If you want to read a detailed case study on how not to run a company, especially a very large bank, I can firmly recommend a 450-page report entitled “The failure of the Royal Bank of Scotland” by the UK’s FSA (Financial Services Authority).  No one comes out of this story with any credit – literally – hahaha.

RBS has already had several mentions on this site because it was once held up as a great example of HR by many less-discerning HR publications.  Its HR team still persists with failed HR practices today, despite one revealing statistic from the FSA report which showed that in 2007, the year before RBS collapsed -

“66% of employees were recorded as agreeing with the statement – the ‘Group Executive Management Committee (GEMC) provides good leadership’”

This neatly disproves the latest theory in leadership development that says great leaders are defined by their followers.  What really comes across in the report though, loudly and clearly, is the opposite of employee engagement.  There was an insidious, underlying fear culture that completely contradicted RBS’s ‘Lemming Survey’ produced by its HR team.  The report is particularly damning of CEO Fred Goodwin’s management style and devoted a whole section to something HR strategists should know all about -

“The importance of management, governance and culture”

remarking that

“During 2003 and 2004, …. the FSA had identified a risk created by the perceived dominance of RBS’s CEO. While it was recognised that the CEOs of large firms tended to be assertive, robust individuals, the FSA’s view was that, in the case of RBS, the ‘challenging management culture led by the CEO raised particular risks that had to be addressed. ….‘Most of the members of GEMC we met with criticised the way the Committee operates. …. GEMC members also described dysfunctional working in relation to:

• GEMC are not operating as a team.
• Conversations are typically bilateral.
• Performance targets consume too much of the agenda.
• Discussions often seem bullying in nature.
• The atmosphere is often negative and is at a low point currently.”

Fred Goodwin has undoubted talents but his management style is not one of them and it was the culture he created, above everything else, that ultimately condemned RBS to its inevitable fate.  This is the best possible argument for having an independent and effective HR director (rather than the one they had) reporting directly to the Board, with a specific remit to develop the right organisational culture whilst balancing the drive of “assertive, robust” executives with the need to maintain continuity and consistency; especially when your average FTSE 100 and Fortune 500 CEO lasts less than 5 years.

Another practical suggestion I would like to offer in response to the FSA report is to counterbalance the Q12 nonsense, that has prevailed in HR circles for far too long, with a Fear Factor Quotient (pat. pending).  I’m thinking along the lines of a questionnaire where the highest Fear Factor (i.e. the worst case) would be linked to statements such as: -

‘I am a complete nervous wreck, having lived in fear of my life every waking second that I am at work’

using the usual Likert-type response options ranging from ‘strongly disagree’ to ‘strongly agree’ with an additional box for those on medication to provide details.

At the other (best) end of the scale a typical statement might be –

‘I am encouraged to say exactly what I think to who the hell I like. I could walk into the CEO’s office tomorrow, call him a complete tosser, not bother to dress it up as constructive criticism and he would thank me for it. Hey, I would even be offered a coffee!’

I was thinking we could also invent a new unit of measurement – the ‘Goodwin’ – although you could adapt this to your own organization by just inserting the name of your most feared executive.  The ‘Goodwin Scale’, as with the logarithmic Richter Scale, would range from 1 to 10 with the difference between say a 5 Goodwin and a 6 Goodwin being the equivalent, in order of business disaster magnitude, of an increase from say $10 million to $300 million.

Alongside this I think we would also need to design in a specific ‘Whistleblower Propensity Rating’ where all employees were asked to state what would have to happen for them to blow the whistle.  These could be on a separate, sensitivity scale ranging from “I would blow the whistle on my own mother if she so much as borrowed my company pen”  to “I would have to witness my boss murdering someone with their bare hands, in front of my very own eyes, before I would feel inclined to blow the whistle on them.” (we might also have to insert a witness protection scheme clause in there somewhere).

I believe there is already a ‘Group Executive Management Committee Members’ Courage’ seismometer gathering dust somewhere in the bowels of RBS but it was never used because the bank was already registering an 8 on the Goodwin Scale and this meant there was nothing in the boardroom to be measured on it .