Virtually every 21st century business scandal is reducible to a morality tale of a technology that allows us to do things we couldn’t before, coupled with major institutional failures that were enabled by failures of omission and commission of corporate leaders.

Consider the major, self-inflicted crises at Wells Fargo, where two million accounts were opened without customers’ knowledge, or at Volkswagen, where emissions data was falsified, or News Corp, where editors illegally hacked cell phones to publish private information.

These are different from the kind of product-safety scandals we grew accustomed to in the 20th century. And yet most business schools and leadership development programs still focus on those. Consider the Columbia and Challenger space shuttle disasters.  These are still two of the most popular case studies taught in business schools, and because of them, we believe we know why organizations self-inflict crises. Countless executives and MBAs have studied the key lessons, learning about individual and institutional biases that warp our world views. They learn that the absence of psychological safety keeps team members from disagreeing with dominant opinions. They learn that organizational failures result from rigid reporting lines, “one right way” problem-solving, cultures that shoot – or specify unreasonable standards for – the messenger, and restrictive communications protocols. These lessons are valuable, but incomplete for today’s world.

Digital technologies today enable individual employees to do much more than they could before. Mid-tier executives, who have serious decision-making power devolved to them (compared to 25 years ago) drive this workflow. The reasons behind this vary by organization, but they are often rooted in the cultures that the ease and openness of information sharing have spawned. These executives lead teams in which globally dispersed people from multiple organizations collaborate on critical tasks.

But in most companies, despite the free-flow of exchanges, they still lack information they need, can’t communicate with team members in real time, or can’t foresee the implications of key decisions. Undoubtedly, one of them “pulls the trigger” when something goes wrong – whether it is an inability to design to needed standards at Volkswagen or the opening of unauthorized accounts at Wells Fargo. They are blamed because they can easily be blamed. (More than 5,000 midlevel or junior people were fired at Wells Fargo after the truth came out.)

Have we rethought how we work in a digital age when work increasingly requires large doses of unseen discretionary effort? Have we redesigned processes and structures to surface problems before these become crises? Have we allowed the free flow of key information to distributed decision makers? Have we created collaborative, learning-focused cultures? In most companies, we have not.

When a crisis unfolds, we are now quick to say, as General Duane Deal said of the Columbia explosion, that “the institution allowed it.” And yet we have been too hesitant to add the necessary phrase: “and top leaders enabled it.” The motive force behind institutional failure is leadership failure. The failure may be unintended, but that doesn’t exculpate individuals who spend their adult lives seeking the power and prestige of top positions.

Top leaders are enabling the current failures in two ways. First, though they speak of “ecosystems” and “a VUCA world,” they fail to rationally consider the implications of these realities for the day-to-day jobs their mid-tier executives. They make the mistake of thinking 20th century human organizations can thrive amidst 21st century technology. They don’t even recognize that the slate of questions posed above are relevant, even critically important.  Second, they don’t consider at a human level how their stated strategic intents shape the acceptable ethical boundaries for those who must turn those intents into reality.

In the highly interconnected digital world, it is very hard to rationally consider the many factors that affect any event. The difficulties are magnified when the factors change unpredictably and with great speed, and give rise to precious few “one right answer” and many “no good answers.” Given the archaic structures and processes, and without repeated, clear guidance on “what we don’t ever risk,” is it any surprise that decisions about ambiguous options subsequently turn out to be ethically compromised?

While an editor “pulled the trigger” to illegally hack the mobile phone of a kidnapped child, Rupert Murdoch enabled the decision. He didn’t set ethical boundaries in a scoop-focused media market, and he hired executives who didn’t set policies and procedures to preclude such acts. (Indeed, he rehired an executive cleared of criminal wrongdoing, signaling that her ethical and managerial failures didn’t matter.) While mid-tier executives and engineers “pulled the trigger” to design Volkswagen engines that responded falsely to emissions tests, Ferdinand Piech and Martin Winterkorn’s demands of win-at-all-costs performance and the absence of appropriate procedural safeguards enabled – even encouraged – them to do so. At Wells Fargo, a culture and a warped incentive system created by top executives enabled malfeasance. That didn’t stop CEO John Stumpf from blaming employees who “didn’t get it right,” or CFO John Shrewsberry from blaming “under performers.” Mr. Stumpf was forced out, but since neither Mr. Shrewsberry nor CAO/HR Director Hope Harrison were, the seeds for future crises have been left undisturbed.

Avoiding further self-inflicted crises – and the human damage they cause – will require more attention to both institutional norms and ethical leadership. That responsibility ultimately lies at the very top. When they hire CEOs, Boards of Directors must make ethics the deal-breaking criterion. CEOs and their direct reports must rethink not just how to compete using digital technology, but more importantly, how work should be done in a world mediated by digital technology.

From Harvard Business Review

Written by: Amit S. Mukherjee on December 28, 2016

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s