13.1.1. Uncertainty is not disorder

According to the famous sociologist Edgar Morin, the simultaneous loss of confidence in foundations and the future has become an essential part of thinking, knowledge, action and even taste. “I certainly think,” says Morin, “that we can rely on countless local certainties, but they are like archipelagos on an ocean of uncertainty. More broadly, I am convinced that knowing or thinking does not consist of building systems on certain bases; it is to discuss with uncertainty… one must base one’s thinking in the absence of foundation” [MOR 99]. Nevertheless, for him, the heuristic value of complexity is undeniable: “Complex thinking, far from substituting the idea of disorder for that of order, aims to put order, disorder and organization into discussion” [MOR 95].

Chaos theory is an aspect of this science of complexity. Its immediate interest, according to Trinh Xuan Thuan, is that it describes phenomena on a human scale and “speaks of daily life” [XUA 98]. Relativity aims to explain the infinitely large, quantum mechanics makes it possible to describe and model the infinitely small. With the science of chaos and fractals, everyday life objects become legitimate objects of study: their behavior, dynamics and structure can be studied, and new orders and properties can emerge.

Above all, it breaks the shackles of old determinism and frees thought on both Nature and Nature itself, which can now offer the variety and novelty of its productions for discovery. Its principle is chance, indeterminacy, unpredictability, randomness, etc. A slight disturbance in the trajectory of an object, initially very close to the trajectory of another object, will cause it to diverge exponentially to the point that the two trajectories will no longer have anything in common after a certain time; this is “disorder”, chaos. But as is generally accepted, deterministic chaos as understood by the scientist does not mean “lack of order”. It is rather related to a notion of unpredictability and of the impossibility of predicting, even over a very short period of time. In so-called chaotic systems, divergences in trajectories are always observed in a limited space of solutions: they are inaccuracies that are amplified in a nonlinear, rather than exponential, way and do not allow us to anticipate a behavior. The result of this evolution is non-knowledge of the final state.

The entrepreneur already knows all this, and is constantly adapting. However, we experience events that have for us the appearance of disorder like every time we are in the presence of a fluid such as water and air. Ancient determinism was fundamentally incapable of accounting for it; reductionism the same, which describes the world only on the basis of its elementary components (quarks, chromosomes, neurons). As a “holistic” science, the science of chaos understands the world “in its entirety” and frees thought from all particularisms and reductionisms.

13.1.2. The different realities

Just as the science of chaos leads to a certain awareness of the “disorder” in the world in relation to our means of knowing and predicting the evolution of behavior, so do “fractal objects” lead to that of irregularity, in the geometric sense of the term.

Indeed, fractal structures are always developed from simple models, based on simple construction rules, simple nonlinear equations, etc. There are therefore always underlying orders and regularities that will generate new and regular, harmonious and coherent forms. Some people talk about “regularity in irregularity”; we can also talk about “order in disorder” or “organization in disorganization, mismanagement or chaos”.

In Nature, fractal structures are everywhere; they always denote regularity and structure within a so-called unstructured environment, thus an induced order specific to each element and leading to a different order at the higher level. This concept is important because it allows objects – physical or intellectual – to be built in a coherent, simple and rational way. It is the guarantor of order in the context of evolution and sustainable development, whether it is products, organizations or cities. Recalling these structuring paradigms of Nature is important for us to understand how the objects that surround us are built upon and assembled, as well as in order to follow the scientific thought that results from the activity of our fractal body. This is by no means to say that fractals prevent chance from participating in the great principles of evolution.

Contrary to our opinion, there is the idea that scientific paradigms are the panacea for all the difficulties that each intellectual discipline may experience in its approach to the physical, economic, social, political, legal and other “realities”. But we cannot (or can no longer) act, either, as if these paradigms did not exist. Being of one’s own time also means making an effort to place one’s discourse at the same level of reality as other discourses, regardless of the disciplines or sciences from which they emerge. A level of reality is not what systems thinking means by “level of integration” or “level of organization”. It is “a set of systems that remains invariant under the action of certain transformations” [NIC 88]. Discourses that belong to the same level of reality involve the same language, the same logic and the same fundamental concepts. Within the same scientific discipline, there are discourses of different levels of reality depending on the paradigms that structure them.

Thus, classical and quantum physics work on three different levels of reality. On the one hand, the macroscopic scale is characterized by the separability of the objects that compose it, while the quantum scale is characterized by their inseparability: even though distinct, quantum entities behave as if they form an inseparable whole. On the other hand, the local causality essential for classical physics is replaced by a finer, global but goalless causality. Finally, classical thinking is based on the notion of continuity and quantum thinking on discontinuity.

Different sciences may be at the same level of reality. Indeed, we can consider that those in the sciences – physical or social – which integrate complexity, chaos theory or disaster theory, etc. into their intellectual systems are interested in the same level of reality; it is to this “divine surprise” that Edgar Morin once received:

“Von Neumann’s game theory, in its extreme simplicity, already reveals complexity… Being versatile, I was able to reintroduce uncertainty at different levels of reflection, whereas for example a Monod or Atlan only did so in their field, biology… In such a ‘transdisciplinary’ project, we are helped by the fact that others have thought the same thing at other levels” [MOR 00].

All current approaches have already proven their usefulness and have made great progress. We can, of course, mention the Cartesian and Laplacian principles based on the decomposition of problems, as well as the analytical and rational approach to reduce the difficulty we have in understanding, reducing and solving problems of medium difficulty. However, as soon as this difficulty becomes insurmountable, only complexity introduces the uncertainty and unpredictability that is at the very root of our modes of knowledge, action and organization. Only chaos reduces order in a simple particular case, and the institution of fractal dimensions to measure the irregularity of objects makes regularity in Nature appear as an exception, not to say a purely intellectual view.

13.1.3. World time

As we have just seen, there is no single approach to manipulate and better control complexity. In Nature, one strategy of defense, survival or reproduction has never driven out another. Nature has always gradually changed our systems. Even though there was a disaster (disorder or cataclysm), it has never resulted in the total disappearance of a genus (physical structure, product family, living being, etc.).

The fundamental orders, rules and basic components have always been preserved: there has simply been a selection and acceleration of changes as well as an adaptation of the existing to its new environment. The same phenomenon occurs with GMOs: selection, mutation and evolution go hand in hand.

In the same way, old and new approaches complement each other. This is particularly true for addressing trade and finance issues [ZUE 02]. Ongoing globalization places us all in what the followers of Laidis [LAÏ 95] call “world time”:

“In the absence of a new world order, we find ourselves in the presence of a world time where three dynamics are reinforced: ideological deconstructions, the accentuation of globalization and the acceleration of technological changes” [LAÏ 97].

Two interesting and striking presentations in the context of the current chaos are presented in Boxes 13.1 and 13.2. These examples are the sole responsibility of the authors but are provided here as testimonies or “alarms” on the issue of the energy crisis.

13.3.1. Social acceptability

In a constantly changing world, concerns about business direct and focus the mind so much towards the future that we quickly forget how things were 20 years ago. However, it would suffice to refer to what was then reported in the press to measure the place that the type of event now occupies in the press, which nowadays increasingly requires crisis management intervention.

To take just a few recent examples: the sinking of the Erika, the fatal Concorde accident, the recall of millions of Firestone-Bridgestone tires mounted on Ford cars, news about the security of payments on the Internet, the development of mad cow disease (BSE) and its consequences, as well as the discovery of infinitesimal doses of listeriosis in a given product, etc. The emergence of the notion of major risk to describe major industrial disasters, fears raised by ecology or the great fears associated with the use of new technologies (computers, genetics, nuclear, nanotechnologies, stem cells, etc.) seems to express the idea that we live in an increasingly dangerous world.

Recently, in the context of bird flu, we have been able to measure how risk management is a difficult art or science. Through the sovereign principle of protection, regulators tend to overprotect when nothing happens, to become accustomed (by ignorance, fear or inaction) when actors are permanently confronted with a risk and to take insufficient action (by ignorance or lack of systematism) when a crisis occurs and not everything has been foreseen.

This leads us to think as follows: what is at stake in the emergence of the notion of major risk and in the development of corresponding management methods is less the objective assessment of risks than the question of the social acceptability of risks related to human action. The events are not coming against us but towards us and forcing us to reassess.

The definition of acceptable risk is based on the following assumption: no society or company can function without simple rules to describe the actions that can take place in it and to distinguish between those that are acceptable and those that are not. These rules must necessarily remain simple in order, on the one hand, to ensure that all its members are able to know them and, on the other hand, to recognize them quickly enough so that conflicts that may arise in the organization about any risk-taking can be resolved quickly. It is indeed necessary that conflicts should only exceptionally be the subject of a lengthy resolution procedure (by negotiation or trial), failing which the economic cost in time and money of this resolution would tend to undermine the economic profitability of any action likely to involve a risk.

This last point is illustrated by the example of the famous supersonic Concorde aircraft. For a long time, the question of whether it was acceptable to fly the Concorde was resolved by the existence of an official flight authorization; this made it possible to represent in the eyes of everyone, not only operators but also customers, the result of the consensus of experts that no one was seeking to question. Since the terrible accident, the question of the safety of the Franco-British supersonic aircraft had to be raised again in all its effective complexity and, because of this, the aircraft remains grounded, whereas this same aircraft had flown for almost 30 years without any serious accidents and even fewer incidents than most other commercial airliners. The major and quite intricate 2019 case of the Boeing 737 MAX aircraft family also dramatically exemplifies the same relationship between resolution procedure and economic cost.

We do not always know how to react to such situations: managers are always divided on the level of risk-taking, but when faced with the acceptability, or rather the social unacceptability, of risk and the consequences for the managers of a structure or company, the tendency is to apply precautionary principles: in today’s conditions, the lunar exploration module (LEM) would certainly not have been used, and aspirin would not have emerged either.

To be more precise, in modern societies, law and science are the two major components of the system of rules for defining acceptable risk. Thus, a natural disaster (e.g. an earthquake), insofar as it results only from the interplay of natural forces (i.e. with the exception of all human behavior that may have aggravated its consequences), must be considered acceptable because, as it can be said, necessity is law.

Thus, whoever finances a company knows that he or she is likely to lose his or her stake, and this risk is socially acceptable as long as the creditor has complied with the rules of law (otherwise we would be dealing with a fraudulent bankruptcy). The fact that the law is a mandatory standard (based on the principle that no one is supposed to ignore the law) illustrates that the definition of the social acceptability of risks is not left to chance and even less to everyone’s imagination. The rules of law, together with those of science, constitute one of the central elements of the institutional system constituting modern nation states. They form a real “system of legitimacy” insofar as the function of this system is to allow the precise and imperative definition of the conditions legitimizing all social actions.

Faced with such arguments, we can regret that taking such approaches into consideration leads to immobility in decision-making, the refusal to take risks, and finally, in extreme cases, to a disempowered society.

To clarify, we will now consider the concepts of ordinary risk and major risk in turn.

13.3.2. From ordinary risk…

An ordinary risk is anticipation, and its definition presupposes the existence of a reference framework in which one imagines all the events that can result from the envisaged action and their consequences. A calculation of the number of possible cases and their respective positive or negative values makes it possible to define a mathematical expectation, a variance, etc. It should be noted in passing that, in order to validate this definition, the anticipation framework must remain constant over the entire period over which the risk is calculated.

The framework of anticipation that we have just mentioned poses a problem insofar as the frequency of occurrence of disturbances does not always correspond to statistical laws that we are used to using. As will be seen later, this frequency for a given magnitude of disaster is often underestimated.

This ordinary risk can be defined either at the private level or at the social level depending on whether the reference framework for calculating it is assumed to apply to a limited number or no members of civil society. These members can contractually agree on the definition of this framework as happens in the relationship between the insurer and insured. At the public level, the framework is supposed to apply to all members of the company concerned, as is the case, for example, with the risks of accidents resulting from the use of medicines, the definition of which depends, by law, on the granting by the authorities in the field of regulatory affairs (RA). In the latter case, the reference framework must be constructed from the system of social rules that define the social acceptability of risks. This includes the science that defines the research protocols for the technical assessment of the risk subject to approval and the rules of law that define the formal granting of the necessary authorization.

However, it is important to note that these types of risks are “manageable” because they are easy to identify, measure and control. It can therefore easily mobilize a large number of energies and passions; we are witnessing an abundance of prevention and protection systems, accompanied by complete, restrictive and cumbersome procedures. The question is what is the right balance between expected costs and benefits?

13.3.3. …To major risk

The notion of major risk is sometimes associated with the size of the consequences of the disaster under consideration and its level of unpredictability. This refers, for example, to the type of risk of insuring a drilling platform with a loss of billions of euros or, sometimes, the difficulties that may be encountered in determining the causal chains from which the disaster results. It is a bit like the butterfly effect, a famous expression invented to recognize situations where a minimal cause (the flapping of a butterfly’s wings in Japan), through a chain of inextricable causes and effects, could eventually play a decisive role in triggering a disaster (an Atlantic tsunami). There is also another way of describing the major risk, which has the double advantage of including the two mentioned above and allowing us to enter the strange world of crisis management logic. This other way is to elegantly say that the major risk is the one resulting from the anticipation of the collapse of the anticipation framework that provided a quantitative risk assessment. However, whenever we may find ourselves unprepared for a serious and unforeseen event, it is fear that wins and dominates the reactions, because we are in complete ignorance about our ability to control and master such systems.

This definition is surprising, even shocking, as it seems to be a challenge to reason and common sense. However, it is now a common experience. Ask yourself, for example, “Is it dangerous to eat steak and chips?” You will easily recognize that only 20 years ago, such a question would have seemed odd. And yet, since mad cow disease, this question has become a legitimate one. It could have, as soon as this new disease became public knowledge, led many people to wonder whether, on balance, it was not better to eat chicken! The best projections available to us showed that it was still difficult at the time to assess the magnitude of the risk we were facing.

Another example of the same kind, you very probably use one or more cell phones and many of us have read here and there in various newspapers that there is a rumor about the carcinogenicity of certain waves, particularly in the brain (e.g. television reports from October 2007). Perhaps many did not believe what seemed to be the product of an imagination worried by the pace of technological progress. Many of us must have been surprised to learn that this question was taken seriously by experts in the field and gave rise to countless studies. With these two examples, we see the good sense of the daily experience put in default.

Such situations affect the conduct of business, large and small, as shown by the terrible crisis in the beef market following BSE. The definition of major risk given above is in line with experience, as well as with the idea that risk results from crisis in the legitimacy system. It is therefore a crisis of law and science. Such a crisis situation now renders inoperative two justifications that were once all powerful: that of saying that one acted in accordance with the law and that of saying that the risk incurred was considered acceptable by the best experts in the field concerned.

A different situation arose with bird flu: the potential risk of mutation of the virus was high, and in this case, its effect on humans was serious. Faced with a possible pandemic, we were therefore preparing for it, without knowing exactly its effects and consequences. It was not the occurrence of the event that was anticipated, but the possible consequences of the disaster, in the hope that a vaccine, or antidote, could be developed before the beginning of the pandemic. Others were not too alarmed because in the past, and in Nature, there has always been the creation of means of self-defense or immunization.

In all three cases, the argument is now rejected! In the first case, it is because the law is no longer considered as a sufficient criterion to determine the legitimacy of an action (if only because of its complexity, we are obliged to concede that it is now very difficult to know it). In the second case, it is because no one today believes that scientific experts hold the truth (if only because they often have great difficulty in reaching a clear consensus among themselves). In the third case, it is because we can make mistakes and Mother Nature’s providence has always been good.

But we no longer live under the reign of positivism: the laws of chance have replaced sovereign determinism, concerns about the existence of unexpected or perverse effects linked to the safe a priori guarantees of progress, the tangle of open systems with the fantastic ordering of closed systems and the development of the world of techno-sciences (computer, nuclear, genetic, nanotechnologies, bioinformatics, artificial life systems, etc.) to the wise subordination of technology to science. From a legal and scientific point of view, we are confronted with the threats of the indescribable and the endless conflicts associated with it, without our opinion being able to influence in any way.

Seen in this way, the emergence of major risks and the accompanying threats of destabilization are equivalent to the expression of a crisis of established systems, and its associated symbols, which allow a society to distinguish what is acceptable from what is not.

13.3.4. Risk management

Coordination is the first step to consider. Indeed, integrated risk management requires a more “strategic” than “tactical” approach: strategy corresponds to a vision and assumptions, while tactics corresponds to the how of which we do not have the knowledge. Thus, tactical management, which is more common today, has rather limited objectives. It generally includes operational procedures, recovery plans, etc., as well as the hedging of contracts or other explicit forward commitments, such as exposure to interest rates linked to debt.

Imagine a company, using the US dollar as its currency, buys a machine from a German company with a delivery scheduled in six months. The tactical action consists for the company in hedging against fluctuations in dollar/euro exchange rates that may affect the contract before delivery.

On the contrary, strategic hedging focuses more broadly on how these exchange rate fluctuations may affect the value of the company as a whole. It analyses how these movements affect the company’s competitive environment, including the price of its products, quantities sold, cost of its inputs and the response of other companies in the same industry. As a result, a company may very well be fully tactically hedged, while at the same time have significant strategic exposure.

Since an integrated approach to risk management requires a full understanding of the company’s operations, including its financial policy, it is the responsibility of management. They cannot delegate it to derivative managers in the same way that individual risk management cannot be delegated to individual units. Management obviously seeks to consult with the opinion of the unit or project managers. However, it is ultimately up to the company to decide on the essential risks for the company, taking into account the transversal effects in terms of risks and activities and developing an appropriate strategy.

The growing range of tools available for risk measurement and management offers managers real opportunities to create value, but at the same time generates new responsibilities. It is therefore in the interest of managers to understand how these tools work and to actively choose which ones to apply, if they are applicable.