Reality Matters

Did the hapless “senior civil servant ” really spend more than £73,000.00 on his personal media training, in order to perform better in front of the Public Accounts Committee, as reported by The Times recently?

The simple absurdity of committing that much money to polish one’s skills for a professional meeting makes me wince.  But it also highlights a current and common over-reliance on  presentation,  design and marketing.

Of course, these are some of the business functions in which the UK is particularly skilled.  Our creative services are world class and their outputs improve our lives in many ways, both personal and professional.  But communications services cannot be cherry-picked to make organisations appear better. All business functions are not equivalent.  Outputs, sales, target must be set and met and companies must be run by boards which have an appropriate level of understanding of corporate activities.  It is astonishing then, that Reputability’s new research, “Deconstructing failure, Insights for boards”  shows that three of the main risk factors that lie at the root of most of the failures studied, are:   “Gaps in board skill-sets and the inability of the Board to influence Executives (88%)”, “inability of boards to engage with fundamental risks to the business (85%)” and, “Defective information flows to and from the Board (59%).  In the majority of the 41 corporate failures studied, Boards simply lacked important information that might have helped them  to prevent a catastrophe. 

Are  the business functions that supply timely, up-to-date and relevant information to Boards less well-developed than  those of their marketing and communications colleagues?    Or are there “glass ceilings” blocking valuable intelligence?  Or, as Margaret Heffernan, author of “Wilful Blindness”  contends that the biggest problems are often, “right in the public eye and require the active participation of hundreds, or sometimes thousands, of people”.  Or is it simply the cumulative inability of people to absorb information that contradicts their existing world view?

Whatever the cause, the post mortems of crises regularly expose a disconnect between corporate claims and corporate reality.   Boards need to be better aware of the quality and extent of their information, something no amount of media training can sort out.


Jane Howard
Reputability LLP
London
www.reputability.co.uk

NHS culture: lessons from flight safety

After a career in aviation and aviation safety spanning four decades, I have been reflecting on why aviation is so safe but the NHS suffers a succession of disasters.

Aviation wasn’t born safe.  It was a disaster-prone industry until the 1970s but it has been transformed beyond recognition today.  It is extraordinary that in the debate over Heathrow's third runway, the topic of safety is not mentioned. Thirty years ago the increased risk of a crash and its impact on the local environment would have been top of the objectors' agenda.

I despair for improvements in the health service when I see headlines such as "NHS watchdog spent £785,000 on spin team" and on the same day "Death rates for doctors misleading, say experts" These two examples highlight the muddleheaded thinking and lack of clear leadership in the NHS. The fact that the Care Quality Commission is reportedly recruiting a new spin doctor with the task of "expertly managing" its reputation does it no credit at all; and it is reported that they are losing expert inspectors faster than they can recruit them. As if that were not enough, "experts" have pointed out that just publishing surgeons' death rates might be a seriously flawed idea.  They point out, rightly, that death rates have a lot to do with the type of patients, and type of operations performed.

All this shows how a spin-led approach, driven by fear of headlines and devoid of serious analysis, can damage reputations needlessly. Would any surgeon ever consider not operating on a particular patient with a poorer prognosis because of such an approach? We all hope not, but ill-considered regulation could drive surgeons that way.

So what are the differences that have led one safety-critical industry to a crisis of confidence and reputational meltdown whilst over the same time period, another safety-critical industry has gone from unacceptably low levels of safety to such high, measurable levels of safety that safety is not a live issue in the public’s mind?

There are two principal factors involved in aviation’s success: 

• There is an independent regulator, with a clearly defined role, expert staff, accountable to parliament, and funded by those it regulates; and 
• There is a culture of openness, with timely and honest reporting of all untoward occurrences whether or not they cause harm and widespread dissemination of the lessons to be learnt. 

These two factors have underpinned the successful story of UK civil aviation safety. Independent safety regulators like UK's Civil Aviation Authority have gained the respect of both politicians and those regulated. It is staffed and led by professionals with actual experience in the industry and technical competence.  As an example, I was the CAA board director with specific responsibility for aviation safety and also had the aviation experience of having been the CAA's Chief Test Pilot.

In contrast, it is clear from the sorry tale of the Care Quality Commission and its predecessors that health regulators have not been free from political influence, and that the views of its own experts have been ignored or suppressed.

Threats from politicians and prosecutors directly discourage an open culture and stop people from reporting occurrences. To manage any industry, managers need to know what is going wrong, and to learn from and fix problems, on a daily basis. This includes near misses. Others in similar operations can then also benefit from this knowledge. This happens in aviation with the CAA publishing a monthly report of aviation occurrences, mostly mistakes or technical problems that did not cause accidents, so that everyone can learn from what has occurred.

All hospitals in the UK should be able to learn from each others' mistakes and experiences of human and technical failures. Giving anonymity has been tried in aviation.  It is a useful backstop, but very few anonymous reports are in fact received. The vast majority of occurrences reported are logged by individuals or operating companies. This is a credit to the open culture prevailing among UK air operators - though ill-informed politicians regularly try to destroy this successful culture by threatening to prosecute those who make mistakes.

Anonymous reporting has been tried in the NHS, but when the same event is reported anonymously by more than one person, it can be very difficult to deal with the results obtained. By far the best way forward is to remove fear of prosecution and persecution and to offer a fair and supportive environment to those who report mistakes they have made. Lessons can then be learnt before they cause serious harm.  With such a culture in the NHS, we would not be hearing of events in the past, where real, recurring but fixable problems have existed, only discovered by subsequent analyses years after the events.

The NHS’ corrosive culture is leading to low morale, and reinforces calls for prosecutions. It is a self-defeating cycle made worse by political interference that comes from distrust, which makes the NHS secretive and much less safe than it should be.

But, it need not be so. The NHS needs a regulatory framework and a culture whose aims are to promote NHS-wide learning from mistakes.  It needs to destroy the current pattern of cover-up and fear that prevents system-wide learning.

It took time for aviation to make flying so safe and it requires constant vigilance to maintain it that way.  There is no reason why the NHS can’t make the transition. But it will require strong leadership and regulation that bases its decisions on good evidence.

Mike Bell, CBE
Reputability LLP
London
www.reputability.co.uk

Fair Tax

States that have long treated tax breaks as a source of international competitive advantage are learning that they may be big losers.  Global companies seem to be hoarding, and sterilising, billions perhaps trillions of dollars in offshore centres.  Hand-wringing  abounds. 

For markets that are dominated by a single utility-like company (such as Google or the Amazon portal), changes in the international tax regime may be the only 'solution'.  Consumers have little real choice and thus no leverage to influence these behemoths.  They can carry on with modest reputational damage the only likely consequence of systematic tax avoidance as long as it remains legal.

But in some markets, such as food and  most other consumer goods and services, consumers have choices.  Here, the choice to avoid tax legally can more easily bring reputational damage in its wake.

It's now easy to paint companies that systematically avoid tax as unethical (even though not outlaws), putting them in the same basket as those who, for example, 'exploit' child labour in ways that are legal locally but unacceptable to customers. 

Where they have a choice, consumers can, and sometimes do, choose to buy from those who pay a 'fair' amount of tax.  Concerted campaigns, especially if whipped to a frenzy by politiciains, could tip this into a climate for tax avoiders that is as hostile as that faced by banks, bringing reputational damage to a scale that exceeds tax savings.

How can companies seeking to be 'fair' locally protect themselves from such a storm?  Fairtrade has attracted local brands and international companies driven by pragmatism.  "FairTax" could be the new Fairtrade, an independent seal of approval for international companies seeking outside confirmation that their tax structures are fair.

Anthony Fitzsimmons
Reputability LLP
London

Hanging together?

Does the notion of collective board responsibility place an impossible burden on those it involves?

Members of BP’s, Shell’s and Statoil’s boards, Google’s and the boards of nine FTSE companies alleged by Action Aid as illegally failing to disclose their ownership of “almost 150 offshore subsidiaries based in tax havens” might be wondering how effectively they carried out their duties.   

Could they have prevented the embarrassing situations that their companies now find themselves in?  What should their actions now be to mitigate corporate trauma?  

Classic risk management teaches that boards should establish their risk appetite and tolerance and ensure the board has adequate oversight of risk.

But what if the board, or its non-executives, is simply not aware of critical company actions?  What if, despite the best skills and efforts, information regarding questionable corporate activities never reaches the board?

It seems likely from the examples above that many boards simply do not understand fully the environment in which they operate. Information asymmetry can be a real problem.  So are unknown knowns.

Assuming that problems will be prevented by the risk management team is simply not adequate. Senior risk professionals now openly discuss the warning signs, “that the risk management profession itself is in danger of being computerised”.  And they can’t be expected to seek out risks that have their origins with the boss: they don’t want to be out of a job.  Board performance evaluation, as it currently stands, also appears not to address such problems.

If Boards are to exercise control, and so be able to take collective responsibility they need new tools, a new lexicon and, probably, a fresh approach, otherwise this is indeed an impossible load.  If they don’t they may find themselves hanging together.

Jane Howard
Reputability LLP

London

www.reputability.co.uk

Gamekeeper turns poacher

Nathan Bostock, RBS' talented Chief Risk Officer, finally decided to stay with RBS. His reward is to become its Chief Financial Officer.

Is it a good idea for a CRO to become a CFO or Chief Executive at the same company?  Apart from knowing where all the bodies are buried, they should also know everything about how risk is monitored and (hopefully) kept under control.  They probably know more than anyone else about the system's weaknesses.  And they have been the boss of everyone in the risk control system except, if an outsider, their successor.

That kind of mix is filled with potentially lethal behavioural and organisational risks - though of course the loss of such a knowledgeable and experienced individual would be a serious blow to RBS. 

So to the question: as RBS' CRO, should Nathan Bostock block his own promotion to CFO? A tricky one.


Anthony Fitzsimmons
Reputability LLP
London
And see our new website at
www.reputability.co.uk

Shooting Messengers Kills Patients

It's bad enough when an organisation doesn't act on or learn from bad news.  Shooting messengers who bring bad news makes things worse.  The organisation can't learn from the mass of mishaps with minor consequences that vastly outnumber mistakes ending in disaster.

That's what is going on in the NHS, according to the results of a survey in Nursing Times. 

"84% of [nurse] respondents had previously raised concerns about a colleague’s practice or attitude – of which 23% said they had done so “several times” or “regularly”, and 23% “at least once”.
But of those who had raised concerns, 52% said there had been no appropriate outcome as a result of speaking up and a similar percentage said doing so had led to negative consequences for themselves.
Almost 30% of nurses said being viewed as a troublemaker was the biggest barrier to speaking up, with inaction by managers cited by 23%. "

Organisations that don't learn from their own experience suffer calamitious reputational damage when the public learns that they don't systematically learn lessons from experience.  Their leaders are branded as incompetent at best.  More important, their customers suffer the consequences.  In the NHS, that means avoidable harm to patients, as those so disastrously served by the Mid-Staffordshire Hospitals have learned. It's been estimated that between 400 and 1200 unnecessary deaths occurred there between 2005 and 2008.

This is a deep cultural issue, reinforced by incentives and a long history.  In the past it's been reinforced by government set targets and the systematic  gagging of those who alleged bad practice.  Following the Francis Report, the Department for Health says it want things to change, but changing such a deeply embedded, longstanding and seemingly ubiquitious bad practice is exceptionally hard to achieve.

Anthony Fitzsimmons
Reputability
London
www.reputability.co.uk

Ethical taxpaying

Starbucks has had second thoughts.

Starbucks has UK sales of £400m annually but arranged its affairs so that it paid no UK corporation tax in the last 3 years.  It paid £8.6m over the last 14 years.  In contrast homegrown Whitbread's Costa turns over less but pays about £15m annually.  It's was all legal but the questions was: was it right?   Neither UK politicians nor UK public opinion thought so.

Now Starbucks has changed course.  It will pay about £10m UK tax in each of the next two years by foregoing tax deductions on coffee purchases, inter-company loans, royalty fees and capital allowances.  In other words it is abandoning widely used, generally legal, strategies designed to shift profits from  higher tax countries to lower tax countries.

Three questions:

First, who will follow Starbucks?  Amazon?  Google?

Second: Does a system that encourages corporation tax avoidance overlaid with voluntary tax donations make sense?

And third,  will the Chancellor now consider dropping all corporation tax deductions (except perhaps bad debts) and setting an ultra-low flat rate of corporation tax?


Anthony Fitzsimmons
Reputability
London

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”