Dunning-Kruger and Organisational Stupidity

A sequel to my last post (https://lnkd.in/eVdrJ3v)

Something I have seen once or twice in my career is a kind of corporate Dunning-Kruger, where attachment to the success of an existing business model increases the vehemence of those defending it, to the point where management reduces its collective cognitive ability by shutting down dissent. This self-lobotomising takes many forms; people making waves can be excluded, not promoted or just fired.

This works fine as long as the model works, but it slowly reduces an organisation’s ability to adapt to change and creates a senior management layer committed to defending the status quo that has enabled their own success.

The people may be smart, but the organisation becomes stupid. It also becomes conceited about its success. In one example I have seen, the scattered attempts to adapt were stifled almost subconsciously by a corporate culture that, at heart, felt that the current model was best.

The most famous example of this is Kodak, where self satisfaction sent the fifth most valuable brand in the world into Chapter 11.

Is your firm having a Kodak moment?

Donald Trump and the Dunning-Kruger Effect

"In the field of psychology, the Dunning–Kruger effect is a cognitive bias which people of low ability have illusory superiority and mistakenly assess their cognitive ability as greater than it is. The cognitive bias of illusory superiority comes from the inability of low-ability people to recognize their lack of ability; without the self-awareness of metacognition, low-ability people cannot objectively evaluate their actual competence or incompetence".

This unchallengeable confidence can come from birth and privilege, but you don’t have to inherit your father’s connections, company and cash to believe that you are a genius.

In the world of work, particularly the financial world, the illusion is as likely to come from other forms of luck. The trader who has followed the market up with bovine fidelity can also think he’s a genius for the money he’s made for his bank (and for himself), and there are favourable winds that can catch a career in many fields

These are poison is evident and anyone concerned with the management of risk has a role in identifying these behaviours and a duty to call them out.

You must draw your own conclusions about The Donald.

Bullfighting

“I believe that economists put decimal points in their forecasts to show they have a sense of humour.”

(William Gilmore Simms)

Risk managers can be equally humorous, and for pretty much the same reasons. I was talking with a colleague this morning when this quotation came to mind. I am always suspicious when someone shows me a risk register with very precise values attached to the risks. The precision of the calculation seems likely to indicate a lack of understanding of the degree of uncertainty around any risk quantification and it can give false confidence to users of the output.

There is also the suspicion that the person who prepared the information has confused the effort of production with the actual creation of something meaningful or, worse, is consciously misleading their readers in the level of confidence that can be given.

As risk managers, we have to tread the tightrope of acknowledging the difficulties of quantification while still giving confidence in the usefulness of what measures we have.

We should be able to do this without bull.

“Be confident not certain”

(Eleanor Roosevelt)

Brexit - Crash...and Burn?

A man is on a galloping horse, hurtling down a country road. A passerby shouts to him, ‘Where are you going’?’ The rider turns around in the saddle and shouts back: ‘I don’t know; ask the horse!’

I have remarked (https://bit.ly/2uhzlE6) that every time we are on the verge of clarity on Brexit, something happens and clarity recedes. The only difference in the last week is that this seems to have happened several times in rapid succession and now only the only outcome that is starting to look more likely is that of crashing out. So, now we don’t have to ask the horse, because we can see where it’s going - it seems to be heading for the edge of a cliff. Some thoughts over the next few days how to manage the prospect of a chaotic ‘no deal’ Brexit.

#brexit #riskmanagement #uncertainty #risk #strategy

Corporate Governance Code Update

The FRC has just published its well-flagged update to the UK Corporate Governance Code. It engages with topical pressure about executive remuneration and responsibility to stakeholders and is more explicit about the role of culture, bringing it more clearly into the body of the Code. It is a bit shorter than the previous iteration, which is nice. There is also a deepening of the focus on long-term sustainability. From a risk manager’s point of view, there are the following explicit additions:

  • The addition to the board’s responsibilities of the need to consider ‘emerging’ as well as ‘principal’ risks;

  • The need for specific consideration of the risks around director remuneration.

There is also a need for risk managers to review their activities in the light of some of the other changes. In particular, the consideration of risk should also be reflected in the alignment of purpose, strategy and culture and in reporting how stakeholder interests are addressed in decision-making. hashtag#risk hashtag#frc hashtag#riskmanagement

2018-UK-Corporate-Governance-Code-FINAL.PDF

frc.org.uk

Reasons for Failure

"Experience had taught me that there were many reasons for failure - bad weather, ill partners, a lack of will - but the biggest of all was f••king around, not getting down to the task at hand'.

In climbing (Andy Kirkpatrick,@psychovertical) as in #Brexit #RiskManagement #uncertainty #riskanalysis #resiliency

It’s not a bug, it’s a feature

I generally hold back from comment on politics, but after the gallons of analytical ink poured, not to mention the terabytes of analysis uploaded, even the Brexiteers seem finally to have realised that Theresa May’s failure to present a strategy is the strategy.

Unfortunately, it doesn’t seem to be a strategy to provide the best possible outcome for Britain following the Brexit referendum; it appears to be strategy to avoid, or at least postpone, blowing up the Conservative Party.

Kicking the can down the street is one way of putting it, but I think Gideon Rachman found a better analogy with his story about the horse-trainer who is ordered, on pain of death, to teach the mad Tsar’s horse to speak within a year (or, say, by March 29th). Surprisingly, the trainer agrees to do this (as does Mrs May). The reason, of course, is that to refuse to agree means instant death (or, at least, deposition and Conservative Party implosion) but the trainer’s logic is sound:

‘A lot can happen while we wait: the Tsar might die, the horse might die, I might die. Or, indeed, the horse might learn to speak.’

For the rest of us, it means that the uncertainty is likely to go to the wire.