Repentance

Sir Tom McKillup, former chairman of near-bankrupt Royal Bank of Scotland (RBS), is almost unique among his colleagues in publicly apologizing for the failure of oversight that lead to a £45 billion bailout by the British people. However, saying you are sorry is not good enough, the true meaning of repentance is making sure it never happens again.

Sir Tom McKillup

As a feeble report on the RBS disaster by the UK’s Financial Services Authority (FSA) has finally surfaced to public view, it’s time to revisit the key questions:

• ·         How could a few greedy individuals possibly be allowed to impoverish a nation?
• ·         How can we make sure this never happens again?

The FSA blames “bad management” and picks Johnny Cameron (former McKinsey consultant and ex-head of RBS’s merchant bank) for its scapegoat. 

Johnny Cameron

But, of course, there were many people who knew what was going on and failed to speak out.

In this article I draw on my own knowledge and experience together with research by Hannah Arendt and Philip Zimbardo to shed light on how such things happen and how they can be averted.

Lessons from Apartheid South Africa

My years in Quality Control and as a Refrigeration Engineer illustrate the difficulty (yet value) of crossing organizational boundaries, and the power of re-framing. Nevertheless this is still only half the story, for the time was 1973 and the place Apartheid South Africa. Deeper and darker forces were at work, and their fateful message has consequences for a world on the brink of economic collapse.

As a young engineer I was given the job of Quality Manager in a factory making domestic appliances. We had inspectors checking parts from suppliers, in the workshops, on assembly lines, and in final inspection. I was proud of the responsibility and was very conscientious. However, as I tried to apply the tolerances on the drawings, I found myself in immediate conflict with Production.

“Our parts may not meet your specifications” they’d say, “but look they fit together just fine”.

“But a Quality problem is a Production problem” I’d retort.

I couldn’t “win” because Production came first. So I left the factory to seek support and spent a month in Sales, listening to customers. This was so worthwhile that I spent a further month with the service people. I learnt a great deal about our products from visiting homes to repair our appliances: how they were used and their deficiencies.

I returned to my Quality role, reformed. In future, I‘d be less particular about Finish (paintwork), somewhat concerned about Performance, more concerned with Legality, and absolutely determined to draw the line at Safety.

From time to time we produced a paraffin refrigerator with a fragile burner arrangement. If the customer was not careful, the glass could crack and start a fire. In a few cases the unit had blown up injuring people nearby and once it had killed someone. Production responded that the customers couldn’t have read the instructions or taken heed of warning stickers. Nevertheless, I was determined to stop production until we’d had time to sort this out.

My unilateral action was unprecedented. I saw it as a moral conflict and took the dispute over the head of the Factory Director. Yet when I complained to the Managing Director that “expecting Quality to report to the Factory was like asking Auditors to report to the bookkeepers”, he replied that he was an accountant and lacked the engineering knowhow to adjudicate a technical matter.

 I was bitterly disappointed by this reply and thought I would be fired. Instead, I was relieved of my Quality role and made responsible for Refrigeration Development, with redesign of the paraffin refrigerator as my top priority. I felt betrayed and that I had failed. Yet in less than four months we’d redesigned and re-tooled to eliminate the defects I had been complaining about for more than a year. Production increased and the cost of warranty service fell.

Only then did I begin to understand that Quality is a property that does (or does not) emerge at the interfaces between Company and Customers, between functions like Marketing, Product Development, Production, Sales and Service. To improve Quality, we therefore have to improve the dialogue at such interfaces. Thus to understand interfaces better is to set the stage for a series of conversations that will help everyone to gain a better appreciation of a complex situation and to think more clearly about their contribution.

That, essentially, is my story and it serves its purpose well enough. However, as I said, it is not the whole story. For the company was Barlow’s Manufacturing Company and our appliance factory was on the outskirts of the “coloured” township of Alexandria, bordering on Johannesburg’s wealthy, white, Northern suburbs.

What was I doing shoring up such a loathsome regime? I was born in Central Africa (Nyasaland, now called Malawi), my father a colonial policeman, and my mother a teacher. As an infant, I was brought up by African nannies (my otherwise-wonderful mother didn’t have much time for children until they could hold an intelligent conversation). We left Africa when I was six, and I was educated in England. At twenty-one, a newly-minted graduate engineer, I wanted to go back. Though I abhorred Apartheid, I naively felt that I could make a difference in South Africa, and that I had to make a difference.

Thus it was that a young man with little more merit than being white got the key job of Quality Manager with thirty-six staff: roughly a dozen white, a dozen black and a dozen coloured (Indians or people of mixed race). Please excuse the odious distinctions and the nowadays unacceptable term “coloured” but they are necessary to the story.

As you guessed, the customers and therefore victims of our exploding refrigerators were the blacks and coloureds who had no electricity in their townships. And the response of the whites to my cries of outrage was “Ag man. Hou jou bek [shut your mouth]. They’re jus’ bleks”.  For the whites on my team were indeed a sorry group of individuals. Three out of the twelve were alcoholics.

The blacks and the coloureds, on the other hand, were impressive, and took pity on their rooinek boss, trying to steer him away from worse mistakes. It was they who suggested I spend time in the field with Sales and Service. They were the people who really ran the factory, knew all the problems and could choose to manufacture appliances of just about any quality they liked. For example, ice made in our freezers could have an unpleasant taste. This was particularly noticeable when served with whisky. So you can imagine how energetically the engineers researched this problem! But they never found the answer. My non-white colleagues, however, knew perfectly well that the storage area for ABS plastic (vacuum-formed into our fridge liners) was used as an unofficial urinal. A quiet word with the Induna (headman) and the horrid taste went away.

From this tiny microcosm, an appliance factory in Johannesburg, the question arises: how is it possible for otherwise decent people to do something that they know is lethal, and not “give a damn”? The short answer is by de-humanising the people they harm. They are “jus’ bleks, just Jews, just rag-heads” and so don’t count.

How is it possible?

Yet this vital question merits a fuller answer, and has been pursued by people like Hannah Arendt (who studied the origins of the Holocaust) and Philip Zimbardo (who investigated, most recently, the background to American atrocities at Abu Graib).

It is certainly a question that needs to be asked again and again about the financial services fraternity who continued their reckless trade in Collateralised Debt Obligations and Credit Default Swaps long after people like Warren Buffet had accurately described such derivates as “economic weapons of mass destruction”. Despite the foot-dragging of failed watchdogs, like Britain’s FSA, we need to dig these skeletons out of the cupboard. Only then may we begin to find an answer to our second, still more important question: how can we make sure that things like this never happen again?

Hannah Arendt

Hannah Arendt raised the issue of whether evil is radical or simply a function of thoughtlessness — the tendency of ordinary people to obey orders and conform to mass opinion without critically thinking about the results of their action or inaction. She coined the phrase “the banality of evil” after watching the trial of Adolf Eichmann and other Nazis accused of the mass murder of millions of Jews. Her (at the time) controversial conclusion was that Eichmann was terrifyingly normal and that he represented a new kind of monster – a monster that we are not prepared to face and fight because he looks just like us. 

Traditionally the devil had been portrayed as fiendishly clever, as Machiavellian. The evil doers we saw in media and art were always packaged as demons:  they were easily distinguishable; you knew they were the enemy, and it was easy to arm yourself against them.

However the contemporary message of the Oscar-winning movie The Reader offers a striking contrast. Its protagonist is appalled to discover that the unremarkable, illiterate woman with whom he has had a casual affair had been a concentration camp attendant, and was guilty of a ghastly massacre.

Elsewhere in the arts, “how could something like this happen?” was the question that Edgar Reitz, a German filmmaker, set out to explore in his first series of Heimat films. Reitz’s conclusion: that such things happen almost imperceptibly, as though through a series of small accidents.

When the enemy looks like your father, when the enemy looks like your wife or kids, there’s almost no preparation for it. Yet clearly we do need to arm ourselves against precisely such things and Philip Zimbardo stresses the role of heroic imagination.

Philip Zimbardo

Zimbardo, a Professor of Psychology at Stanford University, believes that heroism – like evil – is banal and not the exclusive realm of mostly fictional super-heroes.  For example, he cites Wesley Autrey, the 50-year old African-American construction worker who saved the life of a young man who had fallen on the train tracks after a seizure. While 75 others passively watched, Autrey handed his two daughters over to a stranger and jumped down to save someone he did not know from death or dismemberment by an oncoming subway train. “I did what anyone would do, I did what everyone ought to do,” were Autrey’s classic ordinary hero lines.

 
Wesley Autrey

Cultivating the heroic imagination, says Zimbardo, takes just two things:

• First, thinking of yourself as an active person rather than a passive person, as somebody willing to get involved, ready to move off the safety spot of minding your own business, prepared to take a decisive action when the world around you looks the other way.
• Second, thinking less about yourself, your ego, your reputation, less about looking foolish, making a mistake, upsetting someone’ s apple cart, and instead becoming “socio-centric” – more concerned for the well-being of others or upholding a moral imperative.

And perhaps it also entails a dash of optimism, so that you believe you have the power to change something bad through your actions.

Zimbardo is equally clear about the social processes that grease the slippery slope of evil:

1. Mindlessly taking the first small step.
2. Dehumanization of others.
3. De-individuation of Self.
4. Diffusion of personal responsibility.
5. Blind obedience to authority.
6. Uncritical conformity to group norms.
7. Passive tolerance to evil through inaction or indifference.

We are most vulnerable when we are in a new or unfamiliar situation: when our habitual response patterns don't work, when our personality and morality are disengaged.

His research shows:

• We have to recognize that such situations, social settings, behavioural contexts, have an unrecognized power to transform the human character of most of us. 
• The way to resist – the way to prevent a descent into Hell, if you will – is to understand what it is about those situations that give them transformative power.

Exactly the same situation that makes some of us perpetrators of evil can inspire the heroic imagination in others. You're on one side or the other. Most people are guilty of the evil of inaction, because their mother said, "Don't get involved. Mind your own business." But you have to reply, "Mama, humanity is my business."

With this understanding we can change those situations, avoid those settings, and challenge those contexts. And it’s by wilfully ignoring them, by assuming individual nobility, individual rationality, or individual morality that we become most vulnerable to their insidious power to make good people do bad things. Those who sustain an illusion of invulnerability are the easiest touch for the con man, the cult recruiter, or the social psychologist ready to demonstrate how simple it is to twist such arrogance into submission.

 

The ubiquity of administrative evil

Zimbardo tells this story:

I can remember Miss Weinstein, in the sixth grade, when she was teaching algebra; we had to sit on our hands because she didn’t want us to interrupt to ask a question. Since her class I have associated algebra with pain. Because your hands got numb, and after a while you didn’t care what she was saying, you didn’t want to ask questions. Well, she destroyed my love for math – and I’m sure that of other kids as well. So, how do you create a system in which I would have felt impelled to go to the principal and say, that what Mrs. Weinstein is doing is wrong, that she is perverting the educational system. Well, why didn’t I do it? I never imagined I could do it and if I did [that] it would matter, it would make a difference to get her to “change her evil ways.”

He observes:

In a really fundamental way, the system has to build in the possibility for itself to be challenged. The system has to have enough gumption to face challenges openly: a school where kids have a way to point out the abuse of teachers; a family structure in which kids can talk freely to their grandparents, uncles or other relatives about their abuse. 

And from this he draws his most important conclusion:

I think the same can be said for WorldCom and Enron. Why did things go wrong for so long? And these were not kids in a classroom; Enron was supposed to have hired the best and the brightest, and for a long time many folks knew that illegal practices were abounding, books were being cooked, and lies were being spread about the success of the company even as it was failing.  The system did not empower people to question or challenge anything even though it was going horribly wrong.  It is what has come to be known as “administrative evil” in which systems adopt legal-political ideologies that enable any means necessary to achieve the desired end goals of profit, success, of “better, faster, and cheaper.”

That goes beyond teaching a heroic imagination in individuals to building systems into our institutions that will create an atmosphere of empowerment – for students, for employees, for patients, for parishioners, for everyone within their orbit of power. My research reveals how easy it is to create environments that will bring out the worst in people. Now the time has come to examine the other side of the coin and discover how we create environments that bring out the best in human nature, that truly enable ordinary people to go beyond resisting temptation to challenging its domain.

Thus, I believe, we need to add “the ubiquity of administrative evil” and “the imperative of creating environments that bring out the best in human nature” to Arendt‘s notion of “the banality of evil” and Zimbardo’s suggestion of “the banality of heroism”.

 

Designing environments that bring out the best in human nature

I would like to say that my experience in South Africa was unique. But I have encountered exactly the same forces at work in many situations, not least in my time as a management consultant with McKinsey and Company. Their “up-or-out” process engendered great intensity and dedication but destroyed flexible and creative thinking. This enabled us to thoughtlessly downsize or reorganize client organizations, oblivious to the devastation we left in our wake (see David Craig and Richard Brooks’s Plundering the Public Sector, 2006).

I “blew the whistle” three time at McKinsey. The first time I was transferred from London to Australia. The second time I was transferred from Australia to New Zealand. “This lad will go far... the further the better”. The third time, I left the company.

Similar “socialization” processes are common in professional service firms, not least merchant banks, and in the corporations that copy them (GE, Ford Motor, Conoco, Sun Microsystems, Cisco Systems, EDS and many others including, of course, Enron in its day). Such companies employ a destructive search for weakness, routinely force-ranking their people and firing a fixed percent – the “worst of the best”.   In his 2001 memoir Jack: Straight from the Gut, Jack Welch (GE’s former CEO) strongly advocates the practice. By the third year of forced firings, “it is war” he boasts.


Jack Welch

But firing underachievers is not quite the same thing as creating a high-performance organization. What kind of a manager wants to face having to identify his or her lowest-ranking subordinates every year and chose which to fire?

 
Henri Christoph

Perhaps someone like Henri Christoph, the self-appointed “King of Haiti”, who used twenty thousand slaves to build a replica of Louis XIV’s Palace of Versailles at Milot. When work didn’t proceed at the pace he wanted, he followed the Roman decimation technique, butchering every tenth man in a long line. After which construction would pick up, but now with only ninety percent of the workforce to feed.

Jeff Skilling

Jeff Skilling, Enron’s President (another former McKinsey consultant, now jailed), described their Performance Review Committee (nicknamed “rank and yank”) as the “most important process that we conduct as a company”. It may have been “motivational” in the Henri Christoph sense, but it was hardly the way to get the best out of people. Says Charles Wickman, an Enron trader: “If I’m on the way to my boss’s office, talking about my compensation, and if I step on somebody’s throat on the way and that doubles it... well I’ll stomp on the guy’s throat. That’s how people were.”

The documentary Enron: the smartest guys in the room poses the question: was Enron the work of a few bad men... or the dark shadow of the American Dream? Subsequent events suggest the latter.

The wide spread of such deeply-flawed practices explains why I believe it is high time to confront “the ubiquity of administrative evil” that has plunged us into another Great Depression, impoverished taxpayers and retired alike, spawned the Occupy movement, and engulfed whole countries like Greece and Italy in a sovereign debt crisis.

Osita Mba

Thus I heartily applaud the moral courage and heroic imagination of people like Osita Mba who recently blew the whistle on Goldman Sachs and, closer to home, of my daughter Lucy.

Designing environments that bring out the best in human nature is the only way we’ll counter evil in our world today, like our still-unrepentant bankers. This is why I created the Yala.