Five ways to cover up a massive blunder

Time and time again, corporate leaders and politicians make atrocious decisions with terrible consequences. Here’s how they get away with them.

What leads bosses, whether in business or government, to make big blunders? And then how do they cover them up so that by the time the blunder’s discovered, they’re long gone?

Research in Britain and the US is starting to indicate that managing by financial incentives -- which worked so well in the last century -- does not work in the more complex world of the 21st century.

Below are my five best ways to make a management mistake and then cover it up. Here I am indebted to the remarkable work of the most qualified scientist in parliament, WA Liberal Dr Dennis Jensen, who refuses to go with the party line but instead tells the truth as he sees it.

In an address to parliament, Jensen revealed how the Joint Strike Fighter blunder was made and covered up, and you’ll see that the process is remarkably similar to what ABC’s Four Corners discovered about Johnson & Johnson and defective hip implants this week.

Blunder rule number one: Ignore expert advice and go with your gut. Jensen says the expert advice given to the Howard government and military chiefs around 2000 was to not go with the Joint Strike Fighter. Fascinatingly, in the government’s latest science policy Tony Abbott asked his best-qualified scientist (Jensen) to submit a paper -- but Abbott then ignored it. Johnson & Johnson did not do sufficient testing of its hip replacement product because it wanted to match its rival and get into the market quickly. Everyone has watched their bosses ignore advice and go with their gut. Sometimes it is right but when wrong it’s a disaster.

Blunder rule number two: When you make a big decision, those who continue to oppose you need to be pushed aside -- everyone must join the thrust to make it work. Well, that’s wonderful if the decision is right but if the decision is wrong there is no one left to put forward a different point of view. In the case of the JSF, Jensen says no one reviewed the aircraft purchasing decision after it was made, despite huge blowouts in cost, significant schedule slips and capability being redefined down. Johnson & Johnson also did not seem to have the capacity to review the wrong decision, almost certainly because the opponents had gone elsewhere.

Blunder rule number three: Everyone involved in the decision is ‘looked after’. In the case of the JSF, Jensen has studied carefully what happened and says:

“I have to admit concern that senior officers who provide critical advice on capabilities that cost billions of dollars have no requirement to have a register of pecuniary interests, as politicians do. Indeed, I am aware of influence peddling by defence contractors with both Defence personnel and some journalists in the media, with all sorts of benefits provided. I believe we should implement a register of what largesse has been provided to senior Defence personnel by defence contractors. We also need to ensure that these personnel do not get jobs in the defence industry immediately [sic] they leave the services, gaining very cushy jobs following their retirement from the services. There are too many who get jobs with contractors where they have provided advice favouring that contractor's product. For transparency's sake, this must end.”

Johnson & Johnson’s close connections with the medical profession were almost certainly a major contributor to their cover-up.

Blunder rule number four: Delay as long as possible in telling the people at the top that the decision is wrong. In corporations, big, sudden writedowns are often caused because management down the line keeps putting a good spin on the data to keep their jobs until finally they have to confess. In times gone by, BHP has faced huge writedowns because the plant problems never reached the board. I wonder how much of the hip replacement mistake material reached the Johnson & Johnson board. I suspect all they received were glowing reports about sales. They simply did not know the horror until it was too late.

Blunder rule number five: Obscure the costs with all sorts of creative accounting. In the case of the JSF, cabinet thinks the cost of the aircraft is around $100 million but Jensen says it will be nearer $190m.

When the blunder must be faced: In corporations, a big blunder means writedowns and board sackings -- but the executives who made the decisions have usually moved on. In the case of the JSF, Tony Abbott’s successor will have to admit that the 2014 prime minister was misled and therefore misled the parliament. And of course in the case of Johnson & Johnson there will be years of court battles. The JSF blunders may not well become clear until pilots have to fly the aircraft and discover it is no match for its rivals.

Jensen says:

“A Vietnam-era F4E Phantom out-accelerates, out-turns and has a higher speed than the JSF. Yet the current answer remains the JSF, despite the fact that we have seen the shape of threats in the J20 and the T50 from China and Russia-India respectively. These are stealth fighters in the F22 Raptor class, which will significantly overmatch the JSF.

“In fact, despite the Lockheed Martin and Defence salesmanship of the JSF, it is not a true fifth-generation fighter. For fifth generation, the critical elements as defined by Lockheed Martin -- before they changed the definition to force the JSF to fit the definition -- were stealth, supercruise or the ability to cruise at supersonic speed without using thirsty afterburners, super maneuverability and sensor fusion. Some of the current European fighters better meet the definition than the JSF, which lacks two of those measures: supercruise and super maneuverability. These missing capabilities cannot be put into the design by modifications or upgrades. They are absent forever.”

 Companies and countries take a long time to recover from major mistakes.

To read Dr Jensen's full speech click here, or watch the video below.