Hubris as a cause of corporate collapse

Written by YRK Reddy | Updated: May 26 2007, 05:30am hrs
The founders and managers of Lernout & Hauspie Speech Products are facing criminal charges like those faced by Enron. This dream company based in Belgium with a market value of about $10 billion at one time ended up as a nightmare for its employees, investors, accountants and bankers. The story is similar to that of Enron, WorldCom, Parmalat and many more. The companys officials, bankers, accountants and auditors are all accused of manipulating stock prices and falsifying information, documents and results. The company filed for bankruptcy and the case has just been taken up.

Why do such great entrepreneurs and well-qualified managers who call themselves professionals act in a way that brings shame upon them all There has been much speculation, and there could be many behavioural explanations. Here is my prognosis the problem is corporate hubris. This starts with a clutch of small behavioural patterns that may be apparent through body language, and then spreads through a company till it becomes prisoner to it.

The symptoms become evident in the manner a senior executive behaves while dealing with stakeholders, the public and the common man. Thus are examples set for others in the company. The arrogance, intolerance, disrespect and condescension may not be very loud, but are yet discernible to the wise. The deceit, chicanery and exploitation of trust surface time and again, but are fought hard with corporate might. Top honchos feel smart and invincible. In the process, they get blinded. Greek tragedies are all about how hubris blinds people, Oedipus Rex being the classic example of someone who refuses to take hints that he himself is the cause of his kingdoms misery.

Government and monopolistic public enterprises may suffer from such hubris even more than corporatesespecially if the concerned people have lost their public service values. But we now see that nemesis has a way of catching up with even those who operate within the protectorates of government power.

Most importantly, hubris causes a learning disability among managers, entrepreneurs and officialsthey master the art of manipulation, misinterpretation and chicanery, and learn nothing of values and responsibility. They get accustomed to the devices that worked last time round, and start trusting the infallibility of their ability to sell anything, anywhere to anyone. They do not see how dangerously exposed this leaves them. Instead, they inadvertently transmit the same patterns of behaviour to the younger lot.

At Enron, hubris became evident in many ways, including the way the CEO talked of eating their lunch when faced with competition, in naming products and in creating special purpose vehicles called Jedi and Chewco
Theres a book on corporate hubris at Daimler-Chrysler that tries to analyse the relationship between corporate polices, managerial behaviour and performance. At Enron, hubris became evident in many ways, including the way the CEO talked of eating their lunch when faced with competition, in naming productssome had names such as Raptor I, II, and III, straight from Jurassic Parkand in creating special purpose vehicles called Jedi and Chewco from Star Wars.

Some have compared the hubris in Enron with that of Drexel Burnham Lambert Inc, which is a case study of adventurism in handling exotic investment banking risks. At the individual level, Hansie Cronje was typified as a cricketer taken in by hubris. He believed that he was a very religious personwith a wristband that read WWJD (What Would Jesus Do)even as he was lying flat out.

A sure sign of corporate hubris is when managers wallow excessively in their power and start believing that the derived power from the company is actually their congenital gift. It gets even more evident when the company has nice-sounding value statements that end up on wall hangings rather than getting reflected in the manner managers behave.

Modern companies do several surveys to periodically measure employee satisfaction and the like. It might not be a bad idea for boards to start asking for a survey of corporate hubrisof course, in the hope that hubris-consumed managers would not try to fix the criteria, measurement system, and the consultants in charge, if not the board itself.