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Reputability LLP are pioneers and leaders globally in the field of reputational risk and its root causes, behavioural risk and organisational risk. We help business leaders to find these widespread but hidden risks that regularly cause reputational disasters. We also teach leaders and risk teams about these risks. Here are our thoughts, and the thoughts of our guest bloggers, on some recent stories which have captured our attention. We are always interested to know what you think too.

Wednesday, 19 January 2011

Do boards live in a rose-tinted bubble?

Are boards living in a rose-tinted bubble?  Roffey Park's latest survey suggests they are.  This matters because any disconnection of a board from reality is dangerous and can wreck the organisation.

Roffey Park carries out an annual survey of managers and directors.  Apart from looking at trends, this year's statistics were analysed by seniority.  The 2011 results showed board members to be more confident both in themselves and in the future than lower echelons. 

There are two obvious explanations for this.  It may be that board directors have a better view of things from their elevated position.  Alternatively, board members are poorly informed about what is going on at the coal face, for example because lower level staff try to avoid telling their bosses bad news.

It is extremely easy to create a system of incentives that discourages the flow of bad news up a hierarchy.  The result is that some problems will be widely discussed below a certain level in the organisation but will not communicated upwards.  A typical example seems to have occurred at BP.  Before the Deepwater Horizon exploded, the Mocando well was being described among engineers as a "nightmare well", but the US House Energy Committee found  "no trace of that news reaching senior management".

This matters doubly.  First, the lack of 'bad news' means that management does not have all the organisation's know-how available when making decisions.  This means decisions are made on the basis of information that is unnecessarily incomplete.

But worse happens when a disaster opens top management to public scrutiny.  Outrage and severe reputational damage frequently follow when it is discovered that top mangement has made a bad decision because it did not have access to the organisation's collective knowledge.  The history of disasters is littered with cases where top management was lambasted - and sacked - for not knowing what was really going on lower down their organisation.  

Poor communication within an organisation is an operational and reputational risk.  These results from Roffey Park's are more evidence that poor internal communication is a common problem.

Anthony Fitzsimmons
www.reputability.co.uk

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