From the SVB to the BBC: why didn’t anyone see the crisis coming?

Michael Skapinker, FT Contributing Editor and ‘Inside the Leaders’ Club: How are leading companies tackling pressing business issues?

Silicon Valley Bank collapsed after its investments in long-dated bonds left it vulnerable to interest rate hikes. The BBC is in chaos after its top football pundit was suspended, with colleagues resigning in solidarity. JPMorgan Chase is suffering reputational damage and lawsuits after it kept sex offender Jeffrey Epstein as a client for five years after he pleaded guilty to prostitution, including from a minor.

In all these cases, we can ask the question, as mentioned in II. Queen Elizabeth did when she visited the London School of Economics during the 2008 global financial crisis: “Why didn’t anyone see that coming?”

Has anyone in BBC management asked if Gary Lineker will be suspended from presenting his Saturday Night Football programme? match of the day can other experts walk out? Did SVB pass the risks associated with its investment policy if interest rates rose faster than expected? And why did JPMorgan join senior banker Jes Staley in his desire to keep Epstein on board? These are dramatic examples of what can go wrong, but any organization that does not regularly monitor potential risks can do the same.

Too often, senior managers don’t consider the worst-case scenario. Why don’t they listen to the doubters?

According to Harvard Business School professor Amy Edmondson, this is sometimes because there are no doubters. Leadership teams become so locked into a “shared myth” that they ignore any suggestion that they might be wrong. “We have the well-known confirmation bias, where we tend to take in signs, data, and evidence that confirm our current beliefs. And we will sift through the corroborating evidence,” he says.

It’s like taking the wrong route in a car. “You’re driving somewhere on the freeway and you’re headed in the wrong direction, but you don’t know it until you’re bombarded with rebuttal data that you can’t ignore: you’re suddenly crossing a state line you didn’t expect.”

This groupthink and confirmation bias is prevalent in the wider society, where people rely on any evidence to support their opinions on things like climate change, says Edmonson. “My God, this is the coldest winter ever. What do you mean by global warming?”

In many cases, there are doubters, but they are either reluctant to speak up, or if they do, their colleagues hesitate to join them. JPMorgan had questions about Epstein. An internal email from 2010 asked, “Are you still happy with this client who is now a registered sex offender?”

James Detert, a professor at the University of Virginia’s Darden School of Business, says that evolution has conditioned us to stick with our group. “If you think about our time on earth as a species, we lived most of it in very small clans, bands, tribes, and our daily struggles for survival revolved around both food security and physical security. In that environment, if you are ostracized, you will die. They didn’t live alone back then.”

We carry the fear of ostracism in our workplace, which is compounded by the experience of whistleblowers, who sometimes suffer retaliation from their employers and are shunned by colleagues. Dissidents present their colleagues with an uncomfortable choice: either they see themselves as cowards for not speaking up, or they see the rebel as “some kind of scum.” The second is often easier.

Isn’t the Lineker saga a counterexample? His colleagues backed him up and forced the BBC to quickly see how badly he had miscalculated. According to Detert, this was an unusual case. The celebrated footballers turned commentators are the brands themselves, especially Lineker. The BBC realized how badly it needed it and how easily it could have contracted a rival. Usually, he says, rebels find themselves isolated.

So what can leaders do to encourage doubters to speak up, ensure they consider all the possible downsides to their strategies, and avoid potential humiliation or disaster? Detert is not a fan of appointing a “devil’s advocate” whose job it is to express a contrary opinion. It is often obvious that they are simply going through the motions. Rather, he prefers what he calls “shared appreciation.” In addition to a preferred policy—such as investing in long-term bonds—senior managers must develop distinctly different policies and compare the two. This is more likely to show the flaws in the preferred strategy.

Simon Walker, whose roles have included British Airways head of communications and Queen Elizabeth’s spokesman, and Sue Williams, Scotland Yard’s former chief kidnapping and hostage negotiator, told me at an event organized by the Financial Times business networking organization that leaders The potential future crises all functions, from communication to legal to HR, must be involved. Detert agrees that this can be valuable, provided that the presence of often undervalued departments such as HR is taken seriously.

Leaders’ behavior indicates whether they want employees to speak up. Edmondson says, “Organizational leaders must do everything they can to raise awareness of dissent, of missed risk. Before closing any conversation where a decision is made, it is imperative to say, “What are we missing?” We say, ‘OK, let’s say we’re wrong about this and it goes wrong, what would explain it?'” He suggests calling people by name, asking them what they think.

Detert adds that office design can signal to employees that their thoughts are welcome: the manager sits in an open space, or bright stripes mark the way to the office on the floor, or sits at rectangular desks without place names, rather than rectangular desks where it’s obvious from their seating positions, that they are responsible.

How relevant are these workplace layouts when employees no longer come into the office every day after closing? “That’s the $10 million question,” says Detert. For one thing, telecommuting can make it difficult for managers to pick up on signs that people aren’t comfortable with a strategy. On the other hand, it may also be easier for people to talk from their own homes. They may also feel that other aspects of their lives, such as family, are now more important than work, which may prompt them to talk.

Others believe that SVB’s loose telecommuting culture, which meant senior executives were scattered across the US, contributed to the failure. Nicholas Bloom, a Stanford professor who has studied telecommuting, told the Financial Times: “It’s difficult to make a very challenging call using Zoom.” Hedging interest rate risk was more likely to come up over lunch or in small meetings.

Leaders should also persistently praise those who speak up. The penalty for doing so is often more obvious than the reward. Those who bow their heads are rarely blamed. As Warren Buffett said, “Lemmings as a group may have gotten a bad rap, but no lemming has gotten a bad press.”