From SVB to the BBC: why did no one see the crisis coming? – Financial Times

Written by Amanda

From SVB to the BBC: why did no one see the crisis coming?  Financial Times

Michael Skapinker is an FT contributing editor and author of ‘Inside the Leaders’ Club: How top companies deal with pressing business issues’

Silicon Valley Bank collapses after its investments in long-dated bonds made it vulnerable to interest rate rises. The BBC is thrown into chaos after suspending its top football pundit and colleagues abandon their posts in solidarity. JPMorgan Chase suffers reputational damage and lawsuits after keeping sex offender Jeffrey Epstein on as a client for five years after he pleaded guilty to soliciting prostitution, including from a minor.

In all these cases, we can ask, as Queen Elizabeth II did on a visit to the London School of Economics during the global financial crisis in 2008: “Why did no one see it coming?”

Did anyone in the BBC’s leadership ask whether, if they suspended Gary Lineker from presenting its top Saturday night football programme Match of the Day, other pundits might walk out too? Did SVB run through the risks attached to its investment policies if interest rates rose faster than expected? And why did JPMorgan accede to senior banker Jes Staley’s desire to keep Epstein on? These are dramatic examples of what can go wrong, but any organisation that fails to keep its possible risks under regular review could go the same way.

All too often senior managers fail to consider the worst-case scenario. Why don’t they listen to doubters?

Amy Edmondson, a professor at Harvard Business School, says sometimes it is because there are no doubters. Leadership groups become so locked into a “shared myth” that they ignore any suggestions they might be wrong. “We’ve got the well-known confirmation bias where we are predisposed to pick up signals, data, evidence that reinforce our current belief. And we will be filtering out disconfirming evidence,” she says.

It is like taking the wrong route in a car. “You’re on the highway driving somewhere and you’re heading in the wrong direction, but you don’t know it until you’re just hit over the head by disconfirming data that you can’t miss: you suddenly cross a state line that you didn’t expect to cross.”

This groupthink and confirmation bias is prevalent in the wider society, where people leap on any evidence to support their view on, for example, climate change, Edmonson says. “Oh my gosh, this is the coldest winter ever. What do you mean global warming?”

In many cases, there are doubters, but they are either reluctant to raise their voices or, when they do, colleagues hesitate to join them. At JPMorgan, there were questions about Epstein. An internal email in 2010 asked: “Are you still comfortable with this client who is now a registered sex offender?”

James Detert, a professor at the University of Virginia’s Darden School of Business, says evolution has hard-wired us not to deviate from our group. “If you think about our time on earth as a species, for most of it we lived in very small clans, bands, tribes, and our daily struggle was for survival, both around food security and physical safety. In that environment, if you were ostracised, you were going to die. There was no solo living in those days.”

We carry this fear of being cast out into our workplaces, compounded by the experience of whistleblowers, who sometimes suffer retribution from their employers and are shunned by colleagues. Dissenters present their colleagues with an uncomfortable choice: either to view themselves as cowards for not speaking up too, or to regard the rebel as “some kind of crackpot”. The second is often easier.

Isn’t the Lineker saga a counter-example? His colleagues supported him, forcing the BBC to quickly see how badly it had miscalculated. Detert says this was an unusual case. Celebrated footballers-turned-commentators are brands themselves, Lineker in particular. The BBC realised how much it needed him, and how easily he could have secured a contract with a rival. Usually, he says, rebels find themselves isolated.

So what can leaders do to encourage doubters to speak up, to ensure they consider all the possible downsides of their strategies, and escape eventual humiliation or disaster? Detert is not a fan of appointing a “devil’s advocate” who is tasked with giving a contrary view. It is often clear that they are simply going through the motions. He prefers what he calls “joint evaluation”. As well as the preferred policy — investing in long-dated bonds, for example — senior managers should draw up a distinctively different policy and compare the two. This is more likely to show up the flaws in the preferred strategy.

Simon Walker, whose roles have included head of communications at British Airways and spokesman for Queen Elizabeth, and Sue Williams, Scotland Yard’s former chief kidnap and hostage negotiator, told me at an event organised by the Financial Times’ business networking organisation, that leaders should involve every function from communications to legal to HR when examining possible future crises. Detert agrees this can be valuable, provided the presence of often under-regarded departments such as HR is taken seriously.

Leaders’ behaviour is a signal of whether they want staff to speak up. Edmondson says: “Leaders of organisations have to go out of their way to invite the dissenting view, the missed risk. Before we close down any conversation where there’s a decision, we need to say, without fail: ‘What are we missing?’ We say: ‘OK, let’s just say we’re wrong about this and it goes badly awry, what would have explained it?’” She recommends calling on people by name, asking what their thoughts are.

Detert adds that office design can signal to staff that their thoughts are welcome: the leader sitting in open plan, or having bright stripes on the floor indicating the way to their office, or sitting at square tables without place names rather than at rectangular ones where their seat position makes it obvious they are in charge.

How relevant are these workplace layouts when, post-lockdown, employees no longer come into the office every day? “That’s the $10mn question,” Detert says. On the one hand, remote working might be making it harder for leaders to read the signs that people are uneasy with a strategy. On the other, it could be that people find it easier to speak out from their own homes. They may also feel that other aspects of their lives, such as family, are now more important than work, which could encourage them to talk.

Others think SVB’s relaxed remote-working culture, which meant senior executives were scattered across the US, contributed to its failure. Nicholas Bloom, a Stanford professor who has studied remote working, told the Financial Times: “It’s hard to have a challenging call over Zoom.” Hedging interest rate risk was more likely to come up over lunch or in small meetings.

Leaders also need to persistently praise people who speak up. The penalties for doing so are often more obvious than the rewards. Those who keep their heads down are seldom blamed. As Warren Buffett said: “As a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.”

Source: ft.com

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Hi there, I am Amanda and I work as an editor at impactinvesting.ai;  if you are interested in my services, please reach me at amanda.impactinvesting.ai

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