Groupthink: the enemy within

As I sometimes do I was tapping away on a blog post and then thought I’d like to give it greater exposure. So I didn’t press ‘publish’ and then pitched it to the Age who liked the idea. So I worked away to convert the post into a column – they’re fairly different things (for me anyway).  So here’s the column. It was published today in the Age and picked up by the SMH I’m pleased to say. And, not that it’s all that fascinating, but just for the hell of it, I’m writing this in the window I wrote the original post in. So if anyone’s interested in the contrast between the blog post and the column of the post, the original post is below the fold. (Sorry for the lack of a fold earlier in the piece.)

On his journey to the Lodge Kevin Rudd argued that one of his opponents’ political philosophers, Friedrich Hayek held the twin beliefs that people are naturally selfish and that this was a good thing. Ironically Hayek believed the converse – that our evolution in small bands on the African Savannah had produced a species that was naturally given to group solidarity. And Hayek thought that was a bad thing – an obstacle to building a free modern society.

A brief glance at our world, both today and through history confirms our natural tendency to solidarity. With brief interludes in ancient Athens and Rome, it took until the sixteenth century before, in the teeth of the misery and mass bloodshed brought by generations of religious civil war in Reformation Europe, the penny dropped that society might function without unanimous agreement about the nature of God and the universe: As Elizabeth I put it – providing Englishmen were loyal and law abiding she need not look into their souls.

It took more centuries for the idea of factions within government to be accepted and ultimately institutionalised. But still the revolution seems only half won. Amongst the carnival of dissent and struggle in the marketplace for money and ideas – which has brought humans as close as we have yet come towards a free, meritocratic society, most organisations are run as Good Queen Bess’s tyrannical dad, Henry VIII would have run them – by fiat, with dissent hushed up if it is tolerated at all.

Of course to get things done, organisations can’t be riven with faction, and indecision. But the same can be said for polities. And just as a Catholic could be a loyal subject of Queen Bess, so dissent within a firm can respect its authority; its need for decision. Why shouldn’t it be possible for an employee – or for a board member, CEO or Chairman for that matter – to say something like this?

I opposed the dividend policy the company agreed on. I may do so again. But more people supported it and I support our firm’s need to make and stick by clear decisions.

(I’d apply the same standards to cabinet government but that’s utopian for the foreseeable future. The media’s feverish sensationalism would turn it into a circus.)

As James Suroweicki’s The Wisdom of Crowds observes, to be wise, a crowd must embody diversity of opinion and cognition, some preferably open means of capturing those insights over as wide a range as possible, and independence of individuals within the crowd. The more such qualities are lacking the more tenaciously organisations gravitate towards what Orwell called groupthink, reminding us that Suroweicki’s book was offered as a foil to the mid nineteenth century book Extraordinary Popular Delusions and the Madness of Crowds. That book’s topics included markets’ endlessly recurring cycles of euphoria and gloom, alchemy, the crusades and other human high points.

Groupthink and complacency feed on each other often preventing organisations from learning except in a crisis. Because, though little fault of our own we had a good financial crisis, our bureaucrats and banks rest assured of their own acumen even if more candid assessments put it down to “dumb luck”.

As financial entrepreneur Christopher Joye blogs, England’s officials, through no more derelict than ours, had a bad crisis. And now its central bank is being ruthlessly honest in its soul searching. In contrast our own Reserve Bank’s reform appetite has been weak, its cosy husbanding of the major banks’ largely undisturbed. In cobbling together its timid banking competition package our Government boasted of how assiduously it worked with financial regulators. But wouldn’t any politicians in government talk policy through with their own official insiders? For me it underlined the Government’s obliviousness to the wisdom available from further afield.

The cultivation of dissent and open discussion are also a recipe for ethical hygiene. I thought of this when listening to the ABC’s Background Briefing on the history of asbestos in Australia. Tasmanian firm Goliath Portland Cement’s former finance director Roger Martin was asked if Goliath knew of asbestos’s hazards back when he started in 1981. Martin replied that his then Chairman, Sir Henry Somerset wasn’t the kind of person who’d have countenanced such hazards to the employees. “It wasn’t that kind of company.”

Martin’s complacency was sincere. But he confessed his amazement when shown documentary evidence of Goliath’s managing director being informed of the hazards back in the 1960s. He’d sent a note to his counterpart at James Hardie whose personnel manager had responded when asked “The best advice you can give your friend 1 is to ignore the publicity. Dust is a fact. Denials merely stir up more publicity.”

How did actions of such high immorality occur in virtually every similar firm around the world? They were hiding in plain sight under the cover of normality. They were perpetrated by people who’d have adamantly denied working for “that kind of company”. But had it been normal to express divergent views within the company, would no-one have spoken up to awaken the consciences of those who, as they observed the common decencies of everyday life, were groupthinking their way to criminal disregard for their fellows and, ultimately catastrophe, not just for their fellow employees, but also for the company towards which they proudly boasted their loyalty?

So as a new decade begins, I’m proposing another Good Queen Bess moment. Organisations should develop cultures which encourage diversity, dissent and debate amongst the crowds within and, where possible, even outside their walls. That way they can inoculate themselves against the grand folly of groupthink. They can aspire to the wisdom of crowds instead.

Rusted on Troppodillians may remember a post by Don Arthur debunking a Rudd op ed (but not the more expansive article on which it was based). “Like Rudd, Hayek did not believe that human beings are “almost exclusively self-regarding”. Instead, he thought that we instinctively lean towards other-regarding values like altruism and solidarity. Unlike Rudd, however, he thought this was a problem.”

Certainly one can see evidence all around one of people’s natural hankering for solidarity and the painfulness with which human beings have moved beyond this as society and political governance becomes more complex. It took until around the sixteenth century for the penny to begin to drop in Europe that perhaps a society could function without everyone believing exactly the same thing – without as Good Queen Bess put it “looking into mens’ souls”. Another century or so for it to be OK for there to be ‘factions’ in the running of governments, and indeed for those factions to be institutionalised.

Still it’s odd that it hasn’t gone further – or not odd if you think that our biological preference for solidarity is behind it. Note the apoplexy that the media has when someone doesn’t agree with their leader in a political party. Something similar, indeed more rigorous applies in business. Yet at least commonsensically speaking, none of this is necessary. Part of the desire for solidarity is a natural and reasonable desire that fighting organisations (which is what political parties and firms are) should not be riven with faction, division and the emotional and political turmoil, indecision and weakness that can come from a state of internal siege. But just as a Catholic could be a loyal subject of Queen Bess, so dissent within a company can remain perfectly respectful of the company’s authority structure.

Why shouldn’t it be possible for a member of a board to say this?

I attended that board meeting and spoke against paying a dividend as high as we ultimately decided to pay, and I’m still not sure that it’s the right decision. If it comes up again, depending on the circumstances I’m quite likely to have the same view, but I’m just a member of the board and the board is the supreme decision making body of the company and, because I support the company’s capacity to make decisions, in that sense I support its decision in this case.

One could say the same about politics, but there the media would make it quite impossible to do this, at least for the foreseeable future.

In any event, I would argue that just as this kind of approach has been one of the foundations of our great good material and political fortune in the modern world, extending it further into our economic and political life would bring important benefits. At least when I think about it, one of the hugely dysfunctional things about bureaucracies is the groupthink within them. And since we cannot do without bureaucracies I would argue that bureaucracies that cultivate respectful dissent are likely to be far more productive than those that don’t.

And if you think Hayek is right about our historical and pre-historical antecedents, if you think pre-historians are right in proposing that the most important pronouns for early humanity were ‘us’ and ‘them’ then dissent needs to be cultivated, with groupthink being the unfortunately natural state of many groups of humans.

If you read James Suroweicki’s great book The Wisdom of Crowds his preconditions for crowds to be wise underscore my point. They are:

a) Diversity of opinion and cognition
b) Independence from one another (crowds are stupid when there is too much influence between their members as with the irrational exuberance (pessimism) of a speculative boom (bust).
c) Decentralisation
d) A sound method of aggregating opinions.

I could go on. We hear about risk-aversion in decision making in large bureaucracies. As I’ve argued elsewhere, there’s some method in this process of giving different decision makers within organisations powers of serial veto, but they almost invariably kill all sorts of worthwhile and quite harmless innovation.

By way of temperament and decisions in my life I’m probably less risk-averse than most of the decision makers in the Treasury and the Reserve Bank but sometimes they back much riskier positions than I’d feel comfortable with.  I think we’ve paid insufficient attention to our current account deficit and that it’s led us into more risk than we should be bearing, even though there’s still more chance of things working out OK than not – and lately with mining exports kicking in, things seem to be swinging somewhat more in favour of the higher risk, more laissez faire view.

In an excellent post Christopher Joye documents something similar in the RBA.

For largely no fault of its own, the BoE has had a bad crisis. The UK banking system collapsed. As a consequence, the reform appetite is very healthy indeed. The BoE leadership is being ruthlessly honest with the community about the changes that need to be made to protect the system from the next crisis. This is one of the perverse benefits of bad luck: you are much more motivated to work to tilt the probabilities in your favour the next time the sh-t hits the fan.

In comparison, Australia had immense good fortune. That is, we had a great crisis, and hardly felt the effects of the offshore storms–just a wee bit of turbulence. As an unsurprising consequence, the reform appetite within the RBA is weak.

Australia’s good crisis has reinforced the RBA’s natural conservatism and tendency to resist change (remember they opposed the creation of APRA). This has led to it obfuscating about governance problems (eg, executive leaks to journalists), obfuscating about reform challenges in preference for defending the status quo (eg, the patent unwillingness of staff to voluntarily and actively engage with the public on the moral hazard and too-big-to-fail debates of the day), obfuscating about its own unusual role in the economy (eg, arguing on the one hand that taxpayers should not wear more private sector risk, but creating new linkages between itself, a taxpayer-owned institution, and the private sector as seen by the RBA’s response to BASEL III), obfuscating about financial stability risks (relentlessly talking ‘up’ the system and the work of regulators rather than apportioning more time to discussing the downside hazards), and a clear propensity for quashing policy innovation.

Again, Chris is not your standard risk averse kind of guy, but he’s drawing attention to risks the RBA guys are (according to his argument) groupthinking their way into accepting as OK.  Finally – and without drawing moral parallels between any of the people here and what happened in the case below, somehow when listening to this podcast of Background Briefing I thought of the same thing. Here’s the transcript:

Di Martin (Narrator): 2  critical set of James Hardie’s documents . . . tell a damning story about Alex Walker, the Managing Director of Goliath Portland Cement. In 1965, Alex Walker was returning from a trip to England, where he’d read a feature on asbestos and mesothelioma in The Sunday Times newspaper, that in part read:

Reader: A disquieting new occupational disease capable of killing not only the exposed workman, but also perhaps his womenfolk and even people living near his place of work, is the subject of intensive behind-the-scenes activity by British scientists, experts on industrial health, and at least two government ministries.

Di Martin: Alarmed, Alex Walker sent the article to his counterpart at James Hardie, John Boyd Reid.

Mr Reid in turn wrote the following memo to his personnel manager.

Reader: Attached hereto is a copy of an article which was given to me by Mr A. Walker, Managing Director of Goliath Portland Cement Ltd., Tasmania. He is concerned about this sort of information getting around Australia.

Di Martin: Hardie’s chief asked to be sent whatever information was available on the contents of the newspaper article.

The reply from his personnel manager came just one day later, saying that the article:

Reader: … is merely one of many reports on world studies which have been conducted since 1935 when the association between the exposure to dust and carcinoma of the lung, mesothelioma of the pleura, tumour of the bladder and uterus and other fatal complaints, was first recognised.

Di Martin: The James Hardie personnel manager went on:

Reader: The only preventative action is to eliminate the presence of dust.

Di Martin: And finally the personnel manager advised Hardie’s boss, John Boyd Reid that:

Reader: The best advice you can give your friend is to ignore the publicity. Dust is a fact. Denials merely stir up more publicity.

Now on it’s face this story is a story of immorality.  But it’s immorality that is a very normal kind of immorality, that’s always managing to work its dark ways inside institutions – institutions that not only feel it natural to expect ‘loyalty’ meaning absence of ‘trouble making’ but which make it somehow natural for people to do things which we look back on and realise were truly terrible. Some of the people who did this were bastards of the highest order. But many would not have been. They would have observed the ordinary decencies of life.

Yet their acceptance of – nay desire for – the quiet solidarity of being within a group led them to groupthink their way towards something horrifying.  And, incidentally though relevantly to my argument here, to something which threatened the organisation they naturally sought to defend, with catastrophe.

Somehow I think we need another Good Queen Bess moment which can help us make the next step towards a world in which it is not just normal but highly valued for people to express respectful dissent within organisations so as to better ensure that those organisations are intellectually healthy and in the best state to represent their own interests, and though that the interests of us all.

Postscript: The piece made into WAToday as well.

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[…] This post was mentioned on Twitter by Shani Hartley. Shani Hartley said: RT @NicholasGruen: My Age and SMH column on getting the wisdom of crowds into organizations #business #economics […]

Clem Gorman
13 years ago

Hi Nicholas Gruen,

if you want a few laughs and a little controversy, check out the blog on my website, above.

I’m a playwright and book author, more recently singer/songwriter.


Clem Gorman

Jacques Chester
Jacques Chester
13 years ago

I read two books recently that might bear on this (I’m working through a third at the moment).

First, Warfighting, a publication of the US Marine Corps. Essentially their view of decision making is that subordinates are to carry out the intentions of the commanding officer. Up until a decision is made the commander should seek feedback and opposing views; once it has been made the subordinate officer should support the decision as if it were his own. You can see the parallels with cabinet solidarity.

Second, Billion Dollar Lessons by Carroll and Mui (recommended). They talk about various commonly-occurring categories of strategic mistakes and suggest that large businesses should have an official “Devil’s Advocate” for strategic decisions.

The third book is Sources of Power by Gary Klein, which is about how decisions are actually made under pressure. One exercise they suggest for planning is the “premortem”. In a premortem the planners roleplay their future selves dissecting the plan. “This plan failed because … and then … we didn’t foresee that …”

13 years ago

Perhaps we need the return of the jester.

An official position at executive and Ministerial levels whose role is to lampoon the egos and decisions of CEOs and Ministers and propose alternatives. Someone who can speak frankly without censure and operates outside the normal hierarchy.

When performed well, this role helps people see through groupthink and consider their actions.

13 years ago

I’m suprised they let you publish that in The Age given it’s complexity. I also wonder whether you could have separated out groupthink and whistle blowing a bit more, because they’re clearly different issues.

Curiously enough, a very similar discussion occurred looking at scientific fraud a few months back when one of Harvard’s big professors (Marc Hauser) was caught for it, and they pretty much reached the same conclusion (sorry I can’t find a link to the discussion now). Basically, it’s far easier for fabricated data etc. to get published from labs where everyone is afraid to speak out, and that less hierarchical structures also help, since then the would-be lab dictator has to explain the data and results to other people, more than one of whom may know that cheating is occurring. This is apparently particularly a problem in some Asian and European countries compared to the US.

13 years ago

Chris Joye isn’t as much of an insider as he thinks he is, and is absolutely wrong on the RBA on this one. Most of the senior people (especially the level or two below Assistant Governor) spent some years at one or more other institutions like the IMF. More than a couple are mid-career appointments. I suspect they encourage their up-and-comers to get experience somewhere else too.

As for their supposedly weak reform appetite, how would you (or he) know? There has just been a big Basel Committee package come out, and much more in the pipeline from the G20. Australia is involved in these discussions. Don’t you think it makes sense to see these things finalised before making big changes here? It would be stupid to do something and then have to change it because it’s not compatible with a G20 agreement?

Don’t assume that because you don’t know about something, it isn’t happening. For all you or I know, the culture of debate amongst the RBA staff might be very strong, and then they all fall behind the Governor publicly. For all you or I know, what looks like risk-aversion from the outside might just be the result of juggling more considerations than you or I are aware of.

chris joye
chris joye
13 years ago

A quick response from Hawaii to the RBA or ex RBA or RBA-sympathetic respondent going under the name of “nononono”:

1/ Anyone who has ever dealt with the RBA knows that that they are extremely risk-averse culturally, which is what you would expect of an isolated and sometimes ossified central bank. There are countless clear examples of this, but one that I have frequently referred to is the RBA’s strong opposition during the GFC to the government investing directly in the RMBS market (a position it seems to have now changed). From the prime minister’s office to the Treasury to the Opposition I got exactly the same message: the RBA saw no need for it. As an aside, senior Treasury officials had exactly the same view, which they communicated directly to me.

2/ In comparison to any private company, the RBA is an extraordinarily insular organisation with radically lower numbers of external hires and radically higher average employment tenure. This is just a fact (and not necessarily a bad thing). Being a central banker is a highly specialised occupation, and the RBA’s reputational cache combined with its excellent pay (the Governor is paid > $1m pa in total comp) and the absence of any competitive cost disciplines on the Bank–which is another important story–means (a) they rarely sack staff and (b) staff tend to stay at the Bank for an extremely long time. I was amazed at the tenure of staff when I briefly worked at the RBA in between Goldman Sachs and Cambridge.

3/ You talk about all of the “reform” that the RBA is purportedly undertaking–some of which I referenced in my original piece and which officials will talk about whenever you engage with them. My chief issue, which you only amplify, is that the RBA has not been transparent at all about this reform effort. The RBA has done very little to encourage financial services reform debate domestically–indeed, they have on occasion discouraged precisely this debate on the basis that “the RBA has it all under control”–which is only likely to further entrench the moral hazard and too big to fail dysfunctions that the private sector faces.

4/ Setting aside all of the above, one only has to engage in a simple empirical test to cast this problem into sharp relief: compare the public statements by RBA and Bank of England officials on the banking system, moral hazard, too big to fail, the need for reform, etc. They are chalk and cheese, and the RBA knows this (because I have raised it repeatedly with them). One then has to ask why. The asinine response is that because Australia had a good crisis, and because our banks and regulators are much smarter and more prescient than their North American and European cousins, we don’t need this debate. The fact is that until Joe Hockey piped up on the subject we had not had a domestic debate on banking reform. The more naunced response is that the impetus for reform and change is exceedingly low in Australia because policymakers are making the mistake of confusing skill with luck. This is what worries me, and was the subject of Nick’s oped. Your defensive response only reaffirms that the central bank likely does not “get it” and is highly resistant to external criticism (another example of which would be the long-standing governance criticisms that I have levied at the RBA, which are shared by current and former staff and Board members).

13 years ago

How did actions of such high immorality occur in virtually every similar firm around the world? Under the cover of normality. They were perpetrated by people who’d have adamantly denied working for “that kind of company”.

Yes immorality happens under the cover of normality; and immorality happens under the cover of abnormality just the same. Go do a bit of searching for Asbestos exposure in the people who were sent to clean up the World Trade Center after it collapsed — the existence of Asbestos was known, the danger of Asbestos was solidly well known, and the use of safety gear was minimal. Deborah Reeve from the New York Fire Dpt died in 5 years (only a few months exposure) from the sort of cancer it took a typical James Hardy employee only managed to die of after 30 years of daily grind.

To coin a phrase: Immorality is a fact. Denials merely stir up more publicity.

For largely no fault of its own, the BoE has had a bad crisis. The UK banking system collapsed.

Hmmm, a bank by its very nature is always on the brink of destruction. They tell their depositors that the money is at call, and they loan the money to people who only have the ability to pay it off a bit at a time. The “work” that a bank does is managing this risk, so they rest of us can get on with our lives. When a bank fails, by definition it has not managed the risk successfully. When a bank fails, “through no fault of it’s own”, then it has not only failed to manage risk but also failed to take responsibility for failing to manage risk. So why again was I paying the bloody expensive banker to do this important job? Maybe I should hire that drunk guy who sleeps on the park bench — he would be cheaper and equally adept at declaring himself irresponsible.

In comparison, Australia had immense good fortune. That is, we had a great crisis, and hardly felt the effects of the offshore storms–just a wee bit of turbulence. As an unsurprising consequence, the reform appetite within the RBA is weak.

Let me point out that reform is also a risk, because reform automatically implies shifting to untested and uncertain ground. One of the not-so-perverse benefits of not having a crisis (when the other guy did have a crisis) is that you get a little bit of quality naval gazing time, when you cock an eyebrow at what that crisis guy is up to and how he handles such a regrettable and nasty situation. If the crisis guy seems to be getting sh-t together after a few years, might be worth contemplating both the naval, and how that strategy went — but don’t rush at it, rushing would also be a risk.

Bit of sneaky thing taking risks, comes at you this way, comes at you the other way as well. Damit this stuff really is risky. Glad I’m paying the bankers to deal with it, rather than getting any on my hands.

13 years ago

It’s not my intention to engage in a tit-for-tat with either the original poster (Dr Gruen) or Mr Joye. I guess I am sympathetic to the RBA because I read about all the stuff coming through the pipeline from overseas, Basel 3 etc, and I can bet that the unknown unknowns and unintended consequences of the combined package of proposals are huge. As I said before, I understand wanting to wait to see how that plays out (and try to get what you want through that channel), rather than simultaneously embarking on a domestic program of reforms that could be at odds with what happens at the global level. Tel is right: reform and no-reform are both risky.

And let me emphasise: none of us have any idea what RBA is trying to achieve in those global forums, rather than parochially focusing on Australian-specific changes (and mortgage-specific ones, if the posts above are any guide). And if they are getting things through in the international rules, that will never be written up as such in those rules (“here’s the bit the RBA wanted”), so maybe we won’t ever find out.

Dr Gruen: you misunderstood me in your point 3. According to the RBA’s web site, at least one of the AGs was a mid-career recruit. I recall reading that both Ian Macfarlane and Steve Grenville were mid-career recruits, too.
They don’t parachute people in brand-new at that level, except Bernie Fraser, but I think that’s justifiable. I only mentioned the layers below AG because I have been told about some specific examples / heard bios read out at presentations etc, and because there are more of them. I didn’t want to draw general conclusions based on the eight people at AG and above.

Finally: BoE as the great reformer, after they stuffed up their liquidity arrangements and their crisis management arrangements and almost killed several of their banks with their ineptitude? Where were the resignations?

13 years ago

Dr Gruen,
I think we can be glad they don’t parachute people in at the highest levels – though I am told that some mid-career recruits have come in at levels not much below that. It’s a very specialist field, and if you look at the web site, there are all these areas other than monetary policy and financial policy that the very top people have to think about – note issue, banking, payments etc.

I am not a specialist in the area but from what I have read and heard from people in that part of the industry, UK liquidity management arrangements were only designed to handle normal times (something to do with banks having to pre-specify how much liquidity they needed a week ahead of time). So when trouble did arrive (Northern Rock) they floundered and didn’t cooperate with the other agencies, and even solvent institutions got squeezed. A lot of the problem seemed to be decisions made at the very top of the BoE.
I just searched around on Google, and this accords with what I remember reading and hearing at the time from friends and acquaintances in the industry (not particularly the RBA, though I do know someone there). There are a lot of people who think that the BoE stuffed up, and especially King. “Yet the absence of contrition from the BOE has been surprising.”

12 years ago

My vague recollection from second-year social psych is that the expression ‘groupthink’ come out of social psychologists looking at the Cold War and in particular the Cuban Missile Crisis…?