Carillion Struck By Lightning

@NilsPratley blames delusion in the boardroom (on a grand scale, he says) for Carillion's collapse. "In the end, it comes down to judgments made in the boardroom."

A letter to the editor of the Financial Times agrees.

"This situation has been caused, in part, by the unprofessional, fatalistic and blasé attitude to contract risk management of some senior executives in the UK construction industry."

By no means the first company brought low by delusion (I've talked some about Enron on this blog, as well as in my book on organizational intelligence), and probably not the last.

And given that Carillion was the beneficiary of some very large public sector contracts, we could also talk about delusion and poor risk management in government circles. As @econtratacion points out, "the public sector had had information pointing towards Carillion's increasingly dire financial situation for a while".



As it happens, the Home Secretary was at the London Stock Exchange today, talking to female executives about gender diversity at board level. So I thought I'd just check the gender make-up of the Carillion board. According to the Carillion website, there were two female executives and two female non-executive directors in a board of twelve.

In the future, Amber Rudd would like half of all directors to be female. An earlier Government-backed review had recommended that at least a third should be female by 2020.

Lombard: Sir Philip to review why so few female senior executives. He could use a beefed up UK's governance code to propel women to top jobs

— kate burgess ft (@katebur95633594) February 9, 2016

But compared to other large UK companies, the Carillion gender ratio wasn't too bad. "On paper, the directors looked well qualified", writes Kate Burgess in the Financial Times, noting that "the board ticked all the boxes in terms of good governance". But now even the Institute of Directors has expressed belated concerns about the effective governance at Carillion, and Burgess says the board fell into what she calls "a series of textbook traps".

So what kind of traps were these? The board paid large dividends to the shareholders and awarded large bonuses to themselves and other top executives, despite the fact that key performance targets were not met, and there was a massive hole in the pension fund. In other words, they looked after themselves first and the shareholders second, and to hell with pensioners and other stakeholders. Meanwhile, Larry Elliott notes that the directors of the company took steps to shield themselves from financial risk. These are not textbook traps, they are not errors of judgement, they are moral failings.

Of course we shouldn't rely solely on the moral integrity of company executives. If there is no regulation or regulator able to prevent a board behaving in this way, this points to a fundamental weakness in the financial system as a whole. As @RSAMatthew writes,

"There are many culprits in this tale. Lazy or ideologically blinkered ministers, incompetent public sector commissioners, cynical private sector providers signing 'suicide bids' on the assumption that they can renegotiate when things go wrong and, as always, a financial sector willing to arbitrage any profit regardless of consequences or ethics."

There is a strong case that diversity mitigates against groupthink - but as I've argued in my earlier posts, this needs to be real diversity not just symbolic or imaginary diversity (ticking boxes). And even if having more women or ethnic minorities on the board might possibly reduce errors of judgement, women as well as men can have moral failings. It's as if we imagined that Ivanka Trump was going to be a wise and restraining influence on her father, simply because of her gender.

As it happens, the remuneration director at Carillion was a woman. We may never know whether she was coerced or misled by her fellow directors or whether she participated enthusiastically in the gravy. But we cannot say that having a woman in that position is automatically going to be better than having a man. Women on boards may be a necessary step, but it is not a sufficient one.

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Martin Bentham, Amber Rudd: 'It makes no sense to have more men than women in the boardroom' (Evening Standard, 15 January 2018)

Mark Bull, A lesson on risk from Carillion’s collapse (FT Letters to the Editor, 16 January 2018)

Kate Burgess, Carillion’s board: misguided or incompetent? (FT, 17 January 2018) HT @AidanWard3

Larry Elliott, Four lessons the Carillion crisis can teach business, government and us (Guardian, 17 January 2018)

Vanessa Fuhrmans, Companies With Diverse Executive Teams Posted Bigger Profit Margins, Study Shows (WSJ, 18 January 2018)

Simon Goodley, Carillion's 'highly inappropriate' pay packets criticised (Guardian, 15 January 2018)

Nils Pratley, Blame the deluded board members for Carillion's collapse (Guardian, 15 January 2018)

Albert Sánchez-Graells, Some thoughts on Carillion's liquidation and systemic risk management in public procurement (15 January 2018)

Rebecca Smith, Women should hold one third of senior executive jobs at FTSE 100 firms by 2020, says Sir Philip Hampton's review (City Am, 6 November 2016)

Matthew Taylor, Is Carillion the end for Public Private Partnerships? (RSA, 16th January 2018)


Related posts

Explaining Enron (January 2010)
The Purpose of Diversity (January 2010)
Organizational Intelligence and Gender (October 2010)
Delusion and Diversity (October 2012)
Intelligence and Governance (February 2013)
More on the Purpose of Diversity (December 2014)


Updated 25 January 2018

Organizational Intelligence and Gender

A new study by a team of researchers (three male, two female) indicates a statistical correlation between the collective intelligence of a team and the proportion of women. They attribute this correlation to a factor they call "social sensitivity", which they describe in terms of the ability of group members to perceive each other's emotions. They acknowledge that this is not an exclusively female ability, but suggest that females tend to possess this ability to a greater extent than males.

Social sensitivity is one element of emotional intelligence. It would be interesting to know how other elements of emotional intelligence (e.g. confidence, determination, self-awareness, self-control) affected the performance of these groups on these tasks. See my earlier post on Emotional Intelligence.


By the way, we probably shouldn't think of "social sensitivity" as something that belongs to an individual woman in isolation - obviously it would be pretty meaningless and impossible to observe outside some social context - we could instead think of it as a group phenomenon that happens to emerges more readily in the presence of many women.


Another relevant factor appears to be the conversational dynamic of the group - taking equal turns rather than allowing one person to dominate.

I suspect that the relationship between conversational dynamic and gender balance is a complex one - men may respond in various ways to the presence of women and vice versa - and of course this relationship depends on cultural context. And by culture I don't just mean macroculture (Americans versus Japanese, Generation X versus Generation Y) but also microculture (the style and identity of this particular organization). This relationship is not elaborated in the extracts I have seen.

What doesn't appear to be a relevant factor, at least for the set of group tasks included in the experiment, is the average or maximum intelligence of the group members.

This confirms something I have long asserted, that collective intelligence is not determined by individual intelligence, but emerges from the interactions of the group or organization.


While these findings are undoubtedly interesting, it is important to qualify them with the observation that these were fairly short-term tasks from groups that were apparently put together for the purposes of the experiment. So it would be useful to have some research that looked at the performance of mixed gender groups over longer periods. If women are better at reading emotions quickly, is this advantage eroded over time as team members become more familiar with one another, or does this represent a persistent source of advantage?

If we accept the idea that the presence of females in the boardroom would make the board of directors more intelligent, this raises some further interesting questions. Instead of talking abstractly about glass ceilings, we need to understand specifically what power structures allow male-dominated organizations to survive against the potentially superior intelligence of female-dominated organizations. Alternatively, we might have to explore the idea that the intelligence at board level is a lot less relevant to corporate success than the pay and self-importance of senior management might suggest.

Another way of interpreting the results is to say that gender represents an important mode of diversity. In this particular experiment, gender may have been the most significant mode of diversity, especially if all the participants were drawn from a relatively homogeneous population, and were of similar age and educational background. In an experiment with a more heterogeneous population, other kinds of diversity might turn out to be more significant, which would lead to the explanation that it is diversity in general rather than gender in particular that produces these outcomes.  However, this research happens to provide data about gender, and I have not seen any data about the comparative value of different kinds of diversity.

For example, Hillary Clinton and David Miliband have much in common, and would be grouped together in many classification schemes.

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Anita Williams Woolley, Christopher F. Chabris, Alexander Pentland, Nada Hashmi, Thomas W. Malone Evidence for a Collective Intelligence Factor in the Performance of Human Groups Science DOI: 10.1126/science.1193147

Collective Intelligence: Number of Women in Group Linked to Effectiveness in Solving Difficult Problems ScienceDaily (Sep. 30, 2010)

Study finds small groups demonstrate distinctive 'collective intelligence' when facing difficult tasks PhysOrg (Sep. 30, 2010)

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Relationships built on self-interest (January 2009)
What is the Purpose of Diversity? (January 2010)
Organizational Intelligence and Gender (October 2010)
Delusion and Diversity (October 2010)
More on the Purpose of Diversity (December 2014)

Technology and Gender

Writing in a bygone age, Lewis Mumford and Dora Russell characterized technologies as "masculine" and "feminine". Russell claimed that people paid more attention to the "masculine" technologies than the "feminine" ones.

I am citing their work NOT because I want to restore or reinforce gender stereotypes, but merely to bring to the surface the continuing possibility of distortion and bias in our perceptions and valuations of different kinds of technology.
 

A considerable degree of androgeny can be found in technology, regarded by some people as an entirely male domain. In his book, The Myth of the Machine (pp 139-140), Lewis Mumford argues that technology can bear both masculine and feminine characteristics. "The tool and the utensil, like the sexes themselves, perform complementary functions. One moves, manipulates, assaults; the other remains in place, to hold and protect and preserve." The palaeolithic [i.e hunting/nomadic] inventions were more masculine than feminine: fire, spears, arrows, etc. "The radical neolithic [i.e. farming] inventions were in the realm of containers.... The creation of moisture-proof, leak-proof, vermin-proof clay vessels to store grain, oil, wine, and beer was essential to the whole 'neolithic' economy."

Mumford doesn't ask us to classify technology simply by the shape of the tool/utensil (pointed tools are phallic; rounded or concave utensils symbolize breast or womb) but by the processes they are intended for. "In general, the mobile, dynamic processes are of male origin: they overcome the resistance of matter, push, pull, tear, penetrate, chip, macerate, move, transport, destroy; while the static processes are female ... and they remain largely in place, undergoing qualitative changes, from raw meat to cooked meat, from fermenting grain to beer, from planted seed to seeding plant.... Cooking, milking, dyeing, tanning, brewing, gardening are, historically, female occupations.... All these functions necessarily enlarge the role of containers: indeed are inconceivable without baskets, pots, bins, vats, barns".

In her book The Religion of the Machine Age, Dora Russell builds upon Mumford's division of technology into masculine and feminine. She suggests that most people, when asked to think about technology, typically think about the masculine technologies and ignore the feminine ones. An intriguing idea.

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Lewis Mumford, The Myth of the Machine: Technics and Human Development (London, Secker and Warburg, 1967)

Dora Russell, The Religion of the Machine Age (1983)

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Originally written 1987, updated November 2001. Relocated from my website to this blog in August 2016, so that I could add the following tweet.

"Another thing I came to realize is that the nurturing and maintenance jobs hold the world together." -- D Meadowshttps://t.co/YT9Jm5rU4v

— VisArch (@ruthmalan) August 22, 2016