The Global Governance Crisis: Failing To Avoid Predictable Surprises
In this article I am going to argue that the failure of boards and executives to avoid predictable surprises, evidenced by the PwC Global Crisis Survey 2019 and the daily headlines in our newspapers, represents a global governance crisis.
Many of the causes and solutions to Predictable Surprises were identified in the book with that title 16 years ago. But it did not cover all the causes and solutions, as I will explain.
This article is a way to introduce a conference on the topic, which will be followed by an in-depth research-led Inquiry.
Predictable Surprises: The Disasters You Should have Seen Coming and How to Prevent Them by Bazerman & Watkins (2004 and re-published 2008) explored why disasters happen even though leaders had all the data and insights they needed to recognise the potential for , even the inevitability of, a crisis.”
The authors were driven by “a desire to understand why organisations fail to respond with effective preventative action in the face of clear evidence of the potential for severe damage” and, by a sense of urgency following the September 11 2001 terrorist attacks on New York and the collapse of Enron.
There are many books on the demise of a particular business, such as Enron, but few on the reasons businesses in general face corporate crises so frequently, and crises that are predictable, and are often predicted. We need to ask why that is.
We haven’t solved the problem, the problem is getting worse. The PwC Crisis Survey 2019 makes that very clear.
The survey report says, “69% of business leaders have experienced a corporate crisis in the last five years yet 29% of companies have no staff dedicated to crisis preparedness”, and “Companies with more than 5,000 employees are more likely to have experienced more than 5 crises — an average of one per year.”
The survey is based on conversations with 2084 senior executives in organisations of all sizes in 25 industries and across 43 countries. It is therefore fair to say the survey is evidence of a global governance crisis — a failure by boards to fulfil their duties. What other conclusion could there be?
The findings should be a major concern to investors, other providers of finance, insurers, regulators, policy makers and all other stakeholders.
The cumulative cost to society of such failings must represent a major drag on the performance of economies and the levels of prosperity society could be enjoying.
It would also suggest Andy Haldane, Chief Economist at the Bank of England was correct to suggest the productivity crisis and poor levels of economic growth can, to a large extent, be blamed on poor management of companies in the UK and, almost certainly, in other countries.
True, the job of the CEO, and of directing and leading businesses, is getting harder for many reasons that were recently outlined in a cover story of The Economist. (See my recent article on this).
In many cases the same reasons explain why directors are challenged. But, as I explained in another recent article, the real reason both boards and CEOs are increasingly daunted by the challenges and are not up to the job stems from the outdated theories and practices they apply, and business schools still teach.
The problem can be summarised as industrial era thinking and practices which simply do not work in a post-industrial economy.
Add to this the fact that most management theories and practices are built on the implicit assumptions of the neo-liberal economic fallacies which have now been discredited.
Also add the problem of outdated accounting standards which do not measure the real value of most modern businesses and their capacity to create future value.
By now you should already be starting to see why predictable surprises are far too common?
Add to this mix the persistence of perverse incentives enjoyed by vested interests, that still encourage short-term thinking and bad behaviour.
Then layer on top the fact few directors and executives have a clear understanding of the nature of different types of risks they face, or the need to address each type with the right tools and methods.
Now add another layer to the stack of problems. Recognise that most executives are blinded by the silos they operate within. They cannot see the big-picture and the interdependencies between the parts of the whole system. Yet most risks are complex and systemic in nature.
Then, despite the growing awareness of our cognitive biases and limitations, decision making capabilities are still very poor. If they were better we would not be seeing so many crises.
Finally, in the Wise Advocate, Art Kleiner and his co-authors suggest, most leaders are simply not strategic in their thinking or approaches. They tend to adopt quick, pragmatic, short-term fixes to problems. ‘Quick fixes’ that often produce bad results in medium and long-term, with high costs and lasting damage as the consequence. To put that in another way, many ‘leaders’ are still just fighting fires.
To conclude, we have not fixed the problems identified in Predictable Surprises. We have yet to fully understand their causes. Bazerman and Watkins began an exploration, but we urgently need a much more in-depth inquiry to address these issues.
Directors and senior executives need to engage in this inquiry. Investors, insurers, policy makers and all other stakeholders also have much to gain by being engage in it.
I hope you will agree that the failings outlined in this article represent a global governance crisis? And I hope you will agree the problem needs to be addressed as a matter of urgency?
The Strategic Management Forum is hosting a conference on March 9th in London to begin to address the problem. “UNDAUNTED: How Successful Leaders Face Up To Wicked Problems and Avoid Predictable Surprises” includes presentations from a dozen world class speakers.
The conference will then be followed by the launch of a year-long “Inquiry Into the nature and causes of Predictable Surprises and How to Avoid Them”. Details: firstname.lastname@example.org