Remember Murphy’s Law? When it comes to identifying and mitigating risk, the pessimistic prophecy that “anything that can go wrong will go wrong” can serve a CEO well. After all, you need to understand the hazards facing your business before you can take steps to fend them off—which is where FM Global comes in, says CEO Tom Lawson. “Our focus is on helping our clients understand the risk, quantify it and do things that will prevent the loss from happening,” he explains.
But if you’re imagining a field inspector with a clipboard counting sprinkler heads, think again. FM Global has 1,800 engineers who collect 1,500 data points on every client facility they visit. The company then crunches that data to help its clients identify vulnerabilities and guard against them. “I can tell you which of your thousands of locations is most prone to loss, how big that loss will be and why,” explains Lawson. “That’s pretty powerful information that gives you better decision-making ability.” Given its 95% renewal rate, FM Global’s clients seem to agree.
Lawson, who took on the CEO role in August of 2014, inherited a stable, successful company. Still, in the business of managing risk, there’s always the risk of the unforeseen. The challenge going forward is to spot emerging risks, such as cyber threats and regional geopolitical unrest, and harness technology to proactively address them. “We’re an engineering-based company so analytics are not new to us, but we’re finding new ways to use our data to be more predictive and to give our clients more options and even better information about their facilities,” says Lawson. “We have a great business model, great clients and great people—my job is not to screw it up.”
Chief Executive spoke with Lawson about his approach to leading a company steeped in the world of risk management.
Q: Can you give us an example of how risks and prevention technology are evolving?
A: The hazards facing business range from things particular to a given industry to things that all businesses face, such as the need to be more efficient and to make the best use of the capital expenditures you can afford. Recently, for example, we came out with new guidelines on in-rack automatic sprinklers. Getting adequate protection at warehouses sometimes requires putting rows of sprinklers inside storage racks rather than on the ceiling so that they’re closer to any fire that starts. Using our full-scale fire testing and analytics capabilities, we came up with a way to have fewer sprinklers in the racks.
The new, more efficient technology also allows our clients to use lower-capacity water systems, so ultimately you have fewer things in the way, better protection and less cost. For a 500,000-square-foot warehouse with an 80-foot ceiling, the cost of installing a system of traditional sprinklers, fire pumps and water tanks would be about $4.5 million. Based on this new technology, it could fall to as low as $2.6 million.
Q: What sort of emerging risks are businesses facing today?
A: Right now, everybody is talking about global warming and how it might increase the potential for flooding, particularly along the coast. For example, we let one of our clients in Minnesota know that, first, their facility was in a flood zone; second, how much water they could expect; and third, how much damage that would do. They undertook a comprehensive flood mitigation program. They made sure emergency measures, such as backup generators and ways to raise stuff up off the ground, were in place. They also installed flood grates on below-grade openings to keep water out of the building. Otherwise the facility would have been down for months.
That was a great example of engineers identifying exposure and the client focusing on controlling its own destiny. Had they not taken action, not only would the facility have been damaged, but it would have had a huge impact on their bottom line.
Q: What’s the thinking behind your Global Resilience Index, which ranks 130 countries on their ability to prevent disruption or return to normal after disruption happens?
A: The idea is that when choosing a place to build or buy a facility, companies need to know the hazards to make an appropriate decision. We rank all of the countries and update our ranking annually because things change, particularly [geopolitically]. You probably won’t be surprised to find politically unstable countries like Venezuela at the bottom, but you may not realize a country is prone to earthquakes or is totally dependent on foreign energy.
If you’re working with a supplier who is at the bottom of the list, you might want to look for another vendor or supplier. Or if you’re choosing a place to build or buy a facility, you may want to gauge nonphysical hazards like how corrupt is the government, allegedly?
Q: What are your plans for the company going forward?
A: We’re working on expanding our cyber coverage, which we’ve provided since 2002, when it wasn’t talked about much. We plan to use our science and technology to offer the same level of assessment and mitigation coverage with cyber threats as we do with fire and flood hazards. Overall, our challenge is to continue to get better. How do we do what we do more efficiently? How do we get better at predicting the future? The engine of the company is fine. You just want to keep it running efficiently, tune it up, add a few cylinders if needed and go into different things. You can’t just rest on it. You’ve got to keep going.