Why don’t we see things coming? Risk and governance issues seemingly continue to move up Board agendas. Anticipating and preventing problems should be second nature in most boardrooms. Yet scandals such as LIBOR and the horsemeat fiasco keep on happening.
It’s clear we must be missing something. Not only does this make businesses more vulnerable to reputational damage, they could be losing out in other areas too. If organisations are “blind” to risks, they are likely to be blind to opportunities.
Dr Margaret Heffernan in her publication: Willfull Blindness, suggests it may be because Boards are not sufficiently diverse and they do not adequately reward, promote or encourage those whose ideas are “different”. This is not just about gender.
It can be as simple as not listening to those whose views are “different” with the result that Groupthink takes over. As Dr Heffernan’s book points out, research project after research project has shown that “we would rather be wrong than alone”.
This is not only about listening to whistleblowers or those with new ideas – vital though that is as risk managers for some banks and Kodak’s digital media innovators have shown – it is also about acknowledging the downside of entrenched cultural bias and actively seeking to redress it.
As John Hurrell of AIRMIC (the risk managers’ association) said, at a recent conference in London on “Risk Blindness”, much of the information on risk management in company reports has become increasingly uniform and ‘boilerplate’. As a result the quality of information available for investors is actually reducing.
Greater cultural diversity at Board level can bring fresh perspectives and move businesses beyond Groupthink. Not only can this be achieved by seeking NEDs from beyond the traditional mould. NEDs should also be trained to be more challenging, to ask if they can speak directly to whistleblowers for example and discuss the tone set by the Board in their pronouncements and promotions.
This does not mean that the views of auditors and other professionals can be disregarded, but decision-making can be improved by access to a wider range of views. Take tax avoidance as an example, a homogenous board is unlikely to have seen the issues in advance before they hit the headlines. Obtaining independent views of actual and potential customers, partners, regulators, community groups, NGOs and academics might sound fanciful, but listening to wider views is essential to spotting risks.
Boards are facing challenging times and part of the problem may reside in their composition and culture. Attention should be paid to gender, but also age, outlook, experience, ethical practices and perspectives, maybe even dress code or ‘uniform’.
‘Uniformed’ groups make uniform, or even uninformed, decisions. The best companies are starting to recognise this.
Published by Charles Toomer – June 2013
If Bob Diamond’s resignation is “the first step towards a culture of responsibility” in the UK’s banking industry, what is the second? Any suggestion that it should be more rules is erroneous; there are already plenty with expensive compliance departments…