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Two completely different news items from across the pond caught my attention last week. The failure of RBS to conduct appropriate due diligence on the ABN Amro takeover was in the spotlight again. It was announced that 17 former directors of RBS, including ex-CEO Fred Goodwin, are being sued by investors for £2.4 billion. In another major story, recently discovered amateur footage of the 1986 Challenger Space Shuttle disaster was released for the first time. Whilst on the surface these may appear as completely unrelated stories, both incidents are the result of organisations failing to apply appropriate governance. Ensuring your company has the appropriate process in place when making big decisions is crucial. You are only ever one poor decision away from catastrophe.
The Space Shuttle Challenger disaster occurred in Florida, United States on 28 January 1986, when the Space Shuttle Challenger disintegrated 73 seconds into its flight. The disaster was instigated by a seal failure which caused a flame to leak from the rocket’s boosters. The flame caused a massive failure to the shuttle's external tank triggering a huge fireball. The failure of the seal was due to the unusually cold temperatures on the morning of the launch. The shuttle was destroyed and all seven crew members were killed.
This disaster resulted in a 32-month hiatus in the NASA shuttle program. More significantly NASA and the government suffered from a major loss of reputation. A Commission into the accident found that NASA's organisational culture and decision-making processes had been a key contributing factor to the accident. NASA was under pressure to launch the shuttle because of an extensive flight schedule and, among other things, television ratings. The key error was that even though senior managers had known that contractor Morton Thiokol's design of the boosters contained a potentially catastrophic flaw, they failed to address it properly. This led the Commission to conclude that the Challenger disaster was ‘an accident rooted in history’.
Roger Boisjoly, a Morton Thiokol engineer who had warned about the effect of cold weather on the boosters, left his job at the company after the disaster. He is now a regular speaker on workplace ethics. He believes that a last minute meeting called by the Morton Thiokol managers, which resulted in a recommendation to NASA to launch, ‘constituted the unethical decision-making forum resulting from intense customer intimidation’. In essence, Morton Thiokol’s management knew it was a risk to launch but based on pressure from NASA, gave the green light.
Sound familiar?
Late last year the Financial Services Authority (FSA) completed its extensive review of what went wrong at RBS. In the 452 page report it found that the level of due diligence conducted on the ABN Amro takeover was limited to just two lever arch files and a CD. The pressure from Senior Executives to push forward with the acquisition meant that little was understood about the perilous financial state of ABN Amro. The FSA also concluded that ‘the decision to make a bid of this scale on the basis of a limited due diligence entailed a degree of risk-taking that can reasonably be criticised as a gamble.’
Both events provide an excellent message to all organisations. We all deal with different risks every day in our jobs, hopefully none that relate to human life. While there are pressures coming from different areas, we need to understand how to deal with them. In dealing with big decisions, you do need to ensure that you follow the correct process, and make the most informed decision — a decision not inappropriately influenced by external forces. Challenge the decisions by leaders if you don’t agree with them. Complacency, ignorance and denial are all enemies of well-informed decision-making.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Ritesh Jain Founder at Infynit / Former COO HSBC
08 January
Steve Haley Director of Market Development and Partnerships at Mojaloop Foundation
07 January
Nkahiseng Ralepeli VP of Product: Digital Assets at Absa Bank, CIB.
Sergiy Fitsak Managing Director, Fintech Expert at Softjourn
06 January
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