Weekend Reading: Mechanics or Musicians — The Madness of Monitorships

By: Stephen J. Scott , Founder & CEO of Starling

This piece first appeared in Starling Insights' newsletter on September 1, 2024. If you are interested in receiving our thrice-weekly newsletter, among many other benefits, please consider signing up as a Member of Starling Insights.

“If we do not understand the epidemics of popular narratives, we do not fully understand changes in the economy and in economic behavior,” writes Nobel Laureate Robert Shiller in his 2019 Narrative Economics. “The ‘story’ of our times, and of our personal lives, is constantly changing,” the renowned economist observes, “thereby changing how we behave.”

Stories shape our behavior, in ways that are powerful, subtle … and largely unrecognized.

But we must learn to recognize this because, “Narrative economics, the study of the spread of popular narratives that affect economic behavior, can improve our ability to anticipate and prepare for economic events,” Shiller insists. “It can also help us structure economic institutions and policy,” he adds. If he’s right, then a failure on the part of leaders to recognize and harness the power of narrative sits somewhere between ‘lost opportunity’ and ‘dereliction of duty.’

In my Weekend Reading post two weeks back, I called for change in the popular narrative around ‘culture problems.’ Last week, I took aim at how we talk about ‘auditing’ culture problems, to include those regularly witnessed in the audit sector itself. This week, the focus is on corporate ‘monitorships.’ But first, some current context…

Mechanics or musicians?

In mid-June, Boeing CEO Dave Calhoun appeared before irate senators for a grilling, in the wake of the plane-maker’s repeated safety failures. Boeing had “fostered a culture that censors people who try to speak up,” one senator castigated. Calhoun took his lumps, apologized, and promised to do better. “Our culture is far from perfect, but we are taking action and making progress.”

As evidence, Calhoun reported that whistleblower calls to the company’s anonymous hotline were up by 500%. Senators wanted more detail. “Have employee reports increased from five to 25 or from 1,000 to 5,000?” some asked. Whistleblowers are reported to have been notifying management about safety concerns, or about retaliatory fears when reporting such concerns.?

Bereaved families have called for the appointment of an ‘independent monitor’ to oversee safety culture change efforts at Boeing. “Only an independent, judicially appointed monitor can restore Boeing’s credibility and implement the safety measures that the flying public deserves,”?counsel argued. Note the specific job description: the monitor’s function is to restore credibility and reliability. I’ll come back to that.

In late July, after it pled guilty to charges of conspiracy to commit fraud, Boeing agreed to the appointment of an independent monitor who will file regular progress reports, over a three-year term, updating the government and the public regarding the success of its culture remediation program. Bereaved families, however, complained to the courts that the settlement agreement between Boeing and the U.S. Department of Justice (DOJ) leaves the company “picking its own probation officer.” The families want a say in the monitor selection process.

Even as the Boeing case grew thornier, the World Economic Forum revealed that its board had opened an investigation into the organization’s workplace culture, after receiving allegations of harassment and discrimination. Lawyers at Covington & Burling have been retained to conduct an ‘independent internal review.’ The firm’s Institutional Culture and Social Responsibility practice helps clients “to conduct assessments of the legal, business, and reputational risks that can arise from concerns about an institution’s culture.”

And as discussed last week, in Australia, misconduct at 澳新银行 , a major bank, have led to punitive regulatory measures and calls for appointment of a monitor to help the firm redress a perceived culture problem. The ANZ board is conducting an “independent culture and control review,” and the bank is reported to have hired lawyers after its principal regulator insisted that third-party expertise be engaged.

And, so, back to the economic behavior shaping power of narrative.

When you need to get people dancing to a new tune, you want a musician, not a mechanic. Whether looked to for ‘independent internal reviews’ or subsequent ‘monitorship’ roles, where culture questions are at issue, it’s entirely unclear that lawyers possess the relevant training or skills necessary to drive culture change. But as the established narrative runs, when firms, their executives, or their boards confront costly reputational damage, it’s time to call the lawyers.

Demonstrative v. performative

And as I argued recently, when the phone rings, those lawyers are given a consistent mandate: “Contain this!?Shield the company from costs where you can, and shield me at all costs.” Lawyers are good at this. If you want facts found, lawyers are good at that, as well. If what you need is a fact pattern established for the record, through testimony and an illustrative paper trail, by all means, call a lawyer. And call a lawyer if you want to know what the law says about these facts.

But identifying the central drivers of a culture that needs changing? Setting the conditions to drive culture change? Or testing to assure that desired culture change has taken hold?

With all respect for their many diverse skills and legal expertise, there is simply no reason to believe that lawyers can be expected to deliver capabilities that even highly trained behavioral scientists struggle to master. But because there is no available, popular narrative that establishes who we might look to instead when culture questions arise and culture solutions are demanded, we call the lawyers, if only because that is the established narrative.

But we are calling on lawyers to provide evidence without first having established any evidentiary standards. The relevant officials — regulators, prosecutors, etc. — have not established how we are to assess culture reliably, how we are to obtain leading indicators of a culture that may be deteriorating dangerously, or how we are to implement and test for culture change effectively. Left boxing in the dark, boards and executives are therefore unsure how they are to evidence that their cultures are what we might expect or demand. And, so, they call on lawyers to help them to demonstrate something that has not been made demonstrable.?

Lacking the ability to be demonstrative, we opt instead to be performative. Calling on the lawyers does not demonstrate that a firm cares to cure its culture ills. It’s simply the accepted means by which we act as though we care. Everyone knows this, of course, because it’s the established narrative. But it is precisely because we are joined in a shared fiction that no one trusts the performative processes in which we engage.

Institutionalized distrust

The families left grieving after Boeing’s ‘culture problems’ do not trust management to retain a monitor who will put those families’ interests at the fore. Rather, they expect some performative nonsense to mask a whitewash that absolves Boeing leadership and shields regulators who failed to detect problems at the company until planes fell from the sky and doors blew off in flight.

While the DOJ may have entered into a settlement agreement with Boeing that was legally sound, few outside of those engaged in the process of reaching that settlement have cause to trust that it is fair and just. And given the performative elements involved, perhaps it is best to assume otherwise. If, as above, the monitor’s function is to restore credibility and reliability, the process at Boeing, as it is currently unfolding, is working at cross-purposes.

Mr. Calhoun may think that a 500% increase in calls to the company hotline is a net positive. But it is also an indication of how little readiness there was to report problems at Boeing before the company landed on the front page of the papers. And that the whistleblowers are now electing to make voluminous reports anonymously suggests that employees still don’t feel able to report their concerns openly. Rather than illustrating successful change, this is an illustration of the very problem that needs changing. Odd, then, that Calhoun would choose to boast of it.

World Economic Forum staff complaining of discrimination and harassment will not take comfort in seeing the WEF board hire lawyers specialized in conducting assessments specifically aimed at protecting organizational leaders confronted by culture-driven “legal, business, and reputational risks.” This is more likely to further entrench an already adversarial dynamic, rather than setting conditions for a successful culture change initiative.

Similarly, it is unlikely that the Australian Prudential Regulation Authority will expect counsel retained by ANZ to put the regulator’s interests on equal footing with the firm’s, and so a game of cat-and-mouse will most likely ensue, keeping lawyers for both parties busy for years. While the performance value will be high, it is hard to imagine any meaningful culture change being achieved or demonstrated through this process.

When misconduct or mishap suggest ‘culture problems’ in need of remedy, our current practices work only to institutionalize distrust. Whistleblowing complaints do not serve as evidence of a ‘speak-up’ culture, they demonstrate its absence. Internal reviews are not ‘independent’ when hired counsel answers to the very leadership teams that warrant investigation. And monitorships do not restore mutual trust when they serve as ‘nanny-cams’ through which oversight agencies peer into a suspect organization.

Few have faith in these processes, or the outcomes they’re most likely to produce, and few believe much else can be hoped for. “That’s just the way it is,” the accepted narrative runs.

We need a new narrative

Now in her senior year of high school, my daughter is studying philosophy. She shared with me a recent reading outlining French philosopher René Descartes’ argument that the mind and the body are wholly distinct, and while they can be examined separately, they function inextricably. Such ‘Cartesian dualism’ is at work in our current narrative around culture problems, and how they are to be remedied.

If the law views a corporate entity as a “legal person,” then perhaps the structures and systems contemplated in the rules of ‘corporate governance’ serve as the functional organs of its body, while ‘corporate culture’ reflects the workings of its metaphorical mind. Lawyers may rightly be looked to for ailments of the body-corporate, but perhaps not so much so for its ‘mental health.’

Appearing in the Harvard Law Review, a 2023 paper entitled “Public Reporting of Monitorship Outcomes” questions whether we can trust in the efficacy of monitorships. Because “courts, regulators, and prosecutors are not capable of perfectly supervising the work of monitors, a number of concerns related to a lack of information disclosure and oversight for modern-day monitorships persist.” In other words, we need to monitor the monitors more ably.

The paper cites a 2021 statement from Deputy Attorney General Lisa Monaco regarding policy shifts at the DOJ relating to corporate criminal enforcement, indicating that the Department would look to require the use of monitors more regularly.

Any resolution with a company “involves a significant amount of trust on the part of the government,” Monaco explained. “Trust that a corporation will commit itself to improvement, change its corporate culture, and self-police its activities.” Where the basis for such trust has been undermined by past misconduct, independent monitors are looked to. “Independent monitors have long been a tool to encourage and verify compliance.”

But while compliance with legal requirements are matters of corporate governance, where lawyers may rightly be called upon, for concerns arising from questions of corporate culture, we need a different set of skills acquired and practiced in a different realm of expertise.

And I’ll say more about that next week.