What causes organisations to face existential crises? And what turns crises into catastrophes? "Roads to Ruin", a new report from the Cass Business School for Airmic, the risk managers' association, analyses the entrails of over 20 major crises of various shapes and sizes. The report was previewed here last month.
The conclusions are stark. As Anthony Hilton summarised it in today's London Evening Standard, the reasons for failure often emanate from the very top. Inadequate board skill and poor leadership on ethos are a recurring cause of crises. And adapting the title of an earlier blog, he wrote: "Too many boards live in a rose-tinted bubble".
He also highlighted poor internal communication as a source of much of the problem, made worse by the insufficiently high status of risk professionals. This issue was flagged here last year as regards the financial sector. Since then, RBS' Chief Risk Officer has taken the road to becoming a bank CEO, fulfilling a prediction of problems that are developing with the arrival of CEO-calibre CROs.
Nick Edwards' interview for Reuters is here. And Carly Chynoweth wrote a piece on the implications for NEDs in the Sunday Times.
An executive summary of the Report is still available free of charge here; where you will also find a link to buy a copy of the full report from Airmic. Its well worth reading.
Anthony Fitzsimmons
www.reputability.co.uk
Tuesday, 19 July 2011
Friday, 15 July 2011
Police seige intensifies
The reputation of the Metropolitan Police continues to be under seige as Sir Paul Stephenson's former personal PR consultant was arrested yesterday.
The Daily Telegraph reports that the Met's Commissioner Sir Paul Stephenson, employed a former News of the World Executive Neil Wallis as his personal PR consultant from October 2009 to September 2010. A member of both the newspaper editors' code of practice committee and of the Press Complaints Commission, Mr Wallis was arrested yesterday on suspicion of phone hacking. Calls for Sir Paul's resignation have begun.
The reputation of the Met is being eroded at an alarming rate. Things will continue to get worse until its leaders acknowledge the full extent of what is wrong and set out to fix the fundamentals. PR won't fix anything. It will only store up more trouble for the future
The Metropolitan Police Authority faces a challenge. They need a police chief who is not only competent but also sufficiently free of baggage and independently minded to be able to recognise and deal with the Met's fundamental problems. These urgently need fixing by someone who is determined to see and understand what they are. The question is whether any career policeperson can have enough detachment.
Time for a very senior commander of intelligence and integrity to be snatched from the Military? Some have considerable experience of security issues if not of policing.
Anthony Fitzsimmons
www.reputability.co.uk
The Daily Telegraph reports that the Met's Commissioner Sir Paul Stephenson, employed a former News of the World Executive Neil Wallis as his personal PR consultant from October 2009 to September 2010. A member of both the newspaper editors' code of practice committee and of the Press Complaints Commission, Mr Wallis was arrested yesterday on suspicion of phone hacking. Calls for Sir Paul's resignation have begun.
The reputation of the Met is being eroded at an alarming rate. Things will continue to get worse until its leaders acknowledge the full extent of what is wrong and set out to fix the fundamentals. PR won't fix anything. It will only store up more trouble for the future
The Metropolitan Police Authority faces a challenge. They need a police chief who is not only competent but also sufficiently free of baggage and independently minded to be able to recognise and deal with the Met's fundamental problems. These urgently need fixing by someone who is determined to see and understand what they are. The question is whether any career policeperson can have enough detachment.
Time for a very senior commander of intelligence and integrity to be snatched from the Military? Some have considerable experience of security issues if not of policing.
Anthony Fitzsimmons
www.reputability.co.uk
Thursday, 7 July 2011
Police under Siege
It isn't just the News International that faces a whirlwind similar to that faced by BP. London's Metropolitan Police faces one too.
The crumbling of the News of the World - or even its UK stablemates - may annoy some in the UK, but any gap will soon be filled by the market. Indeed the Sun may soon start shining for NoW readers every Sunday. But a collapse of confidence in the Metropolitan Police would be a calamity of a different order of magnitude.
Over the last few years, a succession of Metropolitan Police tactics have alienated increasingly large sections of the population. The use of "Stop and Search" powers alienated youths and visibly ethnic minorities. Use of similar anti-terrorist powers has alinenated many muslims including some of the police force itself. The Met's reluctance to countenance the possibility of error - not to mention allegations of covering up - in response to the deaths of Charles de Menezes and Ian Tomlinson are just two examples of circumstances that have undermined trust with other sections of the UKs population.
The latest allegations are far more corrosive. It is alleged that some policemen received large sums from the News of the World in exchange for inside information. There is also the possibility that something - whether more money, personal relationships, the desire for positive newspaper coverage, the scope for mutual blackmail or something else - led the Metropolitan Police to hold back from investigating the News of the World phone hacking allegations. If true, this could easily cause trust in the police to plunge to depths not previously seen. And to paraphrase Warren Buffet, you can lose trust in minutes but it takes years to build it. Traditionally the UK's police were seen as trusted members of the community. Without trust, traditional style policing won't work.
Its no wonder that the Met has become obsessed with managing its reputation with the 'silent majority' that it relies on for support. Brian Paddick, the well known former Deputy Commissioner of the Met, is quoted by the Financial Times as saying:
An imminent study of mainly private sector crises, will set out nearly twenty under-recognised but fundamental areas that can destroy both reputations and the organisations that own them.
From the outside, many - perhaps most - of the fundamentals highlighted in that report seem to need fixing at the Met. It will also have to exorcise the effect of what too many citizens see as a toxic track record.
The rehabilitation of the Metropolitan Police can't start too soon.
Anthony Fitzsimmons
www.reputability.co.uk
The crumbling of the News of the World - or even its UK stablemates - may annoy some in the UK, but any gap will soon be filled by the market. Indeed the Sun may soon start shining for NoW readers every Sunday. But a collapse of confidence in the Metropolitan Police would be a calamity of a different order of magnitude.
Over the last few years, a succession of Metropolitan Police tactics have alienated increasingly large sections of the population. The use of "Stop and Search" powers alienated youths and visibly ethnic minorities. Use of similar anti-terrorist powers has alinenated many muslims including some of the police force itself. The Met's reluctance to countenance the possibility of error - not to mention allegations of covering up - in response to the deaths of Charles de Menezes and Ian Tomlinson are just two examples of circumstances that have undermined trust with other sections of the UKs population.
The latest allegations are far more corrosive. It is alleged that some policemen received large sums from the News of the World in exchange for inside information. There is also the possibility that something - whether more money, personal relationships, the desire for positive newspaper coverage, the scope for mutual blackmail or something else - led the Metropolitan Police to hold back from investigating the News of the World phone hacking allegations. If true, this could easily cause trust in the police to plunge to depths not previously seen. And to paraphrase Warren Buffet, you can lose trust in minutes but it takes years to build it. Traditionally the UK's police were seen as trusted members of the community. Without trust, traditional style policing won't work.
Its no wonder that the Met has become obsessed with managing its reputation with the 'silent majority' that it relies on for support. Brian Paddick, the well known former Deputy Commissioner of the Met, is quoted by the Financial Times as saying:
“The police tend to be obsessed with reputation management because British policing is based on the consent of the public and it is important to keep the trust and confidence of the public.”Unfortunately, the Met is addressing the wrong problem. Reputation management isn't the answer. As Julian James, then trying to rebuild Lloyd's then battered reputation, perceptively put it:
"You soon discover that it can't be done by clever marketing or spin. You have to fix the fundamentals."Fixing them doesn't mean fixing just the bribery allegations and the other historical grievances. It means fixing the causes: these probably include the culture, ethos and behaviour of the police and its leadership.
An imminent study of mainly private sector crises, will set out nearly twenty under-recognised but fundamental areas that can destroy both reputations and the organisations that own them.
From the outside, many - perhaps most - of the fundamentals highlighted in that report seem to need fixing at the Met. It will also have to exorcise the effect of what too many citizens see as a toxic track record.
The rehabilitation of the Metropolitan Police can't start too soon.
Anthony Fitzsimmons
www.reputability.co.uk
Wednesday, 8 June 2011
"Roads to Ruin"
Described as "Groundbreaking" by Julian James, CEO of Lockton UK, this study examines the underlying causes of over 20 major corporate crises. This Cass Business School report was researched on behalf of Airmic. The team, led by Professor Chris Parsons, included Anthony Fitzsimmons and Professor Derek Atkins, two members of Reputability's own team.
The Executive Briefing, released on 6 June 2011, is based on 18 case studies of high profile crises. They were triggered by events ranging from product contamination, explosions and crashes through derailed projects and IT failures to executive fraud.
Companies studied include AIG, Arthur Andersen, BP, Cadbury's Coca-Cola, Airbus, Enron, Firestone, Independent Insurance, Maclaren, Northern Rock, Shell and the French bank Societé Générale, with aggregate pre-crisis assets of over $6 Trillion.
Most companies involved had their reputations damaged or wrecked. Only a few avoided immediate reputational damage, but that is to igonore latent damage. Owners saw the value of their shares destroyed on a massive scale.
After stripping away the immediate triggers for the crises, the Executive Briefing identifies seven key areas of underlying risk that are not captured systematically even by state-of-the-art risk analysis. All are risks to reputation - and potentially to the long term survival of the business. These underlying risks, which all have to do with the behaviour of people individually and in the context of their organisation, arise from:
They also present a challenge to boards:
The role of the risk manager has evolved over the last 50 years. This report shows that the techniques of risk analysis and management will have to evolve further. And those in charge of analysis will have to learn how to bring sometimes unpalatable truths to Power.
The full report will be published in July.
For further reading, try this for more on the information disconnect between boards and their companies; and this on changes in incentives in the banking, legal and accounting sectors; and this for ideas on how the role of Chief Risk Officer might develop.
Anthony Fitzsimmons
www.reputability.co.uk
The Executive Briefing, released on 6 June 2011, is based on 18 case studies of high profile crises. They were triggered by events ranging from product contamination, explosions and crashes through derailed projects and IT failures to executive fraud.
Companies studied include AIG, Arthur Andersen, BP, Cadbury's Coca-Cola, Airbus, Enron, Firestone, Independent Insurance, Maclaren, Northern Rock, Shell and the French bank Societé Générale, with aggregate pre-crisis assets of over $6 Trillion.
Most companies involved had their reputations damaged or wrecked. Only a few avoided immediate reputational damage, but that is to igonore latent damage. Owners saw the value of their shares destroyed on a massive scale.
After stripping away the immediate triggers for the crises, the Executive Briefing identifies seven key areas of underlying risk that are not captured systematically even by state-of-the-art risk analysis. All are risks to reputation - and potentially to the long term survival of the business. These underlying risks, which all have to do with the behaviour of people individually and in the context of their organisation, arise from:
- Inadequate board skills and inability of NED members to exercise control
- Blindness to inherent risks, such as risks to the business model or reputation
- Inadequate leadership on ethos and culture
- Defective internal communication and information flow
- Organisational complexity and change
- Inappropriate incentives, both implicit and explicit
- ‘Glass Ceiling’ effects that prevent risk managers from addressing risks emanating from top echelons
- To develop a systematic approach to finding these 'missing' risks;
- To develop the requisite new skills in risk analysts and managers; and
- To persuade boards that there is a problem - and to deal with it.
They also present a challenge to boards:
"[T]hese risks will remain unmanaged unless boards - and particularly chairmen and NEDs - recognise the need to deal with them. Boards will also need risk professionals with enhanced vision and enhanced competencies to help them do so."
The role of the risk manager has evolved over the last 50 years. This report shows that the techniques of risk analysis and management will have to evolve further. And those in charge of analysis will have to learn how to bring sometimes unpalatable truths to Power.
The full report will be published in July.
For further reading, try this for more on the information disconnect between boards and their companies; and this on changes in incentives in the banking, legal and accounting sectors; and this for ideas on how the role of Chief Risk Officer might develop.
Anthony Fitzsimmons
www.reputability.co.uk
Thursday, 28 April 2011
Berkshire Hathaway's Dilemma
It isn't often that a company publicly - and rapidly - reports on a breach of its ethical code.
On 30 March, the FT reported the resignation of David Sokol, hitherto seen as a possible heir to Warren Buffett. Buffett's response to the resignation seemed mild given that there appeared to be a cloud over Sokol as he left.
The sky has now cleared - with a robust report by Berkshire Hathaway's Audit Committee. Trenchantly critical of Sokol, the report was published partly to clear the air and partly to illustrate how Berkshire views threats to its reputation. Sokol has protested his innocence.
Even if the Audit Committee is right, there is no evidence that this was anything more than an isolated breach of Berkshire's ethical principles. But if there was any other impropriety at Berkshire, they must get on top of it before anyone else discovers it. The reputational risk is particularly high.
Buffett's bienniel letter to his top managers wisely includes the following (here at page 26)
Making sure is a tougher way to go: but were Berkshire pre-emptively to discover and deal with any other impropriety, they could well suffer modest or no reputational damage. Were such mis-deeds to emerge independently, the damage would be far greater.
Buffett has repeatedly emphasised that Berkshire's appetite for reputational risk is zero. The active investigation route is the only way in which Berkshire can be reasonably confident of keeping their reputation substantially undamaged.
And that reputation has a distinct value to its shareholders. It is one of the reasons why Berkshire Hathaway shares trade at a significant premium to their reported asset value.
Anthony Fitzsimmons
www.reputability.co.uk
On 30 March, the FT reported the resignation of David Sokol, hitherto seen as a possible heir to Warren Buffett. Buffett's response to the resignation seemed mild given that there appeared to be a cloud over Sokol as he left.
The sky has now cleared - with a robust report by Berkshire Hathaway's Audit Committee. Trenchantly critical of Sokol, the report was published partly to clear the air and partly to illustrate how Berkshire views threats to its reputation. Sokol has protested his innocence.
Even if the Audit Committee is right, there is no evidence that this was anything more than an isolated breach of Berkshire's ethical principles. But if there was any other impropriety at Berkshire, they must get on top of it before anyone else discovers it. The reputational risk is particularly high.
Buffett's bienniel letter to his top managers wisely includes the following (here at page 26)
"If you see anything whose propriety or legality causes you to hesitate, be sure to give me a call. .....[and] let me know promptly if there’s any significant bad news. I can handle bad news but I don’t like to deal with it after it has festered for awhile. "Buffett has a choice. He can hope that his staff revisit his letter and voluntarily tell him if they are aware of any possible impropriety; or he can actively make sure that Sokol's act was an isolated one.
Making sure is a tougher way to go: but were Berkshire pre-emptively to discover and deal with any other impropriety, they could well suffer modest or no reputational damage. Were such mis-deeds to emerge independently, the damage would be far greater.
Buffett has repeatedly emphasised that Berkshire's appetite for reputational risk is zero. The active investigation route is the only way in which Berkshire can be reasonably confident of keeping their reputation substantially undamaged.
And that reputation has a distinct value to its shareholders. It is one of the reasons why Berkshire Hathaway shares trade at a significant premium to their reported asset value.
Anthony Fitzsimmons
www.reputability.co.uk
Monday, 25 April 2011
PWC appoints Reputation Tsar
It takes years to build a reputation and minutes to lose it. Since it gives a company its 'licence to operate' as a respected citizen of the world, its loss can be devastating.
Things are far starker for pure service providers such as lawyers and accountants. They have few assets beyond human wits and their reputation. Their ability to attract clients and to borrow depend on it. It is by far their most valuable and important asset. The redoubtable Lex has suggested that regulators should attack accountants' reputations, and the House of Lords has been critical of the "disconcerting complacen[cy]" of the Big Four in relation to their role in the financial crisis.
Now PWC is appointing a reputation tsar, Richard Sexton. To judge by the Telegraph's report, Richard Sexton's focus will be on reputation management. If so, PWC is making a common mistake in trying to fix its reputation.
The task PWC needs to address is more profound. They need to fix the fundamentals. That means finding - and admitting to and dealing with - more profound problems than how regulators and politicians see you.
The stakes are high, and not just for PWC.
Anthony Fitzsimmons
www.reputability.co.uk
Now PWC is appointing a reputation tsar, Richard Sexton. To judge by the Telegraph's report, Richard Sexton's focus will be on reputation management. If so, PWC is making a common mistake in trying to fix its reputation.
The task PWC needs to address is more profound. They need to fix the fundamentals. That means finding - and admitting to and dealing with - more profound problems than how regulators and politicians see you.
The stakes are high, and not just for PWC.
Anthony Fitzsimmons
www.reputability.co.uk
Tuesday, 19 April 2011
Performance related pay
Here is a thoughtful FT article by the LSE's Richard Layard on performance related pay.
Once you have read that, you may wish to look at "Limited liability, increased risk", "Does bonus size matter?" and "Extracting bankers from the doghouse", which look at incentives such as bonuses through a variety of lenses.
Happy reading
Anthony Fitzsimmons
www.reputability.co.uk
Once you have read that, you may wish to look at "Limited liability, increased risk", "Does bonus size matter?" and "Extracting bankers from the doghouse", which look at incentives such as bonuses through a variety of lenses.
Happy reading
Anthony Fitzsimmons
www.reputability.co.uk
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