would end up being a very inconsequential president.

NexChange: Of the various risks we’re facing right now – terrorism, cybercrime and climate change – climate change is an especially interesting one because it’s a very politicized issue, where you have some people who are denying its existence and other people who are saying it’s imminent or even already happening now. But from an investor’s standpoint, can you manage risk and also deny climate change?

Daniel Wagner: No, not in my book. In fact, it’s interesting because I was speaking a couple of days ago in St. Louis at a conference of 250 risk managers and somebody said to me that I should be careful what I say because there were some people there from the mining industry; and I’m thinking to myself, well they’re the ones who need to hear this the most, why would I want to be careful? (laughs) We’re having all of these things happening around the world and we don’t want to offend somebody’s sensibility? Really?

So the way I put it was to say that I’m not here to trash anyone for being a climate-change denier, I’m here to present the facts. And the facts are pretty clear: The world is warming up due to man-made risks and if we don’t get a handle on it pretty soon we’re all in big trouble. One of the things I pointed out (in my presentation) is that in 50 years some of the world’s largest cities are going to be partially or completely flooded if we keep going the way we’re going.

So what do risk managers need to do? Well, this is no longer someone else’s problem half-a-world away; it’s no longer something on the checklist that can be put off for some other time. We have to get out in front of this and we have to do it now.

NexChange: You talk about getting ahead of climate change and taking action, but when you look at something else like cybercrime do you think the government has done enough to protect the country? And do you think asset managers and investors are doing enough on the cyber-risk front?

Daniel Wagner: Well, it’s a two-part question and a two-part answer. I think the government gets it, but there’s only so much it can do to protect people and businesses. A lot of this is up to us. One of the points I made is that people, for example, bring in all this “smart” stuff into their homes – smart TVs, smart refrigerators, smart security systems, all of which can be hacked. It’s like inviting a hacker into your home, but people don’t think about it in those terms. When you realize that 20% of Americans in their lifetime are going to have their identities stolen, and when you realize what a huge problem cyber-crime already is and will continue to become in the future people really ought to be sitting up and paying attention to this. Businesses too; businesses need to spend a lot more money protecting themselves. They should stop being reactive and start being proactive.

But as much as we’re attacked on a daily basis, we also do our own attacking. Don’t forget that most of the world’s internet traffic still passes through us, so we have access to a lot of things that a lot of countries don’t have. So if we can hit back hard as a deterrence for a government-level hacking I think that would be in our interests. It’s not a pretty game to play, but if we don’t play the game where would we be?

NexChange: How do you measure the threat of global terrorism right now?

Daniel Wagner: I don’t think we should lose sight of the fact that the U.S. remains the number one terror target in the world. And although security and intelligence services have been tremendously successful at preventing more attacks from being successful, we’re not going down on anyone’s list; so we can’t be complacent. I made this point (in my presentation) that we may be one or two attacks away from having to completely change our security protocol. The days of simply being able to walk into an airport terminal without having your bags checked before you get in the terminal; or being able to walk into a shopping center or office complex without having your bags checked – I mean that’s the way things are in a lot of countries around the world.

We’re very fortunate that that’s not the way it has to be in most places around here. It is in some office buildings in New York, for example, but I’ve never gone into a shopping center or a movie theatre in the U.S. where my bags are checked the way they have been done in other countries for years. But I think businesses (in the U.S.) need to understand that this will eventually be their problem; it’s just a question of time.

NexChange: You talk about the necessity for changing how we think about managing risk in this new world. So could you spell out what we’ve not been doing and what we should be doing?

Daniel Wagner: Well, this is what we’re talking about in the book. The core focus of our argument is that risk managers need to be at the table with decision-makers helping them make decisions for strategic planning, long-term planning and in just the current quarter. What typically happens is the risk manager is sent out for biscuits; they’re not at the table making decisions with these folks, and they need to be. Risk managers should be decision-makers and decision-makers should be risk managers.

So we’re basically calling for a change in the way the typical organization treats risk. It should not be considered as a cost center; it should be considered as a survival mechanism, as well as a means of generating profit. Because if you’re addressing this in the right way your bottom line is going to benefit in a big way. So many businesses see this as a cost and a necessity and as checking a box for governance because they have to have the risk box checked. That’s just dumb. It should be about harnessing risk to ramp up sales and profits and survivability all at the same time.

 

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