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Leadership

One way to prevent corporate crashes: A hubris test for CEOs Add to ...

Last week, an acquaintance who runs his own business was sent an e-mail from his landlord concerning window cleaning. To comply with health and safety rules the landlord was demanding a “method statement” detailing the technique used to clean the inside of the windows as well as a numerical measure of the risks involved. So my friend stopped running his business in order to report that the job was done using a bucket of water, some detergent, a sponge and a squeegee.

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This is how it now goes. Every single possible risk facing every single business – not just concerning health and safety but in everything else too – has to be documented, checked, subjected to numerical stress tests, and then reassessed with mitigating factors considered.

Actually, that isn’t quite true. Not every risk gets measured: there is one that never gets dealt with at all. It’s the biggest risk of the lot – that the chief executive gets so high on power that he or she loses the plot.

Nowhere on a risk register have I seen “hubristic CEO” as a specific danger to the business, which is a bit of an oversight when you consider this is the common denominator in every corporate catastrophe you’ve ever heard of.

Only last week Peter Cummings, the former head of corporate banking at HBOS, the conglomerate that owns the Bank of Scotland, was banned from ever working in banking again, so out of control was he considered in his time at HBOS. Yet for the United Kingdom’s Financial Services Authority to be taking such a step now – when the damage was done six years ago – strikes me as laughably late in the day.

What is needed instead is a way of catching people like Mr. Cummings before they go on their “optimistic” binges. Fortunately I have just such an idea up my sleeve: to force all top executives to take an annual hubris test modelled on the Ministry of Transportation’s (MOT) test for cars. This idea, alas, isn’t mine. I’ve stolen it from Chris Wiscarson, head of insurer Equitable Life, who floated it in a Sunday Telegraph interview last week.

His MOT idea is a stroke of genius. Since the test was introduced for cars in the 1960s, it has improved road safety to no end as it means you can no longer take your car down the motorway if the brakes are dodgy. With executives, the benefits would be just as great – the only problem being that a chief executive is a more complicated and capricious machine than a car, so getting the test right would be a bit harder.

Mr. Wiscarson failed to spell out exactly what such a test would involve, though there was some talk of psychological assessments. This, I think, would be a mistake: I’d rather keep shrinks out of it and rely on the testimony of people who work closely with that executive. My ideal CEO MOT would be done by the board, by the chief executive himself, and by his personal assistant – who knows him better than anyone.

The test could be arranged around a small number of simple questions such as: how would you rate his (or her) arrogance on a score of one to five? Has it increased recently? Has he changed his mind on anything in the past year? Has he done anything even slightly dodgy? In answering these questions, spineless non-executive directors would be discouraged from fudging answers by the promise of a prison sentence should they fail to be candid.

In addition to the annual test there would be a system whereby any statements of exceptional hubris would cause an immediate MOT failure. Thus, Bob Diamond, former CEO of British bank Barclays PLC, would have been instantly out when he told the United Kingdom parliament a year ago that the time for bankers to apologize was past (although if my system was working properly he would have already been out of a job, having failed his routine MOT).

It would also have caught Michael Dell, who at the end of the 1990s made the most famously hubristic announcement of all time: that he would have shut Apple down and given the money back to shareholders.

There are, however, a couple of differences between the MOT on cars and the one I’m proposing. With a car you don’t need a test if the vehicle is less than three years old. Even though hubris in CEOs tends to rise with length in office, it can occur at any time so the test should start right from the beginning.

The second difference is that when your car fails its MOT it gets booked into the workshop for costly repairs and is soon back on the road again. By contrast, any CEO who fails the hubris test should not be allowed a second chance, since there is no easy way of fixing a condition that has got so advanced. Instead he should be cast out of the executive suite and (like in the Van Morrison song) go back to cleaning windows.

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