OPINION:CHRISTMAS IS a time to celebrate childhood, to relive the stories we ourselves enjoyed as children. The wide-eyed wonder of Christmas morning creates lifetime memories for parents. It provides some welcome respite from the adult worries of job security, household budgets and negative equity, writes DONAL CASEY
One story for children has a surprising resonance with the root causes of the global credit crunch. The Emperor's New Clothesis a timeless tale of the madness of crowds and our human susceptibility to herd instincts. The adults in the story lost the ability to think for themselves and it took the unclouded perception of a child to point out the blindingly obvious. The emperor was naked.
The absence of independent thinking is at the heart of this economic crisis. It seems scarcely believable in hindsight that hordes of apparently intelligent professionals engaged in the mutually assured wealth destruction that was the global property bubble.
Risk has had a firm hold at the top of the corporate agenda. Using a toolkit called enterprise risk management (ERM), chief risk officers quantified all potential risks facing a business. Quantitative models with the shiny veneer of scientific exactness were used to determine the variance-at-risk (VAR) for each risk category. The board was reassured that the business could absorb the likely impact of all one-in-100-year events.
This time it’s different.
The sense of security derived from this analysis is much exaggerated. The modelling does indeed create new insights into the inner workings of a business, but the certainty created by these elaborate models is a mirage. The emperor’s problems were not technical in nature; his tailor was not the issue. He was humiliated by his own hubris and the obsequious nodding of his courtiers.
The first analyses of our banking crisis have been written by business and financial journalists. Central Bank governor Patrick Honohan has observed that understanding the deeper roots of the collapse will require broader scientific perspectives.
The more telling insights are likely to come from social scientists, behavioural economists and historians. The Celtic Tiger tapped into a deep patriotic seam regarding our national identity. We were so proud of our economic miracle that critical judgment was willingly suspended. It is this same patriotic seam we must tap into now to wrest our national sovereignty back from the tyranny of debt-servicing.
“Career risk” is a relatively new term in the economist lexicon. It is the basic and understandable instinct to protect one’s career above concerns of right and wrong. Large numbers within the banking world must have sensed that the lending binge was unsustainable, but that shouting stop would have been career limiting or career ending. The safest option was to carry on, safe in the knowledge that it wouldn’t be possible to fire everyone. How right they were.
"Absolute power risk" has been part of human nature since time began. Another story, George Orwell's Animal Farm, offers a perfect analysis of how power eventually corrupts unchallenged leaders. Most of the chief executives leading large financial institutions assumed an aura of infallibility during the years of plenty leading up to the credit crunch. It is hard to stay grounded in the dizzy heights of Davos. We need look no further than the Murphy report to understand the devastating long-term consequences of autocratic authority.
“Parallel universe risk” is another component of our economic crisis. Selecting supposedly diverse people from narrow gene pools can create a cocoon of self-reinforcing spirals. Groupthink and self-justification replaces independent thought and debate. We have seen stunning examples of this in Ireland over the past 12 months, from both banking boards and the social partnership process.
There is a physiological basis to this phenomenon called our recticular activating system. We are highly selective about the evidence we choose to focus on, mostly in a bid to prove past decisions right. Reinforced by those around us, this generates a potentially lethal cocktail of false certainty and denial. The least forgivable form of “parallel universe risk” manifested among those charged with the role of non-executive director. We are entitled to demand independent thinking from older people who are experienced and financially secure. “Career risk” is much less threatening when families are reared and mortgages repaid.
It was a child who exposed the emperor. The purest source of “change energy” in any society is youthful idealism. The primary colours of right and wrong have not yet been blurred by battle-weary pragmatism.
Their “naive” ideals have not yet been diluted by a resigned acceptance of the darker side of power dynamics.
The Young Ireland series in this newspaper was a glimpse of the deep well of desire for change residing in our younger generation. Just as drink-driving was made culturally unacceptable by young people, the flawed leadership patterns in Ireland can be rejected by the under-40 generation.
This is not a mawkish cry of “mol an óige agus tiocfaidh siad” (Praise the young and they will flourish). This is a call to action for young Ireland to demand higher standards of leadership right across our society, leaving behind the entitlement mentality that seeped into their mindset during the Tiger years.
What is required is a groundswell of younger voices demanding new standards of governance in Ireland. The principle underlying “career risk” is the protection offered by the crowd. That same principle should be harnessed now by our younger generation. They should remember that most important lesson from our banking collapse – firing everyone is not an option.
The single most potent attribute required to address these behavioural challenges is courage. It is never easy to stand outside the crowd and point out the inconvenient truths. They are rarely as obvious as a naked emperor.
We need a new culture of openness and challenge in our organisations. Only confident and courageous leaders will create the conditions where independent thinking is celebrated as serving the organisation’s purpose. Courage finds form in many other ways: the humility to accept counsel from others, the willingness to admit mistakes, and even the dignity to resign gracefully when things go badly wrong.
If courage is to be the pathway to renewal for Ireland, it is worthwhile to finish the year with a celebration of two shining examples of Irish courage during 2009.
Minister for Finance Brian Lenihan was thrown in at the deep end of an incredibly complex agenda just 18 months ago. The past year has seen him rise to the challenge of a mesmerisingly difficult portfolio. He has confronted the politically impossible challenge of banking rescues and savage budget cuts and delivered what was needed. In releasing himself from the need for short- term popularity, he threatens to be the most important political figure in a generation.
Our grand slam-winning captain, Brian O’Driscoll, may well be the most talented rugby footballer we have ever produced, but the quality that sets him apart is his courage. The team exhibits a mental strength unseen in past generations, and they are led by a genius called Declan Kidney who gives them the autonomy to make the key on-field decisions.
Courage blended with the energy and ideals of youth. That’s what I call turning the corner.
Donal Casey is managing director of Aon Consulting (Ireland). The views expressed here are personal