The Hindu Business Line : ‘Groupthink’ and the crisis in global banking

I worked with an international bank for four years and 11 months. In the last year-and-a-half of my stint there I used to head the compensation and benefits function. In retrospect, that was the most trying period of my professional life. I finally quit the bank and took up a job I really loved, albeit at a 40 per cent cut in pay. I was so keen to leave that I did not wait to complete five years to claim my gratuity. After all, I was able to reclaim my professional life and this was a very small price to pay.

In the midst of the current global economic crisis the world is angry with bankers. US President Barack Obama termed as “height of irresponsibility” and “shameful” the act of Wall Street bankers to give themselves about $18 billion in bonuses even as their companies teetered on the verge of collapse and were asking for taxpayers’ help to sustain them.

My stint in the international bank gave me a first hand experience of how bankers, in general, think and act and more importantly, helped me understand their motives and drives. And there was no better vantage point from which to see this than from my position as the Head of Compensation and Benefits.

In this article, I wish to use this personal experience to try and understand some of the systemic issues that plague some banking professionals across the globe.

A weak HR function is a huge symptom of the malaise. The bank I worked in and most other international banks at that time never really had a HR function. The foundational values and beliefs about people and human motivation (like humanness, respect for people, belief in the human potential, and so on) that all HR functions rely on were not really central to the way people were managed. It was, therefore, impossible for HR to find ways to engage and influence.

So, what really drove people to perform and what gave these banks the edge in the labour market and the ‘day one’ status on premier b-school campuses? Money was the lead and sole mechanism that drove everything. Most people joined these banks to become rich and not to become great professionals.

So look at the deadly combination — the absence of a value foundation, a weak HR function and a lot of money! This was compounded by the fact that all the levers of rewards were vested in the hands of supervising managers.

Given their innate style of being profitable deal makers, managers in banks ended up adopting a similar deal making approach with their employees too — ‘you do this and you will get this’. Given the power vested in the managers, the brightest talent soon realised what was good for them: do what pleased the boss and avoid dissent. Given the way rewards were designed and its lone place in the employee value proposition, the short term was often celebrated.

Added to this, the phenomenon of ‘groupthink’ was also in force. Most bankers were from similar backgrounds and ended up thinking similarly. Those from outside just did not fit in and either left or had to fall in line. As a result, there were few original ideas, dissenting voices and healthy debate and a culture of extreme risks and even irrational decisions. (See box on Groupthink). Any effort by the ‘laterals’ (a term used to describe those who came from outside as mid-career hires) to bring a dissenting or even a different point of view was seldom appreciated.

It was very clear to me that the root cause was greed. It was sad to see how some of the brightest managers could not transcend the money aspect and focus on all the other things that could contribute to creating a sustainable work culture and organisation

The collapse of the banking system in the US and other countries will inevitably bring into sharp focus the way rewards are designed and administered. Bank Boards will end up playing a very significant role, not only in scrutinising the quantum of rewards, but also the basis on which rewards are designed and in ensuring that the behaviour that drives people to work towards the rewards does not destroy the institution. Given the increased role of the Government in the running of banks, their role in shaping reward policies cannot be ignored.

Unfortunately, this is no solace for the millions of people who lost their jobs and their savings and their future because of what some of these bankers did. We will have to let their bad Karma catch up with them.

Groupthink

Groupthink is a type of thought exhibited by group members who try to minimise conflict and reach consensus without critically testing, analysing and evaluating ideas, as a result of which individual creativity, uniqueness and independent thinking are lost.

Groupthink may cause groups to make hasty, irrational decisions, where individual doubts are set aside for fear of upsetting the group’s balance.

Some of the key symptoms of groupthink identified by Irving L. Janis and Leon Mann Janis, I. L. & Mann, L. are:

Illusion of invulnerability: Ignoring obvious danger, taking extreme risk and being overly optimistic.

Collective rationalisation: Discrediting and explaining away warnings contrary to group thinking.

Illusion of morality: Where members believe their decisions are morally correct, ignoring the ethical consequences.

Self-censorship: Where members withhold their dissenting views and counter arguments.

Mind guarding: Where some members appoint themselves to the role of protecting the group from adverse information that might threaten group complacency.

Social psychologist Clark McCauley saw three conditions under which groupthink occurs — directive leadership, homogeneity of members’ social background and ideology and isolation of the group from outside sources of information and analysis.

(The writer is the founder and CEO of totus consulting, a strategic HR Consulting firm. He is also the co-founder of the Executive & Business Coaching Foundation India Ltd. He can be reached at ganesh@totusconsulting.com)

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‘Groupthink’ and the crisis in global banking