On the What's and Why's
Over the last two decades, corporate fiascos leading to institutional bankruptcies have been a great challenge to many: law makers, government watchdog agencies, judges and juries, executives, boards, researchers, professionals, graduate students, and so on. Numerous investigations have attempted to document what happened and how, and to understand why. In some complex cases the documents and artifacts amount to thousands of pages of: congressional hearings, court records, books, media articles, research papers, and the likeâas in the cases of Enron and WorldCom in 2002.
The fiascos were very costly. The impact on their environment was immediate. Their ripple effect could last for years or decades. New regulations and domain-specific reforms were proposed and enforced. Subsequent fiascos and bankruptcies kept recurring, however. The collapse of Lehman Brothers in 2008, causing economic turmoil, was an example.
I am driven to address the problem from a systemic perspective. Therefore the book is entitled Preventing Corporate Fiascos: A Systemic Approach. This Prologue introduces my view on fiasco prevention and shares the rationale for its development and existence.
Traditional approaches have been on managing or curing fiascos after they have happened (Pfarrer et al. 2008). My systemic approach emphasizes prevention, rather than manage or cure. I explore four ideas underlying my view: (1) Systemic scope: fiascos occurring in an institution should be seen as being caused by the institutionâs constituents (e.g., its people), and considered as part of the market and the economy (i.e., a scope much larger than the institution itself); (2) S igns and symptoms: should be detected and paid attention to early enough, since they are always there. By the time they surface it is normally too late and bankruptcy will inevitably follow; (3) Corporate decisions: should be considered as the key factor leading to a fiasco because decisions drive the institution; and (4) Control: who should be involved and how to control both symptoms and decisions.
The first idea of scope suggests that the general system theory of von Bertalanffy-Boulding (von Bertalanffy, 1950; Boulding, 1956) could be a suitable systemic framework. I argue that the biological spectrum encompassing âprotoplasm, cell, organism, community, ecosystem and biosphereâ is a good fit in substantiating the institution as community, the market as ecosystem, and the economy as biosphere. The biological spectrum, as a systemic framework, offers an overview of the problem domain within which a solution could exist (i.e., closure property).
The second idea, on the detection of signs and symptoms, originates from a rough analogy between cancer in humans (and/or any deadly disease in general) and fiascos in institutions. Cancer is caused by a malignant tumor invading nearby tissue, spreading to other organs or systems. By the time symptoms surface the cancer is already in its later phases: the human with cancer is likely to be facing death (King, 1996).
When an institution is considered analogous to a human, its employees are analogous to the cells. The employees might become âabnormalâ and behave as organizational âmalignant tumorsâ. They might influence other units in the institution, causing a fiasco. If not prevented, they will potentially lead to bankruptcy. One would want the fiasco symptoms detected early, readily exposed and made transparent to the institutionâs responsible parties.
We suggest that the cancer analogy can be further investigated so that processes known in one analogue (e.g., cancer in humans) to be applied to another (e.g., fiascos in institutions). The detection of fiasco signs and symptoms will mimic some functionality analogous to the functionality of the human autonomic nervous system on the interstitial fluid and plasma for identifying early invasion. It also mimicks the lymphatic circulatory system in detecting proliferation. The analogues between the components of the biological spectrum offer a rich set of systems thinking available to the pursuit of potential solutions.
The third idea on decisions stems from Albert Camusâs observation that âLife is a collection of choicesâ and from Antonio Damasioâs suggestion that most decisions are emotion driven (Damasio, 2005). It is this set of decisions by the responsible people in an institution, individually or collectively, which take the institution from point A to point B. Individual or group decisions in an institution should be understood early for remediation.
A few researchers, such as Valerie Stewart (Stewart & Stewart, 1981), have pursued a psychological approach to business management using George Kellyâs repertory grid (RG) (Kelly, 1963). They have tried to find the causes of problems from the perspective of the decision makers themselves (i.e., from the model of the world they live in).
I argue that George Kellyâs Personal Construct Theory (PCT) and his RG technique in clinical environments can be extended beyond Valerie Stewartâs management applications for the understanding of decisions, rational or irrational, with insights from neuroscience (Kavli foundation, 2011) and/or neuroeconomics (Kahnemanâs Thinking, Fast and Slow) (Kahneman, 2011). This offers an opportunity for finding the root causes of the complex symptoms-decisions problems with assigned or computed criticality values.
With numerical measures of decision criticality, one could then attempt to model both the decisions set and symptoms set as a measurable space in which some basic propertiesâbeyond those in Andrey Kolmogorovâs formulation of probability (Kolmogorov, 1956), such as non-commutative propertyâcan be relaxed.
The fourth idea suggests additional control and governance with a check and balance capability placed in the capable hands of an Oversight organization unit. This organizational unit is parallel to the corporate line of command. This added functionality promotes corporate stability and avoids potential abuse by corporate top executives and management team, as often seen in past fiascos. The four ideas combined give rise to a conceptual model for fiasco prevention.
The above can be further extended beyond fiasco problems in institutions and towards market and economy components. The brain works so well with its networked neurons and supporting glia cells in generating good and bad human thoughts and communicating them via language and speech. We wonder what could tie networked institutions together, and what support analogous to glia cells might help generate and organize creationsâsuch as financial products, markets, business ecosystems, or the economyâto interact with one another for better or for worse.
I postulate that all components must be governed by the laws of nature. The major laws are Newton (force and gravitation), Coulomb (charge), Faraday (induction), Maxwell (electromagnetism), Planck (quantum), and Einstein (relativity). For example, if humans in an economy are considered analogous to particles in a human body, what can possibly be learned from Coulomb laws, Faraday laws and Maxwell laws on electric charges and magnets to address institutional influence, market force, etc. in an economy?
Within institutional, market, and economic environments can decisions be viewed as forces, fields, and energy which could move institutions, markets, and their associated economies from one state to another? Is there anything equivalent to Einsteinâs theory of specialized or general relativity in the economic space-time environment? Does an economic curvature exist which is similar to the gravitational space-time curvature? These questions make sense since all cells, humans (as organism), institutions (as community), markets (as ecosystem) and economies (as biosphere) are all part of the biological spectrum in which the above laws are formulated.
The above summarizes the concepts and processes underlying the current organization of the book its eight chapters, as follows.
Chapter 2, on corporate fiascos, reviews and details some selected fiascos of the last two decades. The whats and hows of fiascos are exposed in terms of: (1) exceptions (as signs and symptoms of faulty events in terms of what happened where, by whom, how, and why); (2) aberrant decisions from the decision makerâs perspective; and (3) control issues.
Chapter 3 is on the formulation of a s ystemic approach which is based on a biological spectrum. This approach leads to a systemic framework in which a conceptual model for prevention is sketched. The model for prevention consists of: (1) the institution in which fiascos might happen; (2) the domain of information exceptions with a focus on early detection; (3) the domain of understanding emotion-driven decisions and decision making; and (4) the control domain partially and concurrently responsible by an Oversight organization unit.
Chapter 4 details corporate information exceptions management with a focus on the detection, validation and transparency of exceptions in terms of signs and symptoms. The symptoms are always there, even if undetected. They are similar to cancer symptoms, which are hidden below the awareness or consciousness level in the human body, therefore cancer growth and invasion is undetected. The analogy to cancer helps identify features in exceptions management systems analogous to autonomic processes and immunization systems in the human body.
Chapter 5 details the corporate decisions in which a modified George Kelly RG is used for understanding, explaining, evaluating and measuring them psychologically. We are particularly interested in irrational decisions, as discussed in Daniel Kahneman's Thinking: Fast and Slow, and in Descartesâ Error from Antonio Damasio. This is an addition to current well-established approaches to probability-based decision analysis and/or quantitative methods. This takes into account the neuroscience or neuroeconomics decision approach.
Chapter 6 details an organization unit for enhanced management control and corporate governance, looking at the intertwined exception-decision complex. The unit is charged by the board with responsibility, authority and accountability for finding exceptions and questioning corporate decisions made by the line of command. The unit operates in parallel with the institutionâs line of command.
Finally, Chapter 7 exploits the general extension of a concept of homeostasis in humans to stability in institutions, equilibrium in markets and balance in economies. We argue that the model is suitable for addressing chaos in the market and turmoil in the economy.
On the How's
How did I get here? Initially, I gave a conference paper on the understanding of corporate decisions, co-authored with Khanh P. Tran my research assistant, published in the 2014 Proceedings of Western DSI. Somehow, it caught the eye of Casie Vogel, an associate editor of Palgrave Macmillan. I have Casie to thank for injecting the idea of writing a book. That was how the conference paper and the publishing idea started to fuse as a zygote.
Over a few weeks following April 2014 the book's placenta formation, analogous to the embryonic development in a pregnant human, took place in the communication between Palgrave Macmillan (including anonymous reviewers) and me on the development of a prospectus. It became a contract in June. The manuscript took the form of an embryo.
Next, it entered the differentiation phase. Just like any embryo which develops from three layers: ectoderm, endoderm, and mesoderm, the manuscript split over the months from June 2014 into three major parts. The ectoderm (forming the skin, the nerve tissues and spinal cord) became the framework. The endoderm (forming all linings of the organs) was the model. The manuscriptâs mesoderm (forming the backbone) became the detailed table of contents. The mesoderm, with all of its somites developing into organs and organ systems, led to detailed chapters. I have been engaged in developing a system theory on institution, market and economy for a long time. I restricted it, however, to one area of application: prevention of corporate fiascos. The manuscript embryo has developed into a newborn, empirical theory, with its first breath of life being the production of this book.
To build this model for prevention, at least empirically, I relied on past fiasco cases for information. I use analogies and analogical arguments as started by other theorists. Two important writings, among others, have influenced my theoretical development research method. First was the analogy and analogy reasoning article by Paul Bartha, and second, posts on the Academy of Management Review (AMR) website on theory development. The latter were suggested by Professor Mike Pfarrer, an associate editor of AMR. I have exchanged emails and received valuable comments on an article submitted to AMR from Mike Pfarrer and his review team. The submission to AMR was initially suggested by Professor Tom Stafford, the editor-in-chief of Decision Science Journal after his initial review of my original article. He offered excellent comments. I have to thank these editors.
My academic background had something to do with the topic addressed in the manuscript, although it appears irrelevant at first. I graduated with a BSc in Electrical Engineering from UniversitĂ© Laval, Quebec, Canada. It was followed by an MSc in Information and Computer Science from the Georgia Institute of Technology, with some MS/OR knowledge, and a Ph.D. in Information Technology and Engineering from George Mason University, VA. All the above credentials followed the Certificat dâĂtudes SupĂ©rieures en MathĂ©matiques Generales from University of Hue in (former) South Vietnam. I have the Colombo Plan, USAID and the former government of South Vietnam to thank, since they provided the scholarships for me to attend those universities.
During all these years of schooling, my family made a lot of sacrifices for my academic advancement. I have my parents, Nguyen Thuc Tam (d) and Truong Thi Hong Quang (d), my parents-in-law, Chau van Thanh (d) and Tang Ton Nu Cam Van (d), and all members of my own family (my wife, Chau Thi Bich and our children, Nguyen Nhut Vu Anh (d), Nguyen Nhut Van Uyen and her husband John-Paul Napoles, and Nguyen Nhut Quoc Anh) to thank and apologize to, since I have neglected them at times as a son, a husband, and a father. I would also like to thank Professor Harry Stephanou (d), my former thesis advisor, who introduced me to the world of robotics and automation, and to academic research.
My business experience has been with IBM and the former Candle Corporation now IBM Tivoli (1980s and 1990s), SAIC (2000s), and other organizations prior to the 1980s, such as the American Bankers Association (ABA), Value Systems Engineering, US Chamber of Commerce, and Litton Computer Services of the former Litton Industries. Each has been a wonderful working experience to sharpen my skills, mostly in th...