Thursday, 26 March 2009

Preventing Managers from Doing Dumb Things and the Consequences for Others

Following on from the previous posting and from recent events in the news, a timely book has just been published 'Think Again', by and American-Anglo collaboration, Finkelstein, Whitehead and Campbell. Reviewed in the Economist, it is a book about why managers make poor decisions. Coming from a long line of research and writing in this field I wonder what it has to add to previous, scholarly work on the limitations of rational decision-making in the 1970s by March & Simon, and Janis's ideas on 'groupthink' and its derivatives. These ideas were subsequently made more accessible and given a given new twists through the insights of Gareth Morgan on the dark sides of strong cultures and 'psychic prisons', Richard Pascale and 'nothing fails like success' and Pfeffer and Sutton on 'why smart people do dumb things'.

Maybe wanting to appear smart, I'm tempted to ask why smart readers should continue to read the same narrative, albeit using different examples. Perhaps this is something to do with willing consumers looking for 'new' ideas (and silver bullets) and willing producers looking to recycle 'old' ideas (and make quick income), which are good theories of management fads and fashions. However, in a less cynical vein, I'm sure this book will certainly serve a useful purpose in bringing to the fore some modern examples of why trends and history don't contain their own justification, pyschologically-biased 'prejudgement', close friendships with colleagues, self-interest in seeking rewards and power, and so on.

Such a list of reasons, especially when combined with the earlier, more scholarly, works help explain the current financial crises from a micro perpective (for a more macro perspective, have a look at the recent video from MIT featuring two excellent financial economists outdoing each other in pessimism). Knowing a little from the inside about the RBS crisis in my own country and reflecting on the current vilification of its former CEO, Sir Fred Goodwin, who's house has just been vandalised by self-styled 'anti-capitalists', I'm sure we would be able to apply some of these lines of analysis to the failure of one of the world's largest banks, the loss of reputation of its former boss, and the reputation spillover to its former managers, employees and Scottish firms (see earlier posts and 'Security Stepped Up for Senior RBS Staff'). And, surprise, surprise, I note that they do in the excellent little video introduction to the book on the Amazon website and the near full text of the book posted online. I'm also sure we can learn from some of the safeguards proposed by Finkelstein, et al, in testing theories and business models to destruction through the equivalent of courtroom advocacy and defence, the promotion of devils advocates and naysayers (where have I heard this before, Tom Peters?), and checks on the power and narcissism of celebrity CEOs, the subject of the last post.

My point is that the rather indigestable question we really should be asking is: despite managers knowing all about the problems of their less-than-rational behaviour and the above solutions (most will have read some of the books), why do smart people continue to do dumb things (the will and skill problem) and why do we continue to let them do dumb things (the opportunity and regulatory problem)?

I will raise this question tomorrow at the meeting of HR directors in Scotland because it has implications for HR and because it has major implications for the reputations of those people who have been caught up in the collapse of major banks, a small number of which are culpable for not speaking up to power but a large majority who had no access to power. The public feelings over banks and 'bankers', made worse by media interest in bad news, may blight the employment prospects of many ordinary people for some years to come (see CV Harquail's post a few weeks ago on reputation spillover on Authentic Organizations). That is an empirical point we should be taking up. However, we should also be taken up the questions of will, skill and opportunity referred to in the previous paragraph. Do managers actually know about the problems and consequences of irrational decision-making? Are they aware of the trained incapacity problems that socialisation into firms' strong cultures are likely to result in, and are they aware of the benefits of widening minds through a critical management education versus the challenges created by narrowing them through much in-company management training?

And do we need more effective regulation of managers that impose on them certain obligations, not only principles of good corporate governance (the current solution) but also a requirement to actually learn in the true sense of that term from the lessons of the past. By which I mean not just knowing about but knowing how (to learn). In other words, do managers need to become more professional in the widest sense of that term, which is an old but still relevant debate? Easier said than done I suspect. I had better read the book and maybe think again.

1 comment:

Ned said...

The relevant question for HR is "what programs, structures and processes has HR/the organization established that support both rational and irrational decision-making?"

Certainly, HR is not solely responsible for answering this question - Risk Management (executive/committee)obviously has a key role to play in determining what constitutes rational and irrational decisions in lending.

However, to the extent to which HR is strategic, it ought to be working on the answer to this question. Currently, many apparently useful HR initiatives are potentially counterproductive (360 degree feedback; performance appraisal, policies re: references) in this regard.