2011 Institutional Failures - the Sins of Omission
Professor Gerry McKenna
We have seen in recent times a spate of corporate failures involving corrupt and morally indefensible behaviour by previously respected individuals and institutions. This includes politicians, bankers, developers, the police and the church. It has led throughout society to a massive loss of trust and has raised questions about the extent of moral culpability which reverberates far beyond the institutions involved. The issue has moved beyond the need to bring the miscreants directly involved to justice, though this is necessary. It is now also focused on the degree of moral responsibility of those in authority, including those at some remove from direct-line responsibility for the offenders. This raises the hugely important question of the degree of moral equivalence between ‘sins of omission versus sins of commission’. In other words, is it an adequate defense for someone in authority to claim ignorance, or non-involvement, in matters which should have concerned and interested them by virtue of the corporate position they held?
This issue relates not only to the institutions currently or recently in the headlines. It affects all types of organizations; private, public and voluntary. It is also not confined to those holding executive responsibilities; boards and governing bodies can be equally adept at avoiding central questions and issues. We can all think of managers and officials who strive, often through considerable effort, to avoid receiving any direct information about a boss, colleague, or grouping who are behaving unethically, corruptly, or clearly recklessly, thus claiming innocence and feigned indignation when, and if, the relevant abuse of position is uncovered. Indeed there are many who positively recommend the ‘head down’ approach in recognition that upward mobility often accrues to the pliant. They and those on boards and governing bodies content, and even compliment, themselves for steering clear of controversy, asking only ‘second order’ questions and generally focusing assiduously on ‘second order’ chores. In some cases they become ‘cheerleaders’ for high risk ventures sponsored by others, and for which they have neither the ability to evaluate nor the desire to do so. In other cases they deliberately make a ‘second order’ issue their ‘point of principle’, thus preserving the self-delusion that they are prepared to take a courageous stand. Not for them, however, the direct gaze which could reveal that ‘the emperor has no clothes’. None of this prevents them being shamelessly ambitious to obtain posts and board positions with major corporate responsibilities; which they often simply ignore subsequently, redefining their roles in a more narrow, low personal risk, low stress and, often, low visibility, form. Equally, such individuals can also be quite ruthless and dishonest in quelling courageous and honourable dissent when it is against the prevailing tide. It is an unfortunate axiom that unethical or immoral behavior seldom develops or persists without the tacit acquiescence of individuals wider than those directly involved.
The ‘denial’ approach, which is relatively prevalent in the public sector, puts primacy on holding one’s job, stipend or other recognized position, and securing the maximum pension, or other laurels for ‘good service’. The individuals concerned could hardly claim in their moments of private reflection, if they have any, that their behaviour pattern is in the interests of the organization they purport to serve, or in keeping with any known virtue other than self-preservation and personal reward. Perhaps most insidiously, such obvious failure to exercise any significant corporate challenge function, and being seen to be rewarded for not doing so, also encourages unethical behavior in junior colleagues; breeding cynicism, apathy, and, at best, lower than optimal performance by their institutions overall. It is difficult to envisage creativity, innovation and commitment flourishing in such an environment. At worst it has often led to unquestioning acceptance of seriously flawed policies and approaches by central management or leading officials, when proper analysis and scrutiny would have prevented some of the worst excesses and their consequences. The associated behaviour pattern can, therefore, hardly be described as benign. However, in the absence of some cataclysmic event such as those rocking the foundations of the institutions referred to earlier, or on a smaller scale, bankruptcy or government intervention, it is often difficult for observers to distinguish between principled, ethical and corporately altruistic behaviour and that driven primarily by self-interest. Institutions and large corporations tend both to rise and decline slowly; the latter process is often mitigated in the early stages by the continued momentum generated by earlier successful initiatives. It is often difficult to pinpoint the start of disintegration, still less those individually responsible, particularly if they have managed to reserve a ‘lifeboat’ from which to escape the ‘sinking ship’.
It is an interesting question as to whether reprehensible behavior within corporate bodies and organizations is on the increase or is a relatively steady state feature of human society? No complete survey or scientific analysis is available to provide us with a reliable answer. It seems unlikely that there has been, in recent history, a marked innate shift in the balance between good and evil human tendencies. What varies over time, depending upon various local, national and global circumstances, are the opportunities for ethical or unethical behaviour to florish. There are some reasons for believing that selfish and uncaring activities, which are often combined with a lack of courage, and a desire to avoid such pusillanimity being publicly exposed, may have grown in recent times. The two most obvious examples of behaviour-changing events are major human failures which shaped the 20th Century.
It has been said that one of the more effective deterrents to catastrophes being repeated is ‘memory’. Following the Wall Street Crash, there were for many years a large populace in the West who had an abiding fear of debt and an ingrained suspicion of bankers. Equally, after the Second World War, there was a general antipathy to appeasement, in recognition that nations and individuals had actively averted their eyes and their minds while genocide was carried out in Germany and Eastern Europe. While the notion of honourable behaviour is as old as civilization, there was a residual collective guilt coupled with a resolution that such barbarism should not occur again. It seems likely, therefore, that for a post-war period, lasting perhaps 40 years, there was a relatively strong ethical and responsible approach in the West to business, banking, corporate governance, civil governance, and human interaction generally.
By the 1980s memory of the two defining events of the 20th Century had faded. Britain and Ireland, and more importantly the United States, had rediscovered and begun to revere individualism. However, it was during the 1990s, and particularly the decade just ended, that conventional wisdom in political thinking and economics disappeared. The fall of the Berlin Wall in 1989 led to a simplicity of thought that is hardly credible in hindsight. Communism had clearly failed as a system. The apparently obvious corollary was that capitalism had triumphed and was the only sustainable economic model. While this was also true to an extent, the most dominant and eloquent economists and politicians argued aggressively and persuasively that ‘unfettered’ capitalism, free of any significant government regulation, could bring ever greater wealth and rewards .
This hypothesis, including the increased blurring of the distinction between the private and public sectors, was accepted unquestioningly, even by many on the left. In the United Kingdom, for example, the ‘New Labour’ government pushed aggressively the perceived benefits of a relatively unregulated banking system, and also ‘public-private partnerships’. The latter were heralded as a way of pumping new private sector funding into the building of hospitals, schools, housing, other government facilities, and even university campuses. Similar approaches were followed with even more disastrous consequences in the Republic of Ireland. Few spoke up, and even fewer were listened to, stating that this would lead inevitably to massive mortgages to be paid off by current and future taxpayers, or that the private sector, understandably, would seek to maximize returns for its shareholders with government being it’s obvious and easiest target. In parallel, financial controls on the banking system were relaxed with developers and bankers encouraging greater, and unaffordable, debt, fuelled by the lure of increasing property prices; in other words, speculation. Everyone was made to feel that they could have ‘a piece of the action’. Thus developed the ‘cosy’ but intrinsically corrupt and unsustainable relationship between government, developers and bankers, which contributed to the ‘property boom’ and has brought, and will continue to bring for some time, much misery to many people in these islands.
One inevitable consequence of failure, be it economic, political or moral, is subsequent increased vigilance by all affected, directly and indirectly, by it. It is therefore no coincidence that it was during the current recession that the various scandals associated with the banks, developers, the church, police, and politician’s expenses generated such massive public disquiet and concern. The public felt, rightly, at a time when they were suffering hardship caused mostly by others, that they had been let down by institutions which they had trusted previously. The fall-out of that disappointment is to be seen all around.
This brings us back to the original question. How could such failures have taken place if all those in positions of corporate authority and responsibility, even at several removes from direct involvement, had fulfilled their corporate responsibilities? Were they simply operating ‘out of their depth’ and ‘confidence zone’? Did they lack the moral and personal courage or intellectual confidence to speak up? Did they put short term personal gain above corporate responsibility? It would appear to many observers that some high ranking professionals had become increasingly adept at asking only ‘second order’ questions – thus fulfilling the need to be seen to be ‘active’, while consciously or subconsciously steering their minds and discussion away from the ‘first order’ issues that their institutions and associated stakeholders required, in some cases statutorily? Whichever conclusion is reached concerning the underlying nature of such unedifying and unprincipled behaviour, it is hugely disconcerting and discomfiting. It is something that each individual for whom ‘the cap fits’ should spend time reflecting upon. Based on their previous performance, they will undoubtedly claim to have never heard the question!
The guilt being great, the fear doth still exceed; And extreme fear can neither fight nor fly, But coward-like with trembling terror die - William Shakespeare - The Rape of Lucrece
Qui Tacit consentire videtur - Latin proverb
Article published in The Furrow, January 2011