Better understanding governance failures

Articles Written by Jonathan Cheyne (Partner)
graph with corporate office background

“It’s fine to celebrate success, but it is more important to heed the lessons of failure.”

This quote, widely attributed to Bill Gates, a founder of Microsoft, echoes the truism that we can learn from our mistakes, and those of others. This is as true for failures in corporate governance, as it is for failures in other domains.

But what we can learn – and what lessons we should heed – depends very much on how we consider failure, and the context in which failure occurs. In this article, we briefly explore some of the different ways of thinking about failure. The lessons, which are of general application, are particularly relevant to those interested in building more resilient corporate governance systems.

Pilot error

The psychologist James Reason argued in his seminal paper “Human error: models and management” that we can think of failure (to the extent it is caused or contributed to by humans) in one of two ways.[1] The first, the ‘person approach’, focuses on attributing the cause of some unwelcome event to the failings of individuals, for example, a failure to follow procedures, inattention, carelessness, greed and so on. We are all very familiar with this approach – where the cause of a plane crash is attributed to ‘pilot error’ or some scandal ‘to the actions of a small number of rogue individuals’.

Where the cause of failure is seen as primarily being the result of human beings doing things that they were not meant to, unsurprisingly, the focus of preventative measures will be on minimising these behavioural deviations: more prescriptive rules and procedures, more policing of these rules, and the imposition of punishments for infractions etc.

Falling to the level of our systems

“You do not rise to the level of your goals. You fall to the level of your systems.”

Implicit in this statement from James Clear, the author of Atomic Habits, is another way of thinking about failure and how we might go about preventing it, or at least mitigating its most harmful consequences.

James Reason posited that as human beings are inherently fallible, errors/failings/deviations are to be expected as an inevitable consequence of our humanity. It is therefore the role of systems – with layers of defences – to protect us against our inherent weaknesses.

The significance of thinking about failure in this way is that when an adverse event occurs the focus of our attention should be primarily on how and why the defences failed, not on who was responsible.

Types of failures

The Harvard Business School academic Amy Edmondson suggests that in order to effectively learn from failure requires a nuanced understanding of both the causes of failure and the context in which it occurs.[2] She argues that failures fall into three broad categories.

  • Preventable failures in predictable operations – these are failures that typically result from deviations from closely defined processes in high-volume or routine operations. The focus on error prevention is therefore on implementing systems to reduce the frequency of error (education, training, checklists etc) and continual, incremental systems improvements.
  • Unavoidable failures in complex systems – organisations and their activities are complex systems that involve many moving parts, which are dynamic and operating in an environment that isn’t static but which is constantly evolving. In such an environment, mistakes and failures are inevitable, and the challenge is to quickly identify and correct failures that may not, of themselves, be of great consequence in isolation. Many (if not most) disasters and serious incidents, whether it be the crash of an aircraft, a nuclear meltdown, an avoidable death on an operating table, a corporate governance failure or something else, result from a series of smaller failures and a failure of multiple systems defences.
  • Intelligent failures at the frontier – these occur when organisations are intelligently testing the boundaries of knowledge, in other words, experimentation.

Responding to failure

When failure occurs, it is the role of leaders in organisations (at all levels) to seek to try and understand its true causes. Human beings have a tendency to think linearly, a proclivity to look for cause and effect and it probably comes as no surprise that Amy Edmondson’s research indicates that, as a general rule, organisations struggle with going beyond a whodunit level of enquiry that satisfies itself with identifying first order (i.e., direct causal) reasons for failure. But linearity is rare in nature, where complex systems dominate with multiple feedback loops. Thus, when something goes wrong, we must be cautious in rushing to judgement and resist looking for simple explanations to what are likely to be more complex problems.

[1] Reason, J., ‘Human error: Models of Management’, BMJ. 2000; Mar 18; 320(7237); 768-770.

[2] Edmondson, A. C., ‘Strategies for Learning from Failure’, Harvard Business Review (April 2011).

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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