Are you cultivating a culture ripe for blow-ups?

A culture that incubates blow-ups is directly linked to how top management transmit earnings pressure to their subordinates.

Every quarter brings stories of new blow-ups where losses have been hidden until they have snowballed, sometimes destroying the company.

There is a common pattern to these stories. Performance is worse than expected. Someone at some level has to make a choice: Confess and face the consequences or keep it quiet and try to fix it before anyone notices. The latter route involves doubling up bets on positions, using aggressive accounting to call forward profits as well as outright fraud. There is rarely a clear black and white line crossed, only a slippery slope of judgement that gets steeper and steeper to climb back up.

The person does this with the best intentions. Yes, they are worried about what will happen to them personally, but they also justify to themselves that what they are doing what is best for the organisation, and ultimately their shareholders. After all, wouldn’t the shareholders want this fixed quietly?

Increased financial control and/or regulation doesn’t stop this dynamic, it just demands more imagination to defer the showdown.

Top management can create a culture that defuses this pattern. When quarterly earnings are at risk, what top-down message do they send? A desire to motivate remedial action can easily be misheard as “Targets Shalt not be Missed at any Cost”, directly feeding the fear-based, don’t ask questions culture that will cause this type of blow-up.

Only when employees see top management avoiding “spin”, and honestly sharing reality, however disappointing, with stakeholders inside and outside the company, will they do the same themselves.



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