A Proven Aviation Safety Protocol Could Prevent Business Catastrophes — And Your Lawyers Should Lead the Way (Part I of II)

Citing Wells Fargo & Co.’s “recent and widespread consumer abuses and other compliance breakdowns”, the Federal Reserve announced late last Friday that it, “would restrict the growth of the firm until it sufficiently improves its governance and controls”.

The Wall Street Journal called the Fed’s action “unprecedented”. Ian Katz of Capital Alpha said that it has, “put the fear of God into bank boardrooms across the country”.

As of this morning at least five Wall Street investment banks have shifted from bullish to downgrades on Wells Fargo & Co. following this news.

Serious consequences. And well-deserved.

But something less dramatic in this development may be even more significant for the business community.

The “I-didn’t-see-anything” defense to business misconduct may be under siege.

From the Fed’s letter to Wells Fargo & Co.’s Lead Independent Board Member Stephen Sanger:

” … You were made aware of sales practices and other compliance issues … However, you did not appear to initiate any serious investigation or inquiry into the sales practices problems or put a proposal to do so to the … board … This lack of inquiry and lack of demand for additional information are not consistent with the duties and responsibilities of the Lead Director ….”

You might say that the “I-didn’t-see-anything” defense took a hit last Friday.

But let’s not get ahead of ourselves.

That “I-didn’t-see-anything” defense still has a lot of life in it.

Consider the General Motors ignition switch tragedy. Lots of people died. Many of them younger drivers who could afford the inexpensive Cobalt or Ion models. $900 million in settlement with the U.S. Department of Justice and hundreds of millions in civil settlements — much of which are still being litigated.

GM’s General Counsel Michael Millikin didn’t even know that there was an ignition switch problem until after 10 years of internal deliberations by what the outside investigator called “an astonishing number of committees” within GM.

But GM’s CEO refused to fire or even discipline General Counsel Millikin. And John Quinn, a prominent lawyer in one of GM’s outside law firms was outspoken on the general counsel’s behalf: “He didn’t know until this year [February 6, 2014 — 7 days before the recall was announced]” about the ignition switch problem and its consequences.

If the “I-didn’t-see-anything” defense is in fact on its way out, then company owners, executives, and boards need to learn how to prevent business misconduct at its very source.

That’s where the aviation safety protocol called “Crew Resource Management” becomes relevant.

Its core insights:

  1. Leaders who intimidate make for intimidated followers.
  2. The resulting failure to share information leads to bad things.
  3. So let’s empower everyone to speak up when they see a problem.

Airline accident rates plunged on the introduction of jet aircraft. Then, in the 1970’s the Federal Aviation Agency mandated the cockpit voice recorder on all airliners.

The content of cockpit conversations now survived a crash even if the pilots did not.

What the National Transportation Safety Board learned from those conversations: The jets were for the most part sound — it was the pilots and their interactions that were crashing the jets.

And from those interactions — now available on the cockpit voice recorders — the NTSB concluded that in 2/3 of those jet accidents some pilot other than the captain knew that something was wrong but had failed to speak up — suggesting intimidation was a problem.

In response to crashes where pilots with material knowledge failed to speak up, the FAA mandated Crew Resource Management in order to counter intimidation’s effects on crew communication.

Crew Resource Management appears to have worked in the aviation sector.

When it was introduced in 1979 there were 7.1 major accidents per one million departures. By 2009 there were .71 — a ten-fold reduction. Last year there were zero accidents among all airlines.

In Part II of this series I take up how a protocol that has neutralized intimidation among airline crews could do the same in business to stop corporate misconduct at its source.

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