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On the 18th of January 2000, Bank for Housing and Construction and the Co-operative Bank were liquidated.

It would have been instructive for the banking industry to have adapted, learnt and prevented the events from ever happening again but it was not to be. UT Bank and Capital bank were to face similar fates on 14th August, 2017.

History, they say, offer posterity lessons that are hidden in the stories of each passing moment. The tales of history ought to be the guide for a better tomorrow and yet the banking industry in Ghana has witnessed two bankruptcies, one official administratorship and 272 other financial institutions are reported to be in distress irrespective of how our financial sector has suffered from similar fates in the past. All these events happened in the space of less than one year. 

The financial cost of these organizational failures are vaguely estimated way in excess of GH¢ 2 billion, an amount that can safely set up 5 banks under the new GH¢400 million capital requirement. It is therefore apt that, the question of why has been asked and attempts at answering same abound in the newspapers and public opinions. It goes without saying that, the banking crises in Ghana offers indigenous companies great organisational learning and a good case for operational optimisation and strategy, but I dare ask if the opinions of causes are by any means the real causes?

All the articles and publication I have seen have a common theme and structure; nonperforming loans, liquidity challenges, corporate governance, risk management practices, etc. Are these supposed causes really causes or symptoms and what do they actually mean for the average business owner? It is easy for anyone to be a seer in hindsight professing wisdom of causes even without clear understanding of the root cause issues, if you doubt ask the man who stands and watches the game of draft, he almost always has the best strategy.

Baseline causal analysis requires asking the question, ‘why’ until one finds the most fundamental why for which any further questioning of ‘why’ is ridiculous. It is rather disappointing almost all articles of the subject I have read have nothing close to the real causes but an attempt to hinge on symptoms as causes. The danger with such half-baked analysis is that, we do not solve the real problems but tickle ourselves to humour only with earnest expectation of history repeating itself. I shall endeavour to discuss but one real cause in this article with the hope of further discussions as the days progress.

For the purposes of credibility, I worked with both UT Bank and Capital Bank. I sat at the tables where the decisions were known, I experienced first-hand the causes and thus do not speak of what the text books suggest the problem should be but what the problems indeed are.

Again, let me get my motivation for doing this out of the way: I am doing this because, it is difficult as a young man to wake up every morning to discussions of solutions to the financial sector problems which are completely misdiagnosed, in my humble opinion. 

The lack of a system’s view to analysis of complex problem are at best biased based opinions which lack depth of research or careful scientific thinking, a perfect recipe for a potion that kill the most active of brain cells. Glorification in mediocrity, a skewed social structure deepening groupthink as well as crippling diversity of thought and the martyrdom of the liberty of free scientific thinking is stifling industries and that I find my purpose to educate.

The view to understanding the causes of the collapse of UT Bank and Capital Bank and the challenges of Ghanaian industries must be approached as a web of interconnected moving parts but emphasis must not be lost on the functional integrity of each of the moving parts. I do not think that it is a mistake that the most successful global companies are from certain parts of the world and that must make us question at least logically and scientifically why without labouring in conspiracies and needless racism.

The central cause, in my view, is a wrong view to what enterprises should be. We have stuck with a machine bureaucracy, a hierarchical structuring of enterprises which found substance in the early days of the industrial revolution.

To put it crudely, we have held on to a form of organizational structure that assumes wisdom proceeds on a one way street- from the top-down and consensus to decisions must conform with the ‘sense of comfort’ of the most powerful executive(s) irrespective of clear evidence to the contrary. My central thesis is, system or mechanical thinking in an enterprise does not lead to long term sustainability although it may prove efficient in the short term. Longevity is built by thinking of organisations as biological organisms having a consciousness of its own.

Having settled the conceptual issues, I proceed to discuss for the benefit of posterity one cause in this article. The story of Reverend Jim Jones is instructive to the cause I discuss herein. The Reverend Jim Jones was the founder and leader of the People’s Temple.

In 1978 Jones, facing charges of tax evasion, moved most of his one thousand followers from San Francisco to a small settlement in Guyana, which he named Jonestown. Facing a federal investigation for reported acts of child abuse and torture, Jones decided that his followers should poison their children and then themselves. Jones’s decision was resisted by a few people, others shouted out their protest but they were silenced as vats of poison was prepared. Following Jones’s orders, and the social pressures imposed by one another, mothers and fathers duly poisoned their children and then after poisoned themselves. Their bodies were later found arm in arm, lying together.

Although majority of people and experts have attributed the failure of the banks to corporate governance, it is but a broad attribution for which another ‘why’ is yet relevant. I agree in part that corporate governance is a broad cause but there is yet a root cause signaling something far bigger; the lack of independence. I argue it is the lack of independence that resulted in the failure governance and not vice versa. Psychologist contend that, humans, frequently leaders and sometimes social changes thrive in markets and politics because it starts with a nudge from a leader. Humans in as much as we may not be exactly lemmings, we are easily influenced by the statements and deeds of others and that my friends is one of the fundamental causes.

The loss of independence is rooted in two main sources; information people are privy to and social cohesion. It is easy to believe and think something as true and appropriate if many people do or think that to be true or you are constantly exposed to it such that it is construed as a norm. Social cohesion works through compromising with people we care about and like, hence we mostly tend to go along with the crowd to avoid their wrath or curry their favor.

I will recount a story with a lot of reservation although it ought to be told: the risk management department was called into a meeting by the executive management once. The meeting was brief and straight to the point and its objective was explicit and unambiguous. The department was made to know it was impossible for any of us to love the company more than the owners of the company, the purported independence of the department which frustrated business should stop, we were told. Out of good will management coerced social cohesion because their primary source of information was, banking ought to be done through granting loans to the informal sector.

The problem is ‘pluralistic ignorance’ which has been proven by several conformity researches as, ignorance, on the part of all or most, about what other people think. We may follow a practice or a tradition not because we like it, or even think it defensible, but merely because we think that most people like it.

The owner who manages his enterprise has so much moral right to the point that he usually becomes the social norm. He undoubtedly becomes the average of the group and all behaviors are aligned to him. He turns to prime the group howbeit unconsciously by offering social cues. He is undoubtedly the source of information to the board and subsequently offers social cohesion to the management. Such power is without a doubt too dangerous for himself considering the imperfection of the market and the inability of one person being capable of knowing such. It is in the interest of this that the governance structure of organisations must with intent and purpose distribute power.  

According to Herbert A. Simon’s classic analysis in his book, ‘Administrative behavior’ a person in authority establishes the proper conduct for subordinates through positive and negative social sanctions. These sanctions, in the form of social approval or disapproval, praise or embarrassment, may be the most important factor in inducing the acceptance of authority. The general disposition of people with a sense of purpose in the group is to subordinate themselves to authority, in the belief that their subordination will aid in achieving the goals of the group.

This noble act of complete subordination is the beginning of authority trap in ineffective decision making. The average person in the group does not intend to be the rebel and so, will ordinarily defer to the views of the vision bearer, concluding that leadership must know what is best for the group. Unquestioned submission is however the worst a leader could ever ask for. Great leaders have a sense of how detrimental fanatics can be but indirectly encourage such through their social approval or disapproval, praise or embarrassment which builds the culture.

I have no doubt in my mind that, one of the causes of the collapse of UT Bank and Capital Bank is a social structure that encourages blind obedience and the lack of independent critical thinking. Let us all pulse and reflect how asking the simple question of why could save generations of a confirmation bias. The financial sector challenges should encourage the birth of the renaissance generation, the people who endeavor to learn, are guided by a scientific enquiry and not prejudiced by sentiments or opinions.

A generation which questions without equivocation, only faiths in critical thinking, bears the torch of rigourous reasoning and is not subject to the fate of system thinking. I believe a new day for Ghanaian enterprises to think critically and differently has come.

May we say never again to such great losses and may 14th August remind us to build stronger, sustainable and more diverse enterprises as Ghanaians.


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