03/18/2011 01:12 pm ET Updated May 25, 2011

The Titanic Syndrome and Frontier Risks

The potentially critical situation at the Fukushima Daiichi power station in Japan underlines the limits of even the best engineering minds working at the frontiers of their field. Almost 100 years ago, the world was confronted with the same limitations to human ingenuity when the most sophisticated engineering marvel of its time, the Titanic, went down on its maiden voyage.

The Titanic did not sink because White Star Line, its owner, disregarded safety issues. On the contrary, the Titanic had the most advanced safety features of its time: a multi-compartmented hull, sophisticated wireless communications and full compliance with maritime safety regulations. Both its owner, J. Bruce Ismay, and the ship's builder, Thomas Andrews, were aboard. It was the existence of these safety features that made the captain comfortable in trying to cross the frontier of high-speed transatlantic travel, with tragic consequences.

The Titanic Syndrome occurs when companies engaged on the frontiers of new technologies believe in good faith that they have covered the key risks, but have not. Fukushima Daiichi power station, the subprime mortgage crisis and the Deepwater Horizon oil spill are all recent examples of the great challenges in trying to manage risk effectively at the frontier -- and the enormous costs of getting it wrong.

Each of these examples involved highly competent engineering organizations with dedicated teams committed to safety or -- as in the case of Lehman Brothers for subprime mortgages -- effective risk management. All believed that their product had been tested to the farthest necessary edges of the event distribution.

These organizations were pushing the frontier in ways that, at the time, were seen as advantageous for society. However, they were working with regulations that were insufficient because human ingenuity had outstripped them -- the Titanic's 16 lifeboats met 15-year-old regulations enacted when ships were smaller. As a result, less than one-third of its passengers survived.

All were brought down by a combination of multiple risks or failures occurring at the same time, combined with human error. Most importantly, in all cases, their failures had systemic costs that went far beyond their own companies.

However talented and committed, a company's engineers, scientists and managers are unable to understand, assess and address key frontier risks by themselves. Their desire to succeed and their commitment to their work -- so critical to entrepreneurial success -- may unconsciously limit their ability to assess all risks. The complex nature of frontier risk is likely beyond the understanding of any one organization, however sophisticated. The broad regional, or even global, implications of failure mean that the responsibility for addressing these risks cannot rest with the company alone.

Shifting the responsibility to regulators alone is not the answer, as governments often have less experience with the relevant issues than the companies. Nor can we halt our exploration into frontier technologies. The present deadlock over GMOs is an example: foods that could help millions are rejected because the companies proffering them are not trusted. Simply turning our back on nuclear power without the right debate would take away an important instrument to fighting global climate change. Dealing with frontier risks requires a neutral platform where best practices and insights from around the world can be brought to bear and where all voices, positive and negative, find a hearing.

The only way to approach multifaceted risk in a complex and interconnected world is to develop spaces where all stakeholders are able to come together in a neutral environment where the interests of the world as a whole are put first, not the self-interest of any individual member. Helping companies, governments and society address these frontier issues together in an effective and credible way will reduce the incidence and consequence of the Titanic Syndrome. More importantly, it will unlock the door to a new wave of job-creating and life-improving innovation.