Many Roads to Ruin: The Impact of Culture on Performance

Risk comes from not knowing what you’re doing.  ~ Warren Buffett

riskThere is no denying the world of business is getting more risky.

When global mega-banks like CitiGroup, JP Morgan Chase, Bank of America and Wells Fargo have to be bailed out to the tune of several trillion dollars of taxpayer money just to remain in business, nobody is immune from the growing risks of doing business in our fast changing, global economy.

Risk and Corporate Culture

A recent study conducted by professors of the Cass Business School of the City University of London shows clearly the significant risks that modern organizations now face, and also the role played by corporate culture.

Eighteen high profile corporate meltdowns over the past decade were studied (AIG, Arthur Andersen, BP, Cadbury Schweppes, Coca-Cola, EADS Airbus, Enron, Firestone, Maclaren, Northern Rock, Shell, Societe General). The total pre-crisis value of these companies was over $6 trillion.  Seven of the 11 companies faced bankruptcy, of which three were “rescued” by Government. Eleven Chairmen and/or CEOs lost their job. Four senior executives went to prison. Most of the 18 companies suffered massive, uninsurable losses and extensive and long-term brand damage.

The study identified 7 key categories of risk that led to their subsequent corporate disasters:

  • Inadequate board skills and inability of Non-Executive Directors to exercise control.
  • Blindness to inherent risks, such as risks to the business model or reputation.
  • Inadequate leadership of culture and values.
  • Defective internal communication and information flow.
  • Organizational complexity and difficulties with change.
  • Inappropriate incentives, both implicit and explicit.
  • Inability of Risk Management professionals inside the company to confront or point out risks emanating from the decisions and behaviour of top management.

It’s not hard to see the subtle yet powerful hand of corporate culture running through this list, particularly when the question of “what are the risks?” is replaced with “why were these critical risks allowed to happen in the first place?”  Answer: the culture deemed them acceptable or ignored the risk evidence all together.

gty_car_in_tornadic_storm_jt_130601_wmainA portion of the Cass study concludes by saying that many of the above identified risks are inherent in every organization, but it is when these risks are unrecognized, or worse yet, not allowed to be talked about or challenged, that they pose a potentially lethal threat to the future success of a business.  One of the biggest challenges of dealing effectively with corporate culture is that senior executives don’t often see their cultural biases (strengths and weaknesses) clearly and honestly, mainly because they have become “acculturated”.

Until I came to IBM, I probably would have told you that culture was just one among several important elements in any organization’s makeup and success—along with vision, strategy, marketing, financials, and the like. I came to see, in my time at IBM, that culture isn’t just one aspect of the game, it is the game.   ~Lou Gerstner

Note:  These ideas on culture, risk and performance are from my forthcoming new book – ADVANTAGE: The CEO’s Guide to Corporate Culture, due out the later part of 2013.

Tight Lines . . .

John R Childress

john@johnrchildress.com

Tight Lines . . .

About johnrchildress

John Childress is currently Visiting Professor in Strategy and Culture at IE Business School in Madrid and a pioneer in the field of strategy execution, culture change, executive leadership and organization effectiveness, author of several books and numerous articles on leadership, an effective public speaker and workshop facilitator for Boards and senior executive teams. In 1978 John co-founded The Senn-Delaney Leadership Consulting Group, the first international consulting firm to focus exclusively on culture change, leadership development and senior team alignment. Between 1978 and 2000 he served as its President and CEO and guided the international expansion of the company. His work with senior leadership teams has included companies in crisis (GPU Nuclear – owner of the Three Mile Island Nuclear Plants following the accident), deregulated industries (natural gas pipelines, telecommunications and the breakup of The Bell Telephone Companies), mergers and acquisitions and classic business turnaround scenarios with global organizations from the Fortune 500 and FTSE 250 ranks. He has designed and conducted consulting engagements in the US, UK, Europe, Middle East, Africa, China and Asia. Currently John is an independent advisor to CEO’s, Boards, management teams and organisations on strategy execution, corporate culture, leadership team effectiveness, business performance and executive development. John was born in the Cascade Mountains of Oregon and eventually moved to Carmel Highlands, California during most of his business career. John is a Phi Beta Kappa scholar with a BA degree (Magna cum Laude) from the University of California, a Masters Degree from Harvard University and was a PhD candidate at the University of Hawaii before deciding on a career as a business entrepreneur in the mid-70s. In 1968-69 he attended the American University of Beirut and it was there that his interest in cultures, leadership and group dynamics began to take shape. John Childress resides in London and the south of France with his family and is an avid flyfisherman, with recent trips to Alaska, the Amazon River, Tierra del Fuego, and Kamchatka in the far east of Russia. He is a trustee for Young Virtuosi, a foundation to support talented young musicians. You can reach John at john@johnrchildress.com or john.childress@theprincipiagroup.com
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One Response to Many Roads to Ruin: The Impact of Culture on Performance

  1. Pingback: Les C.A. sont à blâmer dans la plupart des cas d’échecs majeurs des entreprises | Gouvernance | Jacques Grisé

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