Michael Schapinker is an FT contributing editor and author of ‘Inside the Leader’s Club: How top companies deal with pressing business issues’.
Silicon Valley Bank collapsed after investing in long-dated bonds and risked interest rate hikes. The BBC has been thrown into chaos after its top football pundit was suspended and colleagues quit their posts in solidarity. JPMorgan Chase faces reputational damage and lawsuits after having sex offender Jeffrey Epstein as a client for five years after he pleaded guilty to soliciting prostitution, including with a minor.
In all these cases, we can ask, as Queen Elizabeth II did when she visited the London School of Economics during the global financial crisis in 2008: “Why didn’t anyone see that coming?”
Did anyone at the BBC leadership ask if they suspended Gary Lineker from presenting his flagship Saturday night football programme? match of the day, Can other pundits get out too? Did SVB pass on the risks associated with its investment policies if interest rates rose faster than expected? And why did JPMorgan acquiesce to senior banker Jess Staley’s desire to keep Epstein on? These are dramatic examples of what can go wrong, but any organization that fails to keep its potential risks under regular review can go the same way.
Often senior managers fail to consider the worst case scenario. Why don’t they listen to the doubters?
Harvard Business School professor Amy Edmondson says that sometimes it happens because there is no doubt. Leadership groups become so locked into a “shared myth” that they ignore any suggestions that they might be wrong. “We’ve got the well-known confirmation bias where we have a bias to select cues, data, evidence that reinforces our current belief. And we will filter out the discredited evidence,” she says.
It’s like taking a wrong turn in a car. “You’re driving somewhere on the highway and you’re going in the wrong direction, but you don’t know it until you’re hit over the head by confirming data you can’t miss: a line where you suddenly cross a state. That you don’t expect to cross.”
This groupthink and confirmation bias are prevalent in the wider society, where people jump on any evidence to support their view, for example, climate change, Edmonson says. “Oh my gosh, this is the coldest winter ever. What do you mean by global warming?”
In many cases, there are skeptics, but they are either reluctant to raise their voices or, when they do, colleagues are reluctant 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 hardwired us to not 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, groups, tribes, and our daily struggle was for survival around both food security and physical security. In that environment, if you Excommunicated, you were to die. There was no lonely life in those days.”
We carry this fear of being thrown into our workplaces because of the experience of whistleblowers, who sometimes suffer retaliation from their employers and are shunned by peers. The dissidents present their colleagues with an uncomfortable choice: either to see themselves as cowards for not speaking up, 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 and forced the BBC to quickly look at how badly he had miscalculated. Detert says this was an unusual case. Famous footballers turned commentators are brands in themselves, particularly Lineker. The BBC realized how much it needed it and how easily it could have contracted with a rival. Usually, he says, rebels feel isolated.
So what can leaders do to encourage skeptics to speak up, consider all the potential downsides of their strategy, and avoid eventual humiliation or disaster? Detert is not a fan of appointing a “devil’s advocate” tasked with providing an opposing view. It is often obvious that they are just going through the motions. He prefers what he calls “conjoint assessment.” As well as the preferred policy – for example, investing in long-term bonds – the senior manager should create a distinctly different policy and compare the two. This is more likely to indicate flaws in the selection strategy.
Simon Walker, whose roles include head of communications at British Airways and spokesman for Queen Elizabeth and Sue Williams, the former chief hijacking and hostage negotiator at Scotland Yard, told me at an event hosted by the Financial Times’ business networking organization that leaders should use communications as they examine possible future crises. Involve every function from legal to HR. Detert agrees that this can be valuable, although the presence of often under-appreciated departments such as HR is taken seriously.
Leaders’ behavior is an indication of whether they want staff to speak up. Edmondson says: “Leaders of organizations have to go out of their way to invite dissenting views, a missed risk. Before we close any conversation where there is a judgment, we must without fail say: ‘What are we missing?’ We say: ‘OK, let’s say we’re wrong about this and it’s badly messed up, what would that explain?’” She recommends calling people out by name, asking what their thoughts are.
Detert adds that office design can signal to staff that their ideas are welcome: leaders sitting in an open plan, or bright stripes on the floor that show the way to their office, or square tables instead of place names on rectangular tables. His sitting position makes it clear that he is in charge.
How relevant are these workplace layouts when employees don’t come to the office every day after the lockdown? “That’s the $10mn question,” says Detert. On the one hand, remote working can make it difficult for leaders to read signs that people are uncomfortable with the strategy. On the other hand, it may be that people find it easier to speak from their own homes. They may also feel that other aspects of their lives, such as family, are now more important than work, which may prompt them to talk.
Others believe that SVB’s relaxed remote-working culture, which meant that 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 make challenging calls on Zoom.” Hedging interest rate risk was more likely to come up over lunch or in a small meeting.
Leaders also need to constantly praise the people who speak up. The penalties for doing so are often more obvious than the rewards. Those who keep their heads down are rarely to blame. As Warren Buffett said: “As a group, lemmings may have a rotten image, but no individual lemming has ever gotten a bad press.”
