South African Breweries (SAB) is the world’s second largest brewer. To many people that comes as a surprise. To me – not really.
In the 1980s SAB had already totally dominated the South African beer market. Their marketing strategy was focussed as though a significant competitor with unlimited resources was about to enter the market. The few that tried failed.
The other dominant management creed has always been: no surprises. If something went wrong, management at the most senior level had to be informed – they did not want to find out the bad news when the results had made it impossible to conceal.
As a young manager in one of the SAB subsidiaries at the time, that thinking was drummed into me.
So it was a surprise to read that Ford was the only American car company not to need bailing out in 2008 because when Alan Mullaly took control of the company in 2006 he’d required his managers to own up to their mistakes. He asked managers to colour-code their progress reports—ranging from green for good to red for trouble. At one early meeting he expressed astonishment at being confronted by a sea of green, even though the company had lost several billion dollars in the previous year. Ford’s recovery began only when he got his managers to admit that things weren’t entirely green.
It seems that not owning up to mistakes until they hit the financials is fairly common. Recent examples making the headlines are huge: Jérôme Kerviel – €4.9 billion ($7 billion) at Société Générale in 2008; Kweku Adoboli – $2.3 billion at UBS in 2011; JP Morgan – $2 billion earlier this year.
Sweeping mistakes under the carpet instead of owning up and learning has become common practice. With plenty of profits, covering the errors has been relatively easy. At JP Morgan, even with the $2 billion “mistake”, the company will still earn a $4billion profit this quarter. The headline in Forbes magazine “Less Hyperventilating on JP Morgan Chase’s $2B Loss, Please“.
Through the good times, over the past 20 years, fitting in and the EQ was all important. Managers, not challenged to overcome losses have been fitting in. Mediocrity has prevailed.
Military history provides a good example of the syndrome. Nelson, the great military strategists and considered a maverick was destined for obscurity before Napoleon became a threat to the British Empire. Once at war, Nelson took advantage of the opportunity, and understanding the strategic flaws of his superior officers would disobey orders to pursue actions that he realised would prevail. His successes made censure impossible, and led to his steady promotion.
It will be interesting to see if managers whose comfort zone is the box can work with people who don’t see a box.
Schumpeter Fail often, fail well
Less Hyperventilating on JP Morgan Chase’s $2B Loss, Please
UBS’s trading loss Swiss miss
Banking reform What’s $2 billion between friends?
J.P. Morgan’s trading mistakes A billion here, a billion there
J.P. Morgan’s woes cont. Damage control
SocGen’s rogue trader All his fault
Of course it’s right to ringfence rogue universals
Sarkozy v Jerome Kerviel
Strategies for Learning from Failure
UBS Ossie out