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Governance, Risk Management, and Compliance: It Can't Happen to Us—Avoiding Corporate Disaster While Driving Success by Richard M. Steinberg

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Following the Herd

This isn't necessarily about Merrill Lynch, either before or after its forced adoption by Bank of America, although what happened to Merrill is relevant to this discussion. Rather it has to do with board practices that can lead to trouble. If you've worked with senior executives and boards of directors as long as I have, you've witnessed troubling behaviors that can directly affect corporate performance. Indeed, a number of major corporate failures that captured headlines can be traced back to these behavioral characteristics, which I call keeping up with the Joneses syndrome, followed by two corollaries, best practices and groupthink.

We know that businesses must take risks to carry out their missions and to drive toward achieving growth, profit, and return objectives. We also know that competition is inherently good, bringing out the best in capable people and organizations. Similarly, benchmarking against high-performing organizations is a useful tool for measurement and improvement. All this is obvious.

Where organizations have failed, sometimes spectacularly, is where a healthy competitive desire turns into an obsessive need to match peer performance, regardless of extraordinarily high risk and possible ultimate cost. The result in such circumstances can mean betting the ranch and losing the bet. Examples that immediately come to mind—some mentioned in earlier chapters—can be seen in context of trying to keep up with the Joneses, with disastrous results: ...

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