In the world of work we don’t have far to search for examples of what the French call “the madness of many”, or folie à plusieurs.
There are similarities for instance between the collapse of Enron in 2001 and the Royal Bank of Scotland’s journey to the brink of bankruptcy in 2008.
Both companies were betrayed by failures of corporate governance, bad C-suite judgement, poor deal-making, and dubious accounting practices.
But there was also the wilful ignorance of the many thousands of people who worked for those companies. They offered silent support to the executives that led them down the rabbit hole.
As at Enron, RBS staff surveys suggested that 80-90% of its 200,000 employees were happy, engaged and motivated in their jobs.
Like at Enron, the different parts of the bank were run as powerful fiefdoms. Many employees, who openly regarded CEO Fred Goodwin with scorn, were loyal to their feudal masters.
They did the bidding of the corporate hierarchy in return for financial rewards and the opportunity to elevate the status of their business unit within the overall RBS Group. This powerfully destructive culture continued at RBS long after Goodwin’s departure.
Enron is practically a verb for corporate fraud. Named ‘America’s most innovative company’ for six years straight by Fortune, Enron collapsed into bankruptcy following a decade’s worth of accounting fraud that kept the company’s true financial condition hidden from the public.
Enron had a pointlessly competitive and unforgiving culture that pit business unit leaders against one another. By encouraging them to take excessive risks it contributed to the financial problems that made the subsequent accounting fraud ‘necessary’.
The science of self-deception
Corporate folie à plusieurs are a form of mass delusion. One of the most famous cases of this happening was the Dutch Tulip mania in the mid 1600s.
At its peak some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman.
More recently employees at Enron believed the lies they were told by the company’s most senior staff. Only at the end of its life did Enron’s people finally awake from their collective myopia. A final all-staff survey revealed most employees thought their corporate leaders lacked vision. The performance review programme was a form of punishment, and instability and chaos ruled.
At RBS, only those who left the bank felt able to speak out about the adverse affects of the culture, not only in terms of unethical behaviour but also the toll it took on them personally.
Evolutionary biologists have suggested that such self-deception is closely linked to deceiving others. That is, the ability to fool ourselves makes us better at fooling other people. Deceit is a powerful evolutionary asset. In a dog-eat-dog world, our ability to deceive others helps us as individuals to survive and progress.
Naturally there are costs for this self-deception. In fact the more we self-deceive the more
vulnerable we are to being deceived by others – those most susceptible to a good con are other con artists.
It seems we all subconsciously weigh-up the costs and benefits of self-deception, and then choose to deceive our conscious selves if we believe it will advance our interests.
At Enron and RBS, greed got the better of everyone. From the perpetrators of the fraud that destroyed both companies to the long-serving employees whose personal savings were tied up in their respective share schemes.
More recently at VW many analysts believe hundreds of employees actually knew of the emissions deceptions being perpetrated, yet few if any spoke out.
Trying to explain the “madness of many”
During the financial crisis of 2008, attempts to explain the global folie à plusieurs and the systemic banality of greed began to emerge. We heard of “irrational exuberance,” “the subprime property bubble”, “regulatory capture”, “moral hazard.” and so on. These labels explained nothing new – the phenomena they describe are as old as capitalism, part of its boom-and-bust cycle.
According to psychologists, sociologists and even economists it seems we’re pre-programmed to self-deceive. It’s all down to a messy combination of genes, survival instinct and selfishness.
Is there anything we can actually do about this worrying human tendency to indulge in the madness of many? So far, the best answer appears to be: try and be more conscious more often about the nature of the decisions we make. Why exactly should we take a particular course of action? How will it benefit ourselves and others?
Conversely, how could the decision damage our interests and those of others? Is there a risk that, as a result of a decision we make, we could end up on the cover of a national newspaper?
Such a sobering prospect might modify the actions of many a decision maker. Except of course if you happen to be someone who actually wants to be on the front-page news.