Leadership Dispatches

Michael Useem is William and Jaclyn Egan Professor of Management at The Wharton School, where he is also Director of the Center for Leadership and Change Management. His previous books include The India Way, The Go Point, Leading Up, The Leadership Moment, and Boards that Lead. Howard Kunreuther is James G. Dinan Professor of Decision Sciences and Public Policy at The Wharton School. He is Co-Director of the Wharton Risk Management and Decision Processes Center, a Fellow of the American Association for the Advancement of Science, and Distinguished Fellow of the Society for Risk Analysis. Erwann Michel-Kerjan is Executive Director of the Wharton Risk Management and Decision Processes Center and Chair of the OECD Secretary-General Board on Financial Management of Catastrophes.

"Leadership Dispatches is an empowering story of recovery in the wake of an unprecedented natural disaster. This comprehensive study provides valuable insights into the importance of leadership in a crisis, as well as the world of preparedness and resiliency."—Tom Ridge, First Secretary, U.S. Department of Homeland Security and Former Governor of Pennsylvania "Three of the world's most respected authorities in leadership and risk management join forces to tell us a rare story of courage, determination, and the importance of a multi-stakeholder strategy. Their unique checklist for leaders will prepare many heads of state and organizations to take charge and do the impossible when their own F-27 hits. A remarkable book."—Klaus Schwab, Founder and Chairman, World Economic Forum "Recent disasters in Chile, Italy, Japan, Mexico, and New Zealand offer important lessons for the future. This book brilliantly documents concrete experiences in managing risk and responding to disaster; it contributes to longstanding efforts of organizations like the OECD to distill best practices and create a vital platform for knowledge sharing."—Ángel Gurría, Secretary General, Organization for Economic Cooperation and Development "This book is filled with practical analysis of what went right in Chile's dramatic recovery from the devastating F27 earthquake. It offers important lessons for current and future leaders in countries and organizations that face the possibility of major disruptions. Read this book before disaster strikes! And if you haven't, then read it when crisis hits. It provides the best roadmap that you will find toward the future that you will then be hoping for."—Herman ("Dutch") Leonard, Harvard Kennedy School and Harvard Business School

• Contents and Abstracts1Twelve Days Before Entering the Presidential Office chapter abstractChile's great earthquake of 2010 was the sixth greatest earthquake ever recorded. Chile's president-elect, Sebastián Piñera, decided to embrace two orders of business, one well in hand from his campaign for the presidency, the other forced by the natural calamity. He would pursue what had been promised before the earthquake – but now also what had been required by the earthquake. In formulating both a near-term plan and long-term strategy for overcoming and then transcending the calamity, the new administration's actions offer an instructive look at how those with greatest responsibility for a country, company, or community can best attack the extraordinary challenges of coming fully back from calamity and instituting more safeguards against future disasters than had existed at the pre-catastrophe moment.2One of the Most Intense Events Ever Recorded chapter abstractWhen the 8.8-magnitude earthquake devastated Chile, world attention was still riveted on recovery from the massive earthquake that had shattered Haiti on January 12. That 7.0 magnitude event had flattened the capital, Port-au-Prince. Then, just six weeks later, the far stronger event rocked Chile for 100 seconds. The epicenter was just 65 miles off Concepción, the country's third largest urban concentration, and 210 miles southwest of its capital, Santiago. The Haitian event released energy the equivalent of 480 kilotons of TNT, enormous itself, but the Chilean quake released the equivalent of 240 megatons, 500 times more energy. It was felt by 12 million inhabitants of the nation's 17 million. The earthquake was so massive that it moved the country, and even the planet. Santiago shifted 10 inches to the west, Chile's coastline rose, its central valley sank, and the Earth's axis tilted 3 inches.3First Order of Business chapter abstractAfter focusing on emergency matters, the new administration set public health as an immediate priority, and it reopened all public schools – albeit some in improvised quarters – within six weeks of the disaster. Chile's president said his government would use determination, speed, and readiness to cut through bureaucratic cobwebs, and he set forward an ambitious four-year plan whose goals would supersede what the country already had in place before the moment of calamity. Even during the year of the earthquake, Chile managed to grow its GDP by 5.7 percent, and the following year by 5.8 percent, outperforming most of its neighbors who had suffered no comparable disaster. Rather than soaring, unemployment plummeted. Exports sagged momentarily but came back strongly, and the stock market and credit ratings never sagged at all.4Frameworks for Action chapter abstractLearning from the recovery of others has become more vital as more countries and organizations have found themselves in the unwanted territory of catastrophic events, whether stemming from natural or person-made sources. Extreme events by their very definition exceed what a country's leaders or institutions have come to expect or have had to face in the past. For any head of state or organization, it is always better to learn from others' experiences prior to suffering a disaster of one's own. After noting the world's growing losses from natural catastrophes, this chapter identifies a set of principles for examining leadership decisions in the face of risk and uncertainty. It also proposes a related set of principles for making strategic choices under conditions of risk and uncertainty.5Presidential Leadership chapter abstractAt the defining center of Chile's readiness and resilience was the country's newly elected president, Sebastián Piñera, and the decisions that he and his lieutenants would make in the days that followed. They took advantage of the discretionary spectrum that they had suddenly been given "We are committed 100-percent," the president pledged, "to replace within four years what was destroyed," and "urgency" of action would be "key." When the inauguration itself was rocked by a 6.9 magnitude aftershock, the just installed president immediately warned the country of a tsunami, cancelled a luncheon, flew to the earthquake region, and finally entered the presidential palace as its new resident only after a long day devoted to crisis leadership in the field. A day that was to have been one of ceremony and celebration had instead been given to presidential action.6Tiered Leadership chapter abstractAs an extension of his own leadership style, the new president created a take-action tier below him, recruiting two dozen lieutenants who were versed in making tough and timely calls. A majority of his cabinet members came as independents without party label but plenty of management experience; two-thirds had served as business managers, entrepreneurs, engineers or consultants. The president prioritized the immediate focus: search and rescue, food and water, civil order and public services. For long-term reconstruction, he set forth a detailed plan for his ministers to be completed by time he left office on March 11, 2014. The president also imposed overarching principles that would make for a more comprehensive but also a more complex and costly comeback. Reconstruction, he instructed, would protect the "dignity and freedom" and "social heritage" of the most affected regions, and it would better secure the country against future calamities.7Financing Recovery chapter abstractFinancing the comeback would prove an enormous challenge since the earthquake came with a price tag of $30 billion, the equivalent of $2.7 trillion in the U.S. A cost of that magnitude had not been anticipated nor were reserves available to cover it. Through deft management of the country's budget, the finance minister drew on a portfolio of actions, including temporary tax revenues, budget reallocations, and utilization of a national copper fund. Markedly absent was significant new indebtedness, in contrast to the ways the U.S. government has financed its most recent disaster recoveries. Chile's international credit rating did not suffer, unlike the downgrades that Standard and Poor's and Moody's had imposed on Japan's after its 2011 earthquake and tsunami. Chile's financial management of the disaster received high marks from a host of international watchdogs.8Insurance Payouts for Recovery chapter abstractFundamental to Chile's swift comeback was a separate but parallel financing by private insurers backed by reinsurers (the insurers of insurers) outside of Chile. Their market penetration and rapid payout provided a swift influx of capital to stimulate recovery and push national growth. In the end, a third of the cost of Chile's recovery was borne entirely by private insurers, more than the fraction covered by private insurers in the U.S. after Hurricane Sandy in 2012.9Private Giving for Recovery chapter abstractA set of major companies, foreign governments, and international agencies also stepped forward with significant in-kind or cash contributions. Though estimated to be less than $1 billion in total value, and though relatively modest against the $30 billion damage to the country, we find that these outside sources provided important supplements to funds provided by public agencies and private insurers in Chile.10Execution and Expectations chapter abstractWith the solid financial footing for the comeback, a take-charge attitude cascaded through the administration's ranks, but it also came with an unanticipated cost. With limited public experience in the cabinet, the nation's leadership produced soaring hopes for near-term timetables that it could not meet.11Vulnerability and Readiness chapter abstractChile faces exceptionally high risks of natural disasters, but it was also far more ready than most countries to respond to such events according to several studies comparing it with other nations. Though one of the world's countries most exposed to calamities because of its perch along the Pacific's ring of fire, Chile had also built a set of institutional practices that facilitated recovery from disasters whatever the source. Emphasizing effectiveness, execution, and fairness, those practices would prove invaluable, and combined with the nation's take-charge leadership, they facilitated the country's swift and comprehensive comeback from the devastating earthquake of 2010. Both national leadership and institutional practices proved important, and neither would have been sufficient without the other.12Civil Action chapter abstractThe state typically takes first responsibility in crisis management and recovery efforts, and Chile was no exception. President Piñera and his cabinet mobilized swiftly, yet the government was not the only first responder. Volunteers and non-profit organizations also stepped forward in large numbers, initially providing temporary relief during the emergency period, then engaging in reconstruction to aid the recovery effort. Often at great expense to themselves, they complemented the state's actions, doing what the latter could not. One private group, for instance, assumed sole responsibility for temporary housing in one of Chile's most afflicted regions, and another took complete charge of rebuilding public schools in another region. When resources are stretched to the extreme in the wake of a national catastrophe, public agencies and civil actors can fill in for one another, furnishing more than either can provide alone.13Long-Term Disaster Recovery chapter abstractA relatively short window of opportunity is available in the immediate wake of a disaster for public leaders to devise plans for addressing short-run needs. One way to achieve these objectives is specifying short-run achievable goals which reflect intuitive rather than deliberative thinking. President Piñera insistence on reopening all schools within six weeks was one of the most visible cases in point. At the same time, given the heightened public interest in better preparing for future disasters than had been the case before Chile's earthquake, country leaders can also specify measures that have long-term significance such as more effective early warning systems and better construction standards. These actions may require significant upfront costs but they promise to reduce fatalities and damage when the next disaster strikes. This form of deliberative thinking also characterized the actions of the president and his ministers in the months after the earthquake.14Rescuing 33 Miners chapter abstractAn early application of what the nation's leaders had learned from the F27 event came just five months later. A cave-in had trapped 33 miners some 2,000 feet below the surface in northern Chile, attracting the world media's attention for weeks this time. Sebastián Piñera and his cabinet would be tested yet again, though now with the first months' learning from the F27 experience under their belts. They were already steeped in strategic thinking and deliberative decision making even though complete recovery from the earthquake still had several years to go. Here we find that the joint leadership of the president and minister of mines would make the ultimate difference for the lost miners trapped for more than two months. We witness many of the same leadership capacities that accounted for the 2010 earthquake comeback, further underscoring the actions required for taking charge whatever the disaster or crisis.15Leadership Dispatches chapter abstractWe identify the most enduring ideas and principles that have emerged from the account that can prove useful in entirely different settings. Conceptual thinking about risk and response is essential for those most responsible for risk management in companies, communities, and countries. Chile and the Piñera administration have furnished a compelling test and illustration of what can really matter in the wake of a calamity. We conclude with a set of leadership principles from their experience for those who are facing large-scale hazards of all types and who seek to forge far-reaching recoveries when extreme threats become a terrible reality.