When alarm bells start ringing, look at the prevailing culture. Is it passive, unquestioning, timid, fearful, unreflective and rigid, or is it inquisitive, open, forgiving, reflective, permissive and flexible? If the first set of words seems more apt, a problem is likely to be bottled up there. Here are some cultural approaches to watch out for, and some suggestions about your response.
A reckless culture
If a business takes for granted its ability to do what it wants to do, to succeed where it wishes, because it has had previous success, it may plunge into trouble when things don’t work out exactly as planned. Here are five examples:
- In March 2011, the Financial Services Authority reported on the collapse of HBOS in the wake of the 2008 credit crunch, saying that HBOS ignored warnings from its internal risk officials and external auditor KPMG. It breached rules requiring banks to put in place adequate risk management systems which would have prevented the disaster: ‘HBOS is accused of a reckless culture of lending, continuing to make hugely risky loans even as rivals pulled back as the meltdown loomed.’
- The disastrously chaotic opening of Terminal 5 at Heathrow is another instance of this sort of blinkered, ‘carry on regardless’ culture.
- In 2007 RBS led a successful hostile takeover of the Dutch bank ABN AMRO costing over £70 billion, most of which was lost by the time of the credit crunch in 2008, and was instrumental in causing the collapse of RBS that year. Commenting on an FSA investigation into the takeover in late 2011, a report in the Guardian said:
The board wasn’t thinking in any meaningful sense. The directors … relied for their due diligence on two lever arch folders and a CD. Extraordinary … Let’s get this clear: the hostile takeover of NatWest in 1999 yielded pleasant surprises so the board therefore believed that all hostile takeovers yield pleasant surprises. A six-year-old could spot the flaw in that logic … How did such a culture of complacency come about?… The non-executives appear to have swallowed whole the view that RBS primarily should be pursuing growth in revenue and profits. Fundamentals of banking – such as a focus on risk, liquidity and capital – became secondary. - At the inquest in July 2012 into the death of 22-year-old Kane Gorny in St George’s Hospital, south London, from ‘dehydration, contributed to by neglect’, the Deputy Coroner, Dr Shirley Radcliffe, said that ‘a cascade of individual failures had led to an incredibly tragic outcome’. Gorny was so desperate for water he phoned police for help and was not given vital medication to help him retain fluids. Dr Radcliffe described medical staff as being ‘blinkered’ by Kane’s previous behavioural problems and commented that ‘Kane was let down by poor communication, lack of leadership … and a culture of assumption.’
- On 26 October 2012 at Southwark Crown Court, Kweku Adoboli defended himself against charges of gambling away $1.5 billion of his employer, UBS’s, money as follows: ‘Our book was massive. A tiny mistake led to huge losses. We were these two kids trying to make it work. There was a total of 30 months in trading [experience] between the two of us [Adoboli, 27, and Hughes, 24] in charge of a $50 billion book. We were just losing so much money. It was mental.’
So, ask yourself:
- What is really unforeseen?
- Am I hearing things like this?
- ‘I should have seen that coming’
- ‘I have been saying this for a long time but …’
- ‘I thought we fixed it last time it happened’
- ‘That was lucky’
Remember:
- Individually, each near miss is an inconvenience or nuisance.
- Sooner or later they will coalesce or line up.
- They will precipitate a headline failure event when they do.
- Near misses are cheap data points – understand them or perish.
A culture of false reassurance
Businesses which don’t enable their staff to articulate problems and which are ‘issue’ averse are unlikely to come up with real and enduring solutions. Let me give a personal example.
Medway Hospital
Having noticed on my arrival that Medway Hospital was not particularly clean or cared for, I started to ask questions about health and safety, essential maintenance and the general infrastructure of the hospital. The answers I got were designed to reassure, but my sense was that health and safety issues and the repair and maintenance of infrastructure were under-invested in and under-regarded.
I was then told we were due to have a health and safety inspection and that there was nothing to worry about. I asked for a blow-by-blow analysis of the detailed items we were going to be inspected on. Had I not asked for it, the people involved would simply have muddled through and waited for the health and safety inspector to declare the hospital unsafe. The audit showed a tremendous range of gaps, defects and deficiencies, so we drew up an action plan to put these right one by one, assigning responsibility to named individuals and making it clear that they were accountable for delivery. This approach surprised nearly all the staff involved. I was told repeatedly that they were not used to this approach, that in the past when they had raised issues about investing in health and safety they had been told there was no money and they would have to do the best they could. I was shown proposals for improvement that had been rejected.
I decided that not only was a new approach needed, but that that new approach needed to be shouted from the rooftops of the hospital. In response to the expressed view that people had been told to get on and shut up, I said that from now on I expected the hospital and its infrastructure to be healthy, safe, secure and properly maintained. If there were actual or potential dangers, I required such matters to be brought out and dealt with. I also made it clear that, where investment was essential to provide and maintain safety, then I would ensure it was provided. This message went round the organisation and was very significant in signalling a basic change in regime and culture.
We worked on the action plan to improve health and safety issues, but I still had nagging doubts that the attitude, culture and expectations hadn’t changed sufficiently. I therefore decided to bring in an external health and safety expert to do a completely independent audit. His report was dramatically critical, but proved the final necessary eye-opener for staff, who were now working to change the previous habits and culture of the organisation, showing them how far they had to go. We worked desperately hard for the next two months to meet the defects identified by the external expert.
When the health and safety inspectors came, I insisted we were completely open with them about what we had found, what we were trying to do and what we had not yet done. They totally endorsed the criticisms our external expert had made but at the same time saw that we were actively addressing them. On that basis they gave us a relatively positive report, but to underline the fact that we had not achieved it all, accompanied it with three improvement notices in nine major areas, giving us three months in each case to do the necessary extra work. This was just the right result. It showed that we had moved forward but weren’t out of the woods. Three months later, after we had submitted the evidence to them, they lifted the notices. Had we not gone along this difficult and detailed road, I believe we would had been subject to multiple health and safety prosecutions, massive adverse publicity, short-term defensive action that would have been costly and inefficient, and general turmoil across the hospital to add to the huge amount that it had already experienced.
The lessons from this example are as follows:
- Dig, find out for yourself, ensure that no stone is unturned.
- If there are problems, bring them out. Don’t be lulled into a false sense of security.
- Confession is not only good for the soul; it’s good for the running of the organisation.
A culture of gaming
This refers to an acceptance, tacit or overt, of tactics and behaviours which seek to push a business or organisation’s benefit to any limit that can be got away with. It means rules are interpreted as obstacles or barriers, which it is perfectly fine to push, bend or even dodge round.
The case of Barclays
Giving evidence to the House of Commons Treasury Select Committee in July 2012, Andrew Bailey, head of the Prudential Business Unit at the UK Financial Services Authority (FSA), said the regulator’s relationship with Barclays had become strained in the period immediately prior to the FSA’s enforcement action in relation to the fixing of LIBOR rates: ‘I felt Barclays was trying it on. There was a culture of gaming, and gaming us. It had to change. We drew the conclusion that there was a problem with this institution; you could not escape the conclusion that the culture of this institution was coming from the top.’ The chair, CEO and COO of Barclays all resigned. Barclays was also one of several banks which were found to have engaged in misselling of payment protection insurance to the benefit of all those banks at the expense of their customers. As recently as November 2012, the US Federal Energy Regulatory Commission claimed Barclays and four of its traders had consistently rigged the Californian electricity markets between 2006 and 2008, and fined the company $490 million. It should be said that at the time of writing, Barclays has said it will vigorously defend itself against the charge.
In a gaming culture, the desired outcome shifts from ensuring that a customer or patient is satisfied to ‘getting away with it’ to your advantage. This clearly brings short-term benefits, as you are playing by a different interpretation of the rules from everyone else, but when it does catch up with you, as it almost certainly will, then failure will follow:
- In my own area of healthcare there have been a series of scandals based on highly dubious accounts of how short waiting times were in particular hospitals, when on any normal interpretation they were unacceptably long. At Mid Staffs, management sought to satisfy external regulators about standards, while ignoring the fact that care was shockingly wanting in basic ways. This inevitably caught up with them, creating one of the NHS’s biggest ever scandals.
- The very widespread misselling of payment protection insurance by a number of UK banks was based on deliberate, excessive charging of unsuspecting customers, coupled with a collusive approach that allowed bank after bank to do it.
- In professional cycling, the widespread use of drugs by competitors was based on pushing boundaries beyond where they should be and on falsifying what personal success is.
If you suspect such a culture exists, ask:
- What sort of tactics are used here?
- What principles underlie them?
- Are they defensible to customers and the public at large? If not, they need to change.
A culture of control
A controlling leadership will often have intelligence about the organisation (i.e. it will be able to see what is going on), but it may not share what it sees and what it thinks with the organisation from which it is garnering its intelligence. This is particularly likely where formal structure is unimportant and unclear, and where real power is exercised through personal influence and status as a member of an inner circle or coterie. Those outside the coterie feel they are disempowered and they are likely not to sign up to the objectives or to offer the insights they have into solving the organisation’s problems. I have seen the after-effects of such a culture more than once in failing organisations that I have been asked to help. The sense in those situations is that of a spider’s web after the spider has gone. Promises, understandings and assumptions: all prove to be shakily based and fall apart.
Given that there are likely to be invisible but very real barriers in such organisations, a very important issue to assess is who moves across the organisation freely. If the answer is everyone and this is the norm, then things are working well and openly. If there are only one or two people who feel free to report upwards and to gather intelligence downwards then there will be a real problem. Most staff will be and will feel disempowered. The organisation will be massively over-dependent on one or two people’s insight. It will be biased towards what they have come to believe is possible and will probably reflect where the organisation now is.
If you look hard enough, it will be possible to see how an organisation works and who relates to whom. But even more revealing is how these relationships take place:
- Is top management interested in what staff feel and say or does it separate itself, however subconsciously?
- Is there an approach that ‘we decide and they do, and we don’t want feedback’? All organisations will pass messages around in some form or other, but are they received; are they heard; are they given real attention?
To sum up …
The last three chapters show that, if you want to avoid failure, it is vital to pick up warning signs, passive or active, and to identify a negative or corrosive culture. When you know what to look for, they are pretty easy to spot; they overlap and sadly they can easily multiply. If they remain unaddressed, they will precipitate the organisation’s fall into deep failure. If you see them, you can do something about them or at least alert others. As Timothy Geithner, US Treasury Secretary, said: ‘This has a classic dynamic that the longer you wait, the harder it is to solve.’
However, after failure has happened, identifying what the warning signs and culture were will help whoever has to put things right. Being catapulted into overt failure because others have finally heard the alarm bells doesn’t stop the alarm bells ringing. You still have to put out the fire or catch the thieves. You have to alter the behaviours that triggered them.
In the next part, I will look at how you respond when you are faced with deep ‘exposed’ failure and how you start to put things right.