#orgintelligence @larryhirschhorn has produced a very detailed analysis of Barclays Bank, Robert Diamond and the LIBOR scandal (July 2012). He asks why Marcus Agius (Barclays Chair) and Bob Diamond (Barclays CEO) were stunned at the Bank of England's demand for Diamond's resignation, and suggests it was because they lacked something he calls a “political imagination”.
There is a lot of interesting material in Larry's blog from the perspective of organizational psychology, and I don't want to reproduce it all here. What I do want to explore is whether what Larry calls "political imagination" is an aspect of what I call organizational intelligence.
Central to Larry's narrative is a cryptic note, written by Bob Diamond after a telephone conversation with Paul Tucker, the Bank of England’s executive director for markets. This note appears to have been interpreted by one of Diamond's subordinates as an coded instruction from the Bank of England to lower its LIBOR submissions. However, Diamond later denied that this was the meaning of the note. As Larry points out, this kind of deniability is all too common in and between organizations.
What is more complicated is the decision by Barclays to include this note in its published account of the LIBOR affair. Why was this note relevant to the LIBOR affair, if it didn't mean what it appeared to mean? Diamond's self-justification and repudiation looks like what Freud called Kettle Logic - "we didn't fix the LIBOR rate ... and anyway you hinted we should fix it ... and anyway it wasn't a hint".
The Bank of England was undoubtedly sensitive to the allegation that it had been complicit in the LIBOR affair, and seems to have reacted angrily to the publication of this note. Diamond and his colleagues may have decided to include the note as a coded message to other banks, but failed to anticipate the reaction of the Bank of England. And as one of the highest paid bankers in London, Diamond may also have failed to appreciate the extent to which the Bank of England disapproved of overpaid London bankers.
According to the Wall Street Journal, there were differences of opinion within Barclays as to whether it was a good idea to include this note in its report, and there were some who worried about the reaction. However, the decision was taken to include it. At the time, this might have seemed like a fairly small detail, but such details can sometimes have very significant consequences.
(Of course, we cannot know for sure that it was this detail that triggered the Bank of England's demand for Diamond's resignation, but it is a highly plausible interpretation of events.)
One of the most common limitations of organizational intelligence is that all decisions are taken within a fixed frame of reference - which I regard as a failure of sensemaking. Larry suggests that Bob Diamond was operating within a frame of reference based on "technical rationality", within which the publication of the controversial note seemed perfectly reasonable, and that he lacked the imagination to move outside this frame of reference. Larry also indicates some of the organizational mechanisms that may have helped to reinforce Diamond's limited worldview, including his experience of being protected by his subordinates.
In that regard, there are some strong parallels with the Murdoch empire and its recent troubles. When Diamond said (speaking to the House of Commons Treasury Committee), "When I read the e-mails from those traders I got physically ill" (BBC News, 4 July 2012), I was convinced I had heard either Rupert or James Murdoch saying much the same thing a few weeks earlier. They are obviously using the same scriptwriter.
Doubtless there will be a stage play at the Royal Court before long, showing us the tragic fall of these doomed heroes.