Good Governance Depends on Whom You Ask…

Want good governance?  Ask around.

“The greatest trick the devil ever pulled was to convince the world he didn’t exist.”

Roger “Verbal” Kint – The Usual Suspects

Do you sit in a position of power?  Do you, also, sit in a position of isolation?

Oddly, the two things can coalesce into one if you fail to remain vigilant.  One of the hallmarks of bad governance everywhere–from Teapot Dome to Barings Bank to Enron to, I’m sure, Volkswagen–is the existence of good people in powerful positions who have allowed themselves to become isolated from the facts on the ground.

Consider the case of Volkswagen…

VW has now lost upwards of 40% of its market capitalization since the emergence of the news that engineers and managers in the company conspired to cheat on international emissions standards in the company’s small diesel engines.  I won’t belabor the point, but I can assure you that there are powerful people in high places in the company…its board and senior management (possibly up to and including its now-resigned CEO) who would not have consented to such egregious white collar crime had they known the existence of it.

I won’t speak for all the executives or board members at VW, because I simply don’t know them; but I will speak for the consistently present minority (or even majority) in such situations who were elevated to high places and subsequently isolated from the reality of ethical and legal behavior on the ground.  They allowed themselves to be convinced that things were being done right.

But what’s the deal? 

It happens in most every situation of moral, ethical, or legal lapse within corporations: Good people at the board or senior management level–usually due to great performance of the organization they are called to lead or govern–stop asking questions.  They take the word of people whom they “have no reason not to trust.”

They, essentially, fall asleep at the switch.  And, to give some examples, the fallout looks rough.  Namely:

Unethical behavior surreptitiously drives performance (such as in the Teapot Dome bribery scandal of the early 20th century).

Low control of rogue elements destroys entire institutions (such as in the Barings Bank collapse of the 1990s).

Entire financial fictions are erected by complicit management and advisors (such as in the Enron case of the early 2000s).

And, in some cases, good companies are systematically disabled and functionally dismantled by management with incentives very different from boards and shareholders (which occurs in far too many companies worldwide).

None of the bad actors in the named scandals above gave outward reason to doubt their trustworthiness in the times leading up to the scandals; and in some cases they would have recoiled or lashed out with righteous indignation at their higher ups if they were, in fact, questioned.

That’s the refuge of ne’er do wells everywhere–righteous indignation.

Watch for it.

But what to do?

In every case, people in positions of fiduciary and ethical responsibility have the obligation to ask.  But, they have the obligation to ask those who actually can convey reality, not those who are charged with packaging reality for consumption by boards and senior management.

In his book Why Zebras Don’t Get Ulcers, Stanford University professor and author Robert Sapolsky coined a proverb that is quite powerful for people in positions of assurance everywhere… It goes like this:

“If you want to know if the elephant at the zoo has a stomachache, don’t ask the veterinarian, ask the cage cleaner.”

You get it? If you really want to know if something just isn’t right, don’t ask the so-called experts…they rarely have the task of cleaning up the mess.  Ask the people who witness and clean up messes.  Ask people lower down the ladder, whose credibility might not naturally be so high, but whose incentives might also not lead them to unnecessary spin or outright dishonesty.

In other words, ask around.  If you sit on a board or in senior management and find your interactions with rank and file people to be overly stage-managed, then ask some more.

You know why?

Because–with apologies to Verbal Kint–the greatest trick that bad actors pull is convincing the world that they aren’t bad actors.

Reality depends on whom you ask. So, ask around.

I welcome your questions and comments.