New Zealand: Organisational failure: Questions and learning

Last Updated: 31 January 2017
Article by Denis Mowbray

Mainzeal Construction (NZ), Wells Fargo Bank, BHS Department Stores, Stonewood Homes, are examples of organisational failure deserving of in-depth analysis to garner insights and lessons as to why they failed. This is especially so, when the genesis of these failures appears to be rooted in an organisations' behavioural governance and organisational culture, both of which are led by the board. It is doubtful in any of these cases that the cause of failure resulted from a lack of regulatory controls or compliance elements.

As referenced in recent news it could be as simple as directors not being able to read English. In the case of BHS and Well Fargo, a more in-depth investigation into the governance and executive failings is occurring. It is a shame that we will not see the same level of investigation into the failure of Mainzeal.

That said, these are not the only examples. Unfortunately, many other examples of organisational failure exist, e.g. MG Rover, Bear Sterns, Northern Rock, Arcandor, FIFA, Olympus, Volkswagen, International Athletics Association (IAAF), Lehman Brothers. The contagion evident in each case was the poor behavioural governance and culture of the board and executive.

If, as I am sure, you will agree, the culture and behavioural governance of the board and executive are at the nexus of what supports and in some cases, drives organisational failure, why is it then, there is little appetite from boards to fully analyse the decisions, actions or inaction that influenced or facilitated the failure?

Simply, the culture that exists within most boardrooms, stigmatises errors. After all, directors, are there because of their expertise, often gained over decades of work. As Frank Lloyd Wright said, "an expert is someone who has stopped thinking because they know." How many expert directors do you know!

What do directors do, in the face of failure? Sub-consciously, they re-imagine the circumstances that led to failure. Their subconscious takes over in a process called cognitive dissonance. Cognitive dissonance facilitates the re-framing, spinning and sometimes even editing out of mistakes from the narrative. Unfortunately, we all suffer from cognitive dissonance.

An example, all of us are great drivers when in our cars, it is always the other person who is the idiot or caused or is likely to cause the accident. How can it be us; we are great drivers, right?! A bit of re-framing goes a long way.
Unfortunately, the director's cognitive dissonance removes what the philosopher Virginia Sharpe calls, 'forward looking accountability.' That is, the boards' duty to learn from the adverse event, so as to, not repeat it again.

The philosopher Karl Popper summed up this behavioural aspect of directors when he said;

"for if we are uncritical we shall always find what we want: we shall look for, and find, confirmations, and we shall look away from, and not see, whatever might be dangerous to our pet theories."

Continual learning and questioning, combined with the diagnosis of failure are fundamental responsibilities of all directors and executives. Imagine if James Dyson, having made the 1000th iteration of his cyclonic vacuum cleaner, did not continue to strive to make it better still, to learn. He would not have gone on to test another 4127 iterations before he felt it was ready.

What if, instead of the prevailing culture of, no blame, inquiry and questioning the airline industry take to incidents. They took an expert view of incidents and crashes. The airline industries safety record would be abysmal. The reason it is statistically safer to fly than drive, is because of their unwavering commitment to understanding how an incident/crash happens and the lessons that can be learnt, shared and applied.

Which brings us to the main point of this article. That is, there is an interesting symmetry with the way airline incidents unfold and those that unfold in organisational failure. Generally, the initiating incident in both cases, starts with an actual fault/issue, that is either unexpected or unplanned.

However, once this initiating incident has occurred, the catalyst for increased or decreased damage, starts with the culture of the boardroom. The combined decisions, actions or inaction of the board and executive; what I refer to as the 'Third Team' or in the case of a jet airliner, the captain and his executive (second officer and tech crew), either exacerbates or mitigates an already delicate situation.

Applying resources to understanding, learning from organisational failures, e.g. BHS Department stores, MG Rover, Bear Sterns, Northern Rock, Arcandor, Olympus, Volkswagen, Lehman Brothers, Mainzeal Construction and Sth Canterbury Finance, etc., will provide learning that when applied may reduce the chances of these same errors being made again.

Why do directors and executives view failure as something to be hidden, and or ridiculed in others, rather than see it for what it is, an opportunity to learn? The fear of being viewed as a failure, is a powerful motivator that sees directors quickly distance themselves from any association with anything that fails, shift the blame to someone else. For business people, failure is seen as a personal weakness, to be hidden from discussion and review.

How different would our understanding of corporate failure be if we were to take a no blame, systematic approach to investigating failure, just as the airline industry does. How much more could we learn if, in the face of significant corporate failure; the behavioural governance and culture of the board and executive were investigated and understood. A "black box" analysis that would yield many insights as to how these two elements influenced and impacted the eventual outcomes. Thereby creating an opportunity for advancement of our knowledge and hopefully a greater chance of these same mistakes not being repeated.

Unless we modify our views and take a different approach to organisational failure, we will be doomed to the life of Sisyphus, who wants that?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Denis Mowbray
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