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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.

Thursday, 7 April 2011

Unknown Knowns

 Berkshire Hathaway is having a surprising spot of bother.  One of its leaders - some say Buffett's preferred successor - has left under what looks like a cloudThe commentariat is pontificating

Warren Buffett clearly understands the principles.  For many years he has published these instructions (see page 26 here) to his CEOs.

"The priority is that all of us continue to zealously guard Berkshire’s reputation. We can’t be perfect but we can try to be. As I’ve said in these memos for more than 25 years: “We can afford to lose money – even a lot of money. But we can’t afford to lose reputation – even a shred of reputation.” We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter."

Implementation is harder.  It is well nigh impossible for a group to see itself as others see it, and this is as true for leadership groups as for scout troops.  And it is easy for a sense of "this is what is normal around here" to develop.  Buffett foresees that too, in the same letter:

"Sometimes your associates will say “Everybody else is doing it.” This rationale is almost always a bad one if it is the main justification for a business action. It is totally unacceptable when evaluating a moral decision. Whenever somebody offers that phrase as a rationale, in effect they are saying that they can’t come up with a good reason. If anyone gives this explanation, tell them to try using it with a reporter or a judge and see how far it gets them."

Leaders need more than Buffett's principles to guide them.  They lack a means of discovering unknown truths.  Some are things that the organisation can't see.  Others are truths that can't be told to Power.  Some leaders find it hard to listen and others tranlsate what they hear to fit their world view.  But without the knowledge, leaders have no chance to fix the problem before an "unfriendly but intelligent reporter" reports it.

Uncovering these uncomfortable truths is not easy, but success is worthwhile.  What Donald Rumsfeld might have called "Unknown Knowns" (see the first Q&A here) includes potentially catastrophic risks that are often fundamental to the business and its reputation.

The key to finding unknown knowns is to make it safe for people to tell and ensure that those who need to listen do.  This is the aim of  'Resilience Evaluations'.

But as unknown knowns they remain unrecognised and unmanaged by leaders.  When the wrong kind of spark arrives in the wrong place at the wrong time, they will discover another unknown known.  They were sitting on a powder keg primed with a painfully short fuse.

Anthony Fitzsimmons
www.reputability.co.uk

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