Anyone who has read Gerd Gigerenzer’s Gut Feelings will recall the description in Chapter 10 of how the pressure to conform creates moral hazard. A powerful heuristic or default seems to operate: “don’t break ranks”. Failure to adhere can result in peer hostility. The experience of Paul Moore in trying to restrain HBOS executives reveals just how powerful and enduring a force that can be, assuming he is an accurate witness to his own experience at the bank. It goes some way to explain how groupthink can operate in the face of compelling contrary evidence. To quote from his memo to Tuesday’s Treasury Select Committee hearing:-
I am still toxic waste now for having spoken out all those years ago!
This might also reflect why today’s FT report leaking of an “independent inquiry” into Paul Moore’s allegations contained the following observations from the HBOS directors of his behaviour. A case of shooting the messenger?
They told KPMG that while Mr Moore’s technical abilities were “recognised as strong” and he gave his team a “strong sense of purpose”, they doubted his ability to work with his colleagues. His behaviour in one meeting was described by people interviewed by KPMG as “ranging from prickly to ranting to extraordinary to outrageous”.
For those not following these events, Moore was the head of Group Regulatory Risk Management for HBOS until 2005. He alleges that he argued with the board that HBOS’s sales culture was running out of control, creating huge risk for the bank should the economy and housing market turn downwards, and that there was a reluctance on the part of executives to have their decisions or behaviour challenged. At the time, HBOS CEO James Crosby dismissed his concerns and terminated his employment. Crosby then moved on to become deputy chairman of the Financial Services Authority. He resigned yesterday morning.
The full text of Moore’s memo is here. For the time being, it may be one of the most readable and historic documents of modern finance. One suspects there will be others.
Well, in his deposition to the Treasury Select Committee Moore mentions it, but I doubt that this five-minute module is mandatory yet at any business school. Let me know if I’m wrong.
Photo credit: Tim PennDonate and help me buy back my Fender ('About' tells you why) Tags: credit-crunch, Danny Kaye, don't break ranks, Gerd-Gigerenzer, groupthink, Hans Christian Anderson, HBOS, heuristics, James Crosby, Paul Moore