Michael Skapinker is editor of FT and author of “Inside the Leaders’ Club: How top companies face with pressing business issues”
Silicon Valley Bank is collapsing after its investments in long-term bonds made it vulnerable to interest rate hikes. The BBC is in chaos after suspending its top football pundit and his colleagues quitting their posts in solidarity. JPMorgan Chase is facing reputational damage and legal action after keeping sex offender Jeffrey Epstein as a client for five years after pleading guilty to soliciting prostitution, including from a minor.
In all of these cases, one may ask, as Queen Elizabeth II did during a visit to the London School of Economics during the 2008 global financial crisis: “Why didn’t anyone see it coming?
Has anyone in BBC management asked if, if he suspends Gary Lineker from presenting his best Saturday night football program game of the day, could other experts also come out? Did the SVB run the risks associated with its investment policy if interest rates rose faster than expected? And why did JPMorgan accede to senior banker Jes Staley’s desire to keep Epstein? These are dramatic examples of what can go wrong, but any organization that fails to regularly monitor its potential risks could go down the same path.
Too often, senior executives don’t envision the worst-case scenario. Why don’t they listen to the skeptics?
Harvard Business School professor Amy Edmondson says sometimes it’s because there are no doubts. Leadership groups become so locked into a “shared myth” that they ignore any suggestion that they might be wrong. “We have the well-known confirmation bias where we are predisposed to pick up signals, data, evidence that reinforces our current belief. And we will filter out the evidence that doesn’t confirm it,” she says.
It’s like taking the wrong road by car. “You’re on the freeway driving somewhere and you’re heading in the wrong direction, but you don’t know it until you’re just hit on the head confirming data you can’t miss. : you suddenly cross a line state that you did not expect to cross.
This groupthink and confirmation bias is prevalent in society at large, where people jump at any evidence to support their point of view, for example on climate change, Edmonson says. “Oh my God, this is the coldest winter ever. What do you mean by global warming?”
In many cases, there are skeptics, but either they are reluctant to raise their voices or, when they do, their colleagues are reluctant to join in. 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 prompted us not to stray from our group. “If you think about our time on earth as a species, for the most part we lived in very small clans, bands, tribes, and our daily struggle was for survival, both around food security and physical security. In this environment, if you were ostracized, you were going to die. There was no solo life at that time.
We carry this fear of being rejected in our workplaces, aggravated by the experience of whistleblowers, who sometimes face reprisals from their employers and are shunned by their colleagues. The dissidents present their colleagues with an uncomfortable choice: either to consider themselves cowards for not having spoken too, or to consider the rebel as “some kind of crackpot”. The second is often easier.
Isn’t the Lineker saga a counter-example? His colleagues backed him up, forcing the BBC to quickly see how miscalculated it had been. Detert said that was an unusual case. Famous footballers turned commentators are brands themselves, Lineker in particular. The BBC realized how much they needed him and how easily he could have secured a contract with a rival. Usually, he said, the rebels find themselves isolated.
So what can leaders do to encourage doubters to speak up, to ensure they consider all possible downsides to their strategies and escape possible humiliation or disaster? Detert doesn’t like appointing a “devil’s advocate” to give a contrary opinion. It’s often clear that they’re just going with the flow. He prefers what he calls “joint assessment”. In addition to the preferred policy – investing in long-term bonds, for example – senior managers should develop a distinctly different policy and compare the two. This is more likely to reveal flaws in the preferred strategy.
Simon Walker, whose roles have included that of communications manager at British Airways and spokesperson for Queen Elizabeth, and Sue Williams, Scotland Yard’s former chief negotiator for kidnappings and hostages, told me during from an event hosted by the Financial Times business networking organization that leaders should involve all functions, from communications to legal to human resources, when considering possible future crises. Detert agrees this can be helpful, provided the presence of often underestimated departments such as HR is taken seriously.
The behavior of leaders indicates whether they want staff to speak up. Edmondson says, “Leaders of organizations must do everything possible to invite the dissenting viewpoint, the missed risk. Before ending any conversation where there is a decision, we must say, without fail, “What are we missing? We say, ‘OK, let’s just say we mess this up and it goes wrong, what would explain it?’ She recommends calling people by name, asking them what they think.
Detert adds that office design can signal to staff that their thoughts are welcome: the boss sitting in an open plan, or having light stripes on the floor showing the way to his office, or sitting at square tables without names of place rather than at rectangular tables where the position of their seat shows that they are in control.
What is the relevance of these workstation arrangements when, post-lockdown, employees no longer come to the office every day? “That’s the $10 million question,” Detert says. For one, working remotely could make it harder for leaders to read the signs that people aren’t comfortable with a strategy. On the other hand, it could be that people find it easier to express themselves from their own homes. They may also feel that other aspects of their life, such as family, are now more important than work, which could prompt them to talk.
Others believe SVB’s relaxed remote-working culture, which meant senior executives were scattered across the United States, contributed to its failure. Nicholas Bloom, a Stanford professor who studied remote work, told the Financial Times: “It’s hard to have a hard call on Zoom.” Interest rate risk hedging was more likely to be discussed over lunch or in small meetings.
Leaders should also constantly praise people who speak up. The penalties for this are often more obvious than the rewards. Those who keep their heads down are rarely blamed. As Warren Buffett said, “As a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.”