Ethos and Leadership

The latest 'Index of Leadership Trust' survey by the ILM and Management Today makes worrying reading for those who recognise the importance of 'soft' risks.

"[H]alf the people surveyed thought that their organisation puts financial performance ahead of ethical considerations, and 48% and 44% say the same of their CEO and line manager."

One of the lessons from 'Roads to Ruin' is that ineffective leadership on ethos and culture is a major but unrecognised cause of corporate failure.

It doesn't only matter when the organisation is rotten at its core, as were Enron and the Independent Insurance Company.  It matters just as much when leaders have sound ethical ideas but fail to embed them throughout the organisation.  This seems seems to have been the problem at BP.  There, a disconnect on ethos and culture on safety between BP's aspirational board and the reality of its American operations led to a series of crises that came close to disaster for BP's shareholders.

Almost half the survey's respondents thought their leaders put profit before ethical considerations.  That probably means half the organisations surveyed had the same weakness.  Other results of the survey suggest that this type of weakness may be more prevelant in larger organisations.  Other findings from 'Roads to Ruin' suggest this is likely.

Many people see ethos as a nice-to-have.  The ILM puts it as a factor in earning trust of employees. Ed Milliband sees it as a way to divide the business world into "producers" and predators".  But 'Roads to Ruin' demonstrates that inadequate leadership on ethos and culture is an important example of a potentially catastrophic 'soft' risk.  It's hard to self-test on risks like these because of cognitive biases.  Self-testing can easily entrench dangerous self-delusions.

Risks related to ethos and culture may be soft by name, but 'Roads to Ruin' shows how easily they lead to disastrous consequences.  It's not just about dishonesty as discovered, too late, at Enron and Independent Insurance.  It's about effective leadership on ethos and culture - and how unrecognised incentives can derail the best intentions.  Ask BP's longstanding shareholders. 

Anthony Fitzsimmons


www.reputability.co.uk

 Anthony Fitzsimmons is Chairman of Reputability LLP and author of “Rethinking Reputational Risk: How to Manage the Risks that can Ruin Your Business, Your Reputation and You”

Chief Risk Officer becomes CEO

Congratulations to Amer Ahmed, the Chief Risk Officer of Allianz Re, the reinsurer, now appointed Chief Executive of his company.

This may be a better outcome than for RBS, the bank that lost CRO Nathan Bostock to a competitor. But promoting a CRO to CEO is not without risks.

It's not just a question of the incentives working on an ambitious CRO.  There is the question whether the new CRO can ever be in effective control of risks emanating from a predecessor so respected as to become CEO.

And there is a fundamental problem similar to but different from that of bank traders having back-office experence.  Jerome Kerviel's compliance team experience helped him to evade Soc Gen's risk controls; and UBS may have had the same problem with Kweku Adoboli.  Its a risky policy to allow risk people to acquire executive control.

The best solution remains persuading CROs that being CRO is a career destination.  Barclays Bank  seem to be having some success with Robert Le Blanc at a cost that is modest at least in in banking terms.

Anthony Fitzsimmons
www.reputability.co.uk