In 2005 the International Maritime Organization recognized that Somali pirate hijacking of ships and holding of vessel and crew for ransom was becoming a serious problem. In October 2011, BBC News reported that the British Prime Minister has signed into law the limited authorization for British-flagged ships to carry defensive weapons -- only in defined areas where Somali pirates threaten maritime commerce. What is wrong with this picture?
The onus in such matters remains with the party best able to adapt to the exigencies of circumstance. Small wonder, then, that the pirates retain the adaptive edge. They extort millions for return of ship and crew, and do this so consistently as to now attract the equivalent of venture capital financiers to buy in advance AK-47 assault rifles and rocket-propelled grenades from Yemeni arms dealers in exchange for a share in the pirates' profits.
This situation shows how nimble rogues governed by boldness and a sense of market forces outmaneuver government bureaucracies constrained by regulatory impulses and fundamental distaste for allowing unauthorized people to take the lead in their own defense. Perhaps some of the abductees, like a British couple held for 388 days before being ransomed, might prefer an alternative approach.
What if armed passage became the default, and every unrecognized Somali skiff racing towards a freighter or tanker met with warning shots and the possibility of being outgunned by return fire? Then the likely outcome would be what the security industry knows as displacement. The pirates would have little alternative but to seek other prey or to enter a less risky line of business.
There are precedents for such security victories, but success favors bold strokes over bureaucratic hand-wringing. In the same time between recognition of the pirate problem and the anemic recognition of a right to self-defense, a more robust British administration eradicated a 300-year-old menace similarly affecting commerce. This involved the Thugs in India, who combined thievery, murder, religion, and secrecy to get away with victimizing travelers for centuries and leaving no trace. Slow to come to grips with the situation, the British eventually realized the problem and their own self-imposed limitations in a legal system that discounted evidence of informants. This favored the Thugs, for whom killing of witnesses had both religious and practical merits. So the British modified their laws to meet the threat. They rounded up Thugs and their families, encouraged informants, imposed severe penalties. In six years, the British effectively eradicated Thugs as a 300-year-old plague. More impressively, once the problem was over, the British restored a more permissive legal system that was in place before draconian measures were imposed.
There are lessons, here, for those who would harvest them. A bold enemy finds little incentive to succumb to feeble deliberations. Getting tough can be focused on a time and situation, then reversed once its purpose is served. It need not be a sentence to living under irreversible martial law. Finally, pirates, rogues, and thugs of all stripes do follow business rules and obey market forces -- even if they don't realize it. They favor activities where the risk is lower for them than for their targets, and they don't stick to what no longer pays.
Have we learned this ourselves?
-- Nick Catrantzos
Monday, October 31, 2011
Sunday, October 2, 2011
Trust Is Overrated
Due diligence is more reliable.
Ask Hewlett-Packard, a Silicon Valley titan of technology that has struggled to find a chief executive to match the leadership qualities of its founders. Instead, the American company with roots and profits anchored in high technology hardware, from calculators to printers to personal computers, hired a European functionary away from a financial software house, SAP, to take the helm and run the HP ship aground by selling off profitable core business and sending stock prices plummeting by 40%. A $25-million severance package eased the inelegant position that HP’s board found itself in when recently terminating this executive, Leo Apotheker, whom HP had trusted to lead the company into growth rather than convulsions. (Details in http://money.cnn.com/2011/09/22/technology/hp_ceo_fired/index.htm.) What were they thinking when they hired him?
Or ask the Swiss bank, UBS, whose London office allowed a British citizen, Kweku Adoboli, to lose over $2 billion in speculative trades, recalling a similar fiasco that rogue British trader Nick Leeson caused more than a decade earlier, to the demise of Barings Bank. When Leeson took down Barings with high-risk trades in complex derivatives, covering losses through creative bookkeeping and account juggling, his bosses grudgingly conceded that they trusted him and had difficulty understanding the new financial arena where Leeson was operating unchecked. Now Adoboli, under the impressively impenetrable title of Director of Global Synthetic Equities Trading, appears to be treading in Leeson’s footsteps with only a few differences. These are: better educational credentials (Adoboli is a university graduate.), self-confessed fraud in covering his unauthorized risk-taking, and an extra billion or so in money lost through speculative trades. Even though UBS remained in a stronger position to recover than Barings, the scandal attending this loss still cost a chief executive his job. (Details in http://www.nytimes.com/2011/09/25/business/ubs-chief-oswald-grubel-resigns-over-trading-scandal.html?pagewanted=all.)
Or, shifting gears, ask paramedic Richard Senneff, who responded to the scene of a dying Michael Jackson and tried to revive the performer without result. Senneff had no time to do anything but trust Jackson’s resident physician, who chose this moment to become selective in disclosing critical information. Specifically, the doctor said he had given Jackson only a mild sedative, and neglected to mention the http://www.blogger.com/img/blank.gifsurgical anesthetic, propofol, that had a hand in Jackson’s death. (Details in http://latimesblogs.latimes.com/lanow/2011/09/conrad-murray-lied-about-drugs-paramedic-says.html.)
What do these situations all have in common? Each fiasco involved trust – and its abuse. Bruised from a checkered history of negative press attaching to ethically questionable practices of previous CEOs Fiorina and Hurd, HP needed a new face of leadership and trusted to a lack of evident vices in Apotheker to make up for tarnished top management. Similarly, UBS trusted to a young rising star’s savvy in trading to realize impressive profits that proved too good to be true. Finally, the paramedic trusted to the information he received from a physician on site.
There were two significant differences in these cases, however, and both involved the paramedic. First, life-or-death decisions made the Michael Jackson case the most time-critical. Under the circumstances, the paramedic had no real choice but to take a medical professional at his word. At the same time, however, the paramedic was the only one to show signs of performing rudimentary due diligence even as events were unfolding. In particular, Senneff could not help noticing how what he was hearing was inconsistent with what he was seeing. The presence of intravenous apparatus connected to Michael Jackson and of a personal physician on site by no means corresponded to what the physician was saying about Jackson having no underlying medical conditions and receiving no drugs other than a mild sedative to facilitate sleep. The time-sensitive urgency of the medical response left no opportunity for debate. Still, responding paramedics found no pulse despite Jackson’s physician insisting he still felt one in the singer’s thigh.
What makes paramedics better able to perform elementary due diligence under stress while larger institutions like HP and UBS, with collective minds and IQs as great as the relative time they have to ponder significant decisions, do worse? Are they all trusting to their instincts under stress? If so, the paramedics’ instincts are superior. They are rooted in observation and rapid cognition, part of which includes a talent for spotting hazards and asking, “What is wrong with this picture?” It is precisely this absence of observation and cognition that either catalyzes or accelerates fiascoes of the HP and UBS variety.
What lessons may be learned from responders and applied by executives lacking in fiasco-insulating talent?
· Never turn a blind eye to hazard.
· Assume that all is not necessarily as it is being presented.
· When time allows, probe and play devil’s advocate.
· Remember that trust is earned and no substitute for due diligence – when there is time to perform it.
· Finally, in all matters involving mortals, take into account the likely presence of human rascality in all its manifestation. As political economist Stephen Leacock observed in a different century, “Men trust each other, knowing the exact amount of dishonesty to expect.”
- Nick Catrantzos
Ask Hewlett-Packard, a Silicon Valley titan of technology that has struggled to find a chief executive to match the leadership qualities of its founders. Instead, the American company with roots and profits anchored in high technology hardware, from calculators to printers to personal computers, hired a European functionary away from a financial software house, SAP, to take the helm and run the HP ship aground by selling off profitable core business and sending stock prices plummeting by 40%. A $25-million severance package eased the inelegant position that HP’s board found itself in when recently terminating this executive, Leo Apotheker, whom HP had trusted to lead the company into growth rather than convulsions. (Details in http://money.cnn.com/2011/09/22/technology/hp_ceo_fired/index.htm.) What were they thinking when they hired him?
Or ask the Swiss bank, UBS, whose London office allowed a British citizen, Kweku Adoboli, to lose over $2 billion in speculative trades, recalling a similar fiasco that rogue British trader Nick Leeson caused more than a decade earlier, to the demise of Barings Bank. When Leeson took down Barings with high-risk trades in complex derivatives, covering losses through creative bookkeeping and account juggling, his bosses grudgingly conceded that they trusted him and had difficulty understanding the new financial arena where Leeson was operating unchecked. Now Adoboli, under the impressively impenetrable title of Director of Global Synthetic Equities Trading, appears to be treading in Leeson’s footsteps with only a few differences. These are: better educational credentials (Adoboli is a university graduate.), self-confessed fraud in covering his unauthorized risk-taking, and an extra billion or so in money lost through speculative trades. Even though UBS remained in a stronger position to recover than Barings, the scandal attending this loss still cost a chief executive his job. (Details in http://www.nytimes.com/2011/09/25/business/ubs-chief-oswald-grubel-resigns-over-trading-scandal.html?pagewanted=all.)
Or, shifting gears, ask paramedic Richard Senneff, who responded to the scene of a dying Michael Jackson and tried to revive the performer without result. Senneff had no time to do anything but trust Jackson’s resident physician, who chose this moment to become selective in disclosing critical information. Specifically, the doctor said he had given Jackson only a mild sedative, and neglected to mention the http://www.blogger.com/img/blank.gifsurgical anesthetic, propofol, that had a hand in Jackson’s death. (Details in http://latimesblogs.latimes.com/lanow/2011/09/conrad-murray-lied-about-drugs-paramedic-says.html.)
What do these situations all have in common? Each fiasco involved trust – and its abuse. Bruised from a checkered history of negative press attaching to ethically questionable practices of previous CEOs Fiorina and Hurd, HP needed a new face of leadership and trusted to a lack of evident vices in Apotheker to make up for tarnished top management. Similarly, UBS trusted to a young rising star’s savvy in trading to realize impressive profits that proved too good to be true. Finally, the paramedic trusted to the information he received from a physician on site.
There were two significant differences in these cases, however, and both involved the paramedic. First, life-or-death decisions made the Michael Jackson case the most time-critical. Under the circumstances, the paramedic had no real choice but to take a medical professional at his word. At the same time, however, the paramedic was the only one to show signs of performing rudimentary due diligence even as events were unfolding. In particular, Senneff could not help noticing how what he was hearing was inconsistent with what he was seeing. The presence of intravenous apparatus connected to Michael Jackson and of a personal physician on site by no means corresponded to what the physician was saying about Jackson having no underlying medical conditions and receiving no drugs other than a mild sedative to facilitate sleep. The time-sensitive urgency of the medical response left no opportunity for debate. Still, responding paramedics found no pulse despite Jackson’s physician insisting he still felt one in the singer’s thigh.
What makes paramedics better able to perform elementary due diligence under stress while larger institutions like HP and UBS, with collective minds and IQs as great as the relative time they have to ponder significant decisions, do worse? Are they all trusting to their instincts under stress? If so, the paramedics’ instincts are superior. They are rooted in observation and rapid cognition, part of which includes a talent for spotting hazards and asking, “What is wrong with this picture?” It is precisely this absence of observation and cognition that either catalyzes or accelerates fiascoes of the HP and UBS variety.
What lessons may be learned from responders and applied by executives lacking in fiasco-insulating talent?
· Never turn a blind eye to hazard.
· Assume that all is not necessarily as it is being presented.
· When time allows, probe and play devil’s advocate.
· Remember that trust is earned and no substitute for due diligence – when there is time to perform it.
· Finally, in all matters involving mortals, take into account the likely presence of human rascality in all its manifestation. As political economist Stephen Leacock observed in a different century, “Men trust each other, knowing the exact amount of dishonesty to expect.”
- Nick Catrantzos
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