Too Big to Fail: Are We Enabling Organizations?

Corporate failure is a worthy topic to explore, as we can learn from the catastrophic mistakes of others.

HBO’s drama focusing on the events of the economic crisis, proves this point. The title — Too Big to Fail — of course refers to the nearly fatal infection of the financial services industry and the heroic measures taken to revive it. The film’s razor-sharp focus into the gut wrenching near collapse of an entire industry (and the eventual necessity of governmental intervention to avert demise), was an eye-opening look into the impact of organizational culture, its impact upon risk taking and failure.

Ripe for a Catastrophe
The movie attempts to probe the crux of the crisis — and offers a bit of explanation concerning the events which unfolded. It touches upon the inevitable contributions of sub-prime mortgages, credit default swaps and unchecked greed.

We now know that the problems of the financial sector cascaded into other industries, including the automotive sector — another industry woefully vulnerable to the unfolding economic downturn. While the financial industry seemed vulnerable to issues concerning risk, chronic problems within auto also begun to resurface. Issues such as quality and unrelenting competition from the Japanese. Eventually, American auto also required their own set of life-sustaining measures to continue.

Historically, this was not the first time that governmental support had been necessary to save an organization within the auto sector — or in other industries for that matter. Think Chrysler in 1980 or Lockheed in 1971. (Interestingly, the financial outcomes of these interventions for government, are not as poor as you might expect.) Why specific industries such as banking and auto, have required help repeatedly, may point to chronic cultural issues left unaddressed.

Have Lessons Been Learned?
After all was said and done, HBO’s effort was fascinating (I was riveted by Paul Giamatti’s portrayal of Ben Bernancke). However, a large part of the explanation seemed absent from the story. The movie did not delve into the cultural factors festering within these organizations — that undoubtedly provided the spark to ignite the entire tangled mess into a raging firestorm. Problems which lingered long before the crisis began — such as ineffective leadership, a culture of silence and the absence of longer-term strategic planning.

Which leads us into the heart of the dilemma. If these critical organizational problems are not been properly addressed within the organizations aided, have we essentially enabled them to make the same mistakes once again? After all, hadn’t both General Motors and Chrysler been down a similar path previously? What guarantees will we put in place to protect organizational health, 5 or 10 years from now?

It seems obvious that certain cultural issues have to be solved to ensure long-term organizational health. Here are a few topics to consider:

• Teach leaders about the past. There seems to be a lack of a “collective unconscious” when the gavel of leadership is passed on within organizations. It seems that the completion of “Organizational History 101” should be required for all future leaders, in an attempt to avoid the re-occurrence of old problems.
• Avoid “The Emperor’s New Clothes” scenario. A system of checks and balances should be in place when to ensure high quality decisions. Who will allowed to review or challenge the decisions of upper management? (Obviously a devil’s advocate was absent when auto execs took private jets to Washington seeking financial assistance.) Ask the question: Have we looked at all sides of this issue?
• Don’t stop thinking about tomorrow. Don’t get stuck in the moment – even if things are looking up. Thinking that a favorable environment (whether financial or product-based) will go on forever, will likely catch us off-guard and unprepared. Run through various “what if” scenarios to plan for the inevitable upward and downward turns in sales. Setting strategy for these challenges in the future is key.
• Avoid making decisions solely from a ledger sheet perspective. Risky short-term financial gains may lead to long-term calamities. If making money just seems too easy, ensure an evaluation of the accompanying risks that may later affect your organization. How will the move affect exposure to other financial or customer-related challenges down the line? Will emphasis in one area leave you open to weakness in another?
• Utilize innovation to stay ahead of the game. Establish metrics to monitor and encourage real innovation within your organization, and communicate progress regularly. Whether you track patents or customer service successes — innovation can serve as an insurance policy for your company, offering new direction and opportunity.

Moving forward will likely reveal a challenging road. Let’s hope that key lessons have been learned.

Dr. Marla Gottschalk is a Workplace Psychologist practicing in East Lansing, Michigan. Follow her on Twitter.