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Reputability LLP are thought leaders in the field of reputational risk and its root causes, behavioural risk and organisational risk. Our book 'Rethinking Reputational Risk' received excellent reviews: see www.rethinkingreputationalrisk.com. Anthony Fitzsimmons, one of its authors, is an authority and accomplished speaker on reputational risks and their drivers. Reputability helps 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, 31 July 2013

Hacking, blagging and stealing

Keith Vaz, Chairman of the UK Parliament’s Home Affairs Select Committee is building pressure to publish a list of 102 “blue chip” organisations that have “commissioned private detectives that hack, blag and steal personal information” from banks, utilities, the UK’s taxman HMRC and, it is also alleged, from serving policemen. The list has been provided, confidentially, provided to the Select Committee by the Serious Organised Crime Agency (SOCA). Names of some of the firms allegedly on the list have begun to leak.

Twenty-one law firms, nine insurance companies and eight other financial services firms apparently head the list, which also includes management consultants, oil companies, accountancy firms and venture capitalists. Ominously it includes 16 other private investigation agencies, suggesting that the number of end-users could grow substantially.  The FT reports that there is apparently another list, of 200 companies, held by the Metropolitan Police.

Before the 1990s even the courts regularly accepted information from sources such as private detectives.  But things changed radically with the Data Protection Act 1998, brought in to implement an EU Directive of 1995. The legality of fishing for private data changed abruptly, and with it the morality, as the continuing press phone hacking scandal, centred on News International, has shown.

So what is going on in these ‘Blue Chip’ companies?  The fact that you happen to employ a private detective who sometimes uses illegal means to get information does not mean that your information will be gathered by illegal means.   Some companies will have specified “use no illegal means”.  But at the other end of the spectrum, some clients will deliberately have chosen an agency because it is known to be able to obtain hard-to-get personal information.  

When the list is published, some company leaders will be “shocked” to discover that their employees have been using bent private eyes illegally to obtain personal information.

They shouldn’t be surprised.  It is a frequent feature of unexpected crises afflicting respectable companies that the leadership didn’t know what was really going on below them.

We call this the 'Unknown knowns' problem.  It regularly turns out that many people in a firm known things aren’t as they should be, but either no-one is prepared to tell the leadership or the leadership won't listen.  In our recently published research report, ‘Deconstructing failure - Insights for boards’ we found 'Defective information flows to and from the board' were a cause of 60% of the crises we analysed.

The phone hacking scandal created a reputational maelstrom for the media, particularly for News International.  All those on these lists can expect rough treatment by the media, especially those in financial and professional service firms that trade on their trustworthiness.

As leading City commentator Anthony Hilton wrote recently, PR won’t be an adequate solution.  Leaders of implicated firms will have to dig deep to find the real root causes of the problem before they can even start to regain public trust. Scapegoats will not be enough.

Anthony Fitzsimmons
Reputability LLP
London
www.reputability.co.uk

Thursday, 18 July 2013

Boards in the dark

As stories continue to emerge from China this week about GlaxoSmithKline's operations there, it must be an anxious time for the Company Board. Four top Chinese employees have been arrested and are reported as likely to serve long prison sentences for alleged crimes of bribery and price fixing of the company's products - some of which, it is alleged were sold at 10 times their true value. The English head of GSK China, is reported to have left on a one-way ticket in June, and rumours abound about the scale and diverse nature of the alleged fraud. Chinese police claim the total to be over £300m in the last 5 years. Recent annual sales figures for GSK in China have reached £750m.

The alleged scam allegedly involved the use of travel agents to pass money intended for conferences and seminars directly to doctors in return for prescribing GSK products. This type of activity could be difficult to detect as books would balance, and "rewards" in the form of expense claims could easily be made to look legitimate.

How can a Board effectively oversee an operation in another continent, with an unfamiliar culture, where the legal system’s interpretation, responsibility for investigation and ultimate judgement rest with the dominant political grouping? And how can they ensure that their corporate ethos prevails?

A recurring theme in our field, strongly reinforced by our latest research, concerns boards that not only don’t know what is really going on inside the business but don’t even know that they don’t know what is going on – until they discover the gap in their knowledge during a crisis. We call it the 'unknown knowns' problem because it frequently turns out that lots of people internally knew something was amis.  But behavioural and organisational risks have typically kept the board in the dark through an information 'glass ceiling' that prevents unwelcome information moving upwards.  And other behavioural forces can prevent the board’s good intentions from percolating down to the rest of the business.

The GSK board now knows that it may not have known what was really going on in their Chinese business.

The worrying question remains for all boards: to what extent can the board be confident that it knows what is really going on in the business, especially the unwelcome stuff?

Boards need to be aware of vulnerabilities such as these.  It's not easy, but boards need to find and fix these unknown knowns before they cause serious harm.

Mike Bell
Reputability LLP
London
www.reputability.co.uk

Monday, 15 July 2013

Reality Matters

Did the hapless “senior civil servant ” really spend more than £73,000.00 on his personal media training, in order to perform better in front of the Public Accounts Committee, as reported by The Times recently?

The simple absurdity of committing that much money to polish one’s skills for a professional meeting makes me wince.  But it also highlights a current and common over-reliance on  presentation,  design and marketing.

Of course, these are some of the business functions in which the UK is particularly skilled.  Our creative services are world class and their outputs improve our lives in many ways, both personal and professional.  But communications services cannot be cherry-picked to make organisations appear better. All business functions are not equivalent.  Outputs, sales, target must be set and met and companies must be run by boards which have an appropriate level of understanding of corporate activities.  It is astonishing then, that Reputability’s new research, “Deconstructing failure, Insights for boards”  shows that three of the main risk factors that lie at the root of most of the failures studied, are:   “Gaps in board skill-sets and the inability of the Board to influence Executives (88%)”, “inability of boards to engage with fundamental risks to the business (85%)” and, “Defective information flows to and from the Board (59%).  In the majority of the 41 corporate failures studied, Boards simply lacked important information that might have helped them  to prevent a catastrophe. 

Are  the business functions that supply timely, up-to-date and relevant information to Boards less well-developed than  those of their marketing and communications colleagues?    Or are there “glass ceilings” blocking valuable intelligence?  Or, as Margaret Heffernan, author of “Wilful Blindness”  contends that the biggest problems are often, “right in the public eye and require the active participation of hundreds, or sometimes thousands, of people”.  Or is it simply the cumulative inability of people to absorb information that contradicts their existing world view?

Whatever the cause, the post mortems of crises regularly expose a disconnect between corporate claims and corporate reality.   Boards need to be better aware of the quality and extent of their information, something no amount of media training can sort out.


Jane Howard
Reputability LLP
London
www.reputability.co.uk

Thursday, 11 July 2013

NHS culture: lessons from flight safety

After a career in aviation and aviation safety spanning four decades, I have been reflecting on why aviation is so safe but the NHS suffers a succession of disasters.

Aviation wasn’t born safe.  It was a disaster-prone industry until the 1970s but it has been transformed beyond recognition today.  It is extraordinary that in the debate over Heathrow's third runway, the topic of safety is not mentioned. Thirty years ago the increased risk of a crash and its impact on the local environment would have been top of the objectors' agenda.

I despair for improvements in the health service when I see headlines such as "NHS watchdog spent £785,000 on spin team" and on the same day "Death rates for doctors misleading, say experts" These two examples highlight the muddleheaded thinking and lack of clear leadership in the NHS. The fact that the Care Quality Commission is reportedly recruiting a new spin doctor with the task of "expertly managing" its reputation does it no credit at all; and it is reported that they are losing expert inspectors faster than they can recruit them. As if that were not enough, "experts" have pointed out that just publishing surgeons' death rates might be a seriously flawed idea.  They point out, rightly, that death rates have a lot to do with the type of patients, and type of operations performed.

All this shows how a spin-led approach, driven by fear of headlines and devoid of serious analysis, can damage reputations needlessly. Would any surgeon ever consider not operating on a particular patient with a poorer prognosis because of such an approach? We all hope not, but ill-considered regulation could drive surgeons that way.

So what are the differences that have led one safety-critical industry to a crisis of confidence and reputational meltdown whilst over the same time period, another safety-critical industry has gone from unacceptably low levels of safety to such high, measurable levels of safety that safety is not a live issue in the public’s mind?

There are two principal factors involved in aviation’s success: 
  • There is an independent regulator, with a clearly defined role, expert staff, accountable to parliament, and funded by those it regulates; and 
  • There is a culture of openness, with timely and honest reporting of all untoward occurrences whether or not they cause harm and widespread dissemination of the lessons to be learnt. 
These two factors have underpinned the successful story of UK civil aviation safety. Independent safety regulators like UK's Civil Aviation Authority have gained the respect of both politicians and those regulated. It is staffed and led by professionals with actual experience in the industry and technical competence.  As an example, I was the CAA board director with specific responsibility for aviation safety and also had the aviation experience of having been the CAA's Chief Test Pilot.

In contrast, it is clear from the sorry tale of the Care Quality Commission and its predecessors that health regulators have not been free from political influence, and that the views of its own experts have been ignored or suppressed.

Threats from politicians and prosecutors directly discourage an open culture and stop people from reporting occurrences. To manage any industry, managers need to know what is going wrong, and to learn from and fix problems, on a daily basis. This includes near misses. Others in similar operations can then also benefit from this knowledge. This happens in aviation with the CAA publishing a monthly report of aviation occurrences, mostly mistakes or technical problems that did not cause accidents, so that everyone can learn from what has occurred.

All hospitals in the UK should be able to learn from each others' mistakes and experiences of human and technical failures. Giving anonymity has been tried in aviation.  It is a useful backstop, but very few anonymous reports are in fact received. The vast majority of occurrences reported are logged by individuals or operating companies. This is a credit to the open culture prevailing among UK air operators - though ill-informed politicians regularly try to destroy this successful culture by threatening to prosecute those who make mistakes.

Anonymous reporting has been tried in the NHS, but when the same event is reported anonymously by more than one person, it can be very difficult to deal with the results obtained. By far the best way forward is to remove fear of prosecution and persecution and to offer a fair and supportive environment to those who report mistakes they have made. Lessons can then be learnt before they cause serious harm.  With such a culture in the NHS, we would not be hearing of events in the past, where real, recurring but fixable problems have existed, only discovered by subsequent analyses years after the events.

The NHS’ corrosive culture is leading to low morale, and reinforces calls for prosecutions. It is a self-defeating cycle made worse by political interference that comes from distrust, which makes the NHS secretive and much less safe than it should be.

But, it need not be so. The NHS needs a regulatory framework and a culture whose aims are to promote NHS-wide learning from mistakes.  It needs to destroy the current pattern of cover-up and fear that prevents system-wide learning.

It took time for aviation to make flying so safe and it requires constant vigilance to maintain it that way.  There is no reason why the NHS can’t make the transition. But it will require strong leadership and regulation that bases its decisions on good evidence.

Mike Bell, CBE
Reputability LLP
London
www.reputability.co.uk