The link between force majeure and a black swan event matters to your business. They are key elements in the reliability in your supply chain.
A black swan event, as reported by the iconic NY Times, March 19, 2011: “The details of this catastrophe (the Japan quake, tsunami, and nuclear tragedies) were unforeseeable, leading some to conclude this was a black swan event–something so wildly unexpected, so enormous in its impact, that it seems to defy our understanding and expose the fragility of our knowledge of the world. How could anyone have predicted this.” Please ignore the curtain and commence wringing your hands.
Force Majeure is a legal term often seen in contracts. FindLaw says: “Force Majeure means, superior or insuperable force or an event (as war, labor strike, or extreme weather) or effect that cannot be reasonably anticipated or controlled as reported.” And from Reuters on February 25, 2011, “Force majeure is defined as a force greater than the parties had contemplated, (it) allows for suspension or termination of obligations during an unforeseen event.”
Mom, is that apple pie burning? What do you mean cooking the pie at 500 degrees for three hours leads to an unforeseen event?
Consider extreme weather events caused by the energized climate. Can we predict these weather events? Are there ways to mitigate the events fostered by the energized climate? And are there ways to defend the processes impacted by the extreme events? The answer to all three is yes. Hold on, don’t text the attorney yet.
Have you heard, “No single event can be attributed to the changing climate?”Your grandfather heard, “If man were meant to fly, he’d have wings.” And your mother heard, “There is no ozone problem.” In all three cases, we recall words spoken in times of ignorance. Ignorance lingers; your attorney is still on the Harley and here comes the quandary.
If an extreme weather event is black swan, then there a good chance force majeure will work as a defense in court. For example, if a supplier misses a critical delivery of components for your product. On the other hand, if credible sources say the event was controllable and predictable then the use of force majeure may not be possible as a defense for harming your business. You cannot recover losses from the supplier in the case of …You got it…A black swan event. Grab onto your Blackberrys, but hang on for one more moment.
The big question: Which side of this issue is your company? Will you benefit by swarms of faux black swans or be hurt by them? Yup, time to text the attorney.
Extreme weather events are tied to climate science so they can be anticipated, their effects controlled, to a point. Then the question becomes, who are the credible sources for the science that defines the links, the risks, the remediation, and the probability of localized extreme weather events?
And regardless of what our icons pontificate, all these organizations claim a link between an energized climate, GHGs, and weather. This consensus makes it tough to claim energized weather events are black swan events; however, many industry groups and the media do not yet support that link. They will. NASA claims flat out that CO2 controls the planet’s temperature. In the mean time, the conflict guarantees a storm of litigation that could turn your supply chain into supply jello. For example, these groups:
All of these groups–as recently as March 9, 2011–supported the notion that anthropogenic forcing of the radiative balance is a tax (do I have the spelling right? F-e-r-t-i-l-i-z-e-r) event. Not a climate event that–among other things–threatens supply chains; astonishingly, these groups also request regulation of GHGs by Congress. What’s more, the aforementioned industry groups are actively seeking more government control over industry (HR910) by Congress–thereby undermining the science that might clarify force majeure. Can you see the irony, industry groups pushing for more control by Congress and in the process impairing business? If you aren’t texting Bernie, you should be. But I digress.
Energized weather events will proliferate. The major industry associations can support their members by making sure that the use of force majeure is only applicable in unforeseeable events, rather than supporting fanciful notions that the energized climate and extreme weather events–or the sciences–are black swan events.
This month, some suppliers in Australia, Japan, and other places have invoked force majeure, claiming that certain climate-based interruptions to their operations are black swan events. If American industry groups were on the right side of this issue, and they had made clear the link between anthropogenic forcing of the radiative balance and events fostered by the energized climate–rather than obfuscating it–American industrial interests, all of them, would be better served; because, we would all know the reliable path.
Of course, without the faux black swan, some suppliers may be at increased risk from litigation–thereby setting up conflicts inside certain industry groups and wasting resources. Oh, now you’re texting.
Keeping the supply issues transparent to the end user will be a challenge in the short term and later impractical. American industry requires legal lucidity on extreme weather. It’s time to get off the hog and clarify the true likelihood of energized climactic events. A faux black swan can destroy the reputation of a corporation–and worse.
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