The bad news keeps coming - from BP to Volkswagen to LIBOR and more. The question for leaders is both how to manage errors effectively so they do not turn into disasters, and, when things do go wrong, to communicate the bad news well so it does not terminally damage corporate reputation.
“At the end of the day, communicating openly about errors is relevant to any organization. Errors must no longer be seen as weaknesses, but must be accepted as normal. They should be identified, analyzed and dealt with in a timely manner.” says ESMT professor Jan Hagen, in a recent article on ESMT Knowledge.
Getting this right is not easy and it is instructive to look at real cases to understand what can go wrong. Hagen uses the approach taken by Volkswagen as an example of bad practice and that taken by BASF as good and also highlights how the aviation industry has learned the hard way how best how to deal with errors.
After an explosion rocked a port terminal at BASF’s Ludwigshafen facility, the senior management spoke openly about the event without assigning blame, expressed concern for the victims and their families, and determined to find the cause of the accident. An interim report was quickly made available, which suggest the deadly explosion may have been caused by a worker during routine maintenance.
This approach contrasts sharply with the response at Volkswagen to its diesel emissions scandal. Although Volkswagen has admitted to having manipulated diesel engines for years to artificially lower their emission levels to meet environmental laws in the U.S., very little has been revealed about how the breach occurred. Crucially we don’t even know if the company acted negligently or deliberately.
The Volkswagen approach has been to blame a small group of low-level managers and engineers who are alleged to have operated without the knowledge or direction of the board. Sound familiar? From BP to the Barclays LIBOR scandal and HSBC denying responsibility for its private banking wing, there have been a series of corporate mishaps that have ‘surprised’ top management.
Perhaps it was a genuine surprise at Volkswagen, but if that’s the case there remains the question of how the company plans to ensure in the future that information about critical developments reaches the top management so it can be discussed and dealt with in a constructive manner.
In many cases, as with Volkswagen, even though CEOs have resigned, too often unresolved systemic issues remain that need to be fixed to avoid future problems. There will always be errors and even wrongdoing, but, according to Hagen, “If we look closer at these crises, we see that the causes always involved multiple layers of management and the negative developments did not in creep in and spread unnoticed. What all cases share is that there were no effective controls for detecting and preventing wrongdoing.”
Researchers at ESMT looked at how errors are dealt with in European companies, and asked 300+ managers about their experiences. Almost all saw errors as completely normal and would not think twice about raising errors committed by others in the company, even if these were made by superiors. But 88% said they would only discuss these errors with the person involved in private, in spite of their supposed normality. 54% wanted their own errors pointed out in private. Only 19% felt that their errors should be discussed openly with employees and colleagues.
This begs the question, why do superiors and employees seek a confidential conversation? According to Hagen, “Most are conditioned to be ashamed of errors and fear sanctions. So, it is little wonder many do not want to admit their errors openly. But from an organization’s perspective, this mindset impedes people from learning from their mistakes.”
A corporate culture in which errors are seen as completely normal is one prerequisite to ensuring employees admit or report errors rather than remaining silent. Another is to safeguard the ability of employees to ‘speak truth to power’. A prime example of this was seen in the aviation industry in the 1980s, where the cause of many fatal air accidents was found to be errors made by the pilot – the captain – but where, due to the hierarchical disparity between the captain and the rest of the crew, no one dared to openly point out his mistakes. It may even occur that an employee discovers an error by a superior but questions whether it is really an error perhaps for fear of appearing foolish.
Eventually the aviation industry instituted a successful ‘Crew Resource Management’ plan, which required that flight crew be training to include soft skills such as communication and modern management. The introduction of the program was anything but smooth. It took almost a decade for pilots to accept the new protocols and recognize that open communication in the cockpit could benefit everyone, including them.
Aviation is a high-risk industry where errors can have disastrous consequences. In other industries lives may not be so obviously at stake – but if not lives corporate reputation and corporate sustainability are at stake. So, leaders have every reason to establish an error management culture in which errors are dealt with openly and put in place with a reporting system that tells them when there are problems.