Enterprise Compliance Today

Risk Culture vs Organizational Culture – Hitler Diaries Case Study

Posted by Greg Carroll on Fri, May 23, 2014 @ 01:00 PM

The “Risk Culture” Myth Part3: The blurring of the difference between Risk Culture & Organizational Culture has had a major detrimental effect on ensuring good governance in corporations.  An independent Risk Culture to Organizational Culture is as vital to good governance as an independent judiciary is to good government.

 

9780099791515 large

So how did such a reputational disaster occur in one of Europe’s most respected investigative magazines?


paperbackfront

FastTrack Risk Management Data Sheet
How Fast Track provides risk management integrated as part of the day-to-day operational management method of work and decision making.

In Part 1 The “Risk Culture” Myth  I covered the hijacking the Risk Culture into a “value & belief system”.  Part 2 Roadmap to a Practical Risk Culture I covered the real purpose of Risk Culture is to provide objective oversight against established biases, and in this 3rd and final part, I will stress why we can’t  blur the difference between Risk Culture & Organizational Culture.  This has had a major detrimental effect on ensuring good governance in corporations.  An independent Risk Culture to Organizational Culture is as vital to good governance as an independent judiciary is to good government. 

Hitler Diaries Fraud Case Study Synopsis
(source: “Selling Hitler” Robert Harris 1986)

In 1983, well respected West German news magazine “Stern” published excerpts from what purported to be the diaries of Adolf Hitler, known as the “Hitler Diaries”, for which Stern's parent company, "Gruner & Jahr" paid 9 million German marks (equivalent to US$10 million in today’s dollars).   The diaries were supposed to be part of a consignment of documents recovered from an aircraft crash in Dresden in April 1945, about which Hitler had been upset.

The diaries have been collected in great secrecy over the course of more than 18 months. Three separate handwriting analyzes, in Europe and the USA, identified the writing as Hitler's. However, Gruner + Jahr delayed forensic analysis out of fear of leaks. Two historians, Hugh Trevor-Roper (Times Newspapers) and Gerhard Weinberg (Newsweek),  had flown to Switzerland and also been shown a few diary volumes, along with a large archive of additional Hitler material salvaged from the plane crash. They subsequently authenticated the diaries before bidding for the serialization rights.

After the first installment was published, Stern was forced to have the diaries independently forensically tested, which showed the paper and glue to be post 1952 while other historians pointed out glaring mistakes in times and places quoted in the text. 

So how did such a reputational disaster occur in one of Europe’s most respected investigative magazines?  

  1. First, due to Stern editors’ aversion to Hitler stories (it was a “liberal” publication) the journalists involved went over their head to corporate executives.  The executives looked on it as a marketing coup and not a journalistic exercise requiring professional due diligence for which Stern had a strong reputation. 
  2. Secondly, the affair was led by the then MD of Gruner + Jahr who was flattered on being approached directly by 2 distinguished journalists.  He then passed it on to his 2IC who became his successor a short time later.  The “top down” ball was rolling.
  3. Due to the “scoop” mentality of the industry (and how uncommon is this in most fields), knowledge of the Diaries was limited to a select group of need-to-knows who felt special being included in the MD’s inner circle and not about to raise any concerns.   With such a high powered group driving the issue, everyone subsequently brought in assumed it must be true, even though the facts were still built on hollow ground not having operational managerial involvement.
  4. Legal finally insisting on some verification.  The siege mentality meant the journalists who sourced the story also organized the experts to verify the diaries using material from their same source.  Unfortunately, those respected journalists also stood to make a financial windfall from the diaries.  The 3 experts concluded the extracts and calibration material (also forged) were from the same author without knowing it was supposed to be Hitler.
  5. Finally, by the time Stern’s editorial (operational) management were involved, they were presented with a fait accompli, included proven background checks, material expert advice, and a strategy of taking it to market, leaving them with little to do but as they were told.

This brings me back to the point of the article. An Organizational Culture where a dominant MD had instilled top down culture allowed Stern magazine to rise out of the ashes of post-war Germany as part of a billion dollar European-wide publication business. A strong common purpose and camaraderie created tunnel vision focused on the outcome. Their attention to detail included the verification and background checks.

So there we have it.  An exceptional organizational Culture of common purpose and belief system, focus on outcomes, values of independence and purveyor of truth, top down management commitment with reciprocal loyalty, and pride in quality of work, reputation and attention to detail. 

These are the same attributes currently being pushed by the new “Risk Culture” proponents and as can be seen by this case study, would have had little effect on the outcome.  On the other hand, had they implemented a traditional Risk Culture, concurrent and independent to the organizational Culture, it would have been extremely unlikely the diaries would have seen the light of day.

For Risk Culture to remain independent of Organizational Culture we have to eliminate the IRM's recommended "values, belief systems, and share common purpose" concept from the definition of Risk Culture.  Risk Management has to be the “objective” and honest evaluation of situations untainted by belief and philosophic views. Decision biases are the greatest threat to effective decision making and predominantly arise from entrenched belief systems and philosophic views.  An organizational Culture embodying customer, employee and community values are vital to the pursuit of the corporate mission and vision.  The enthusiasm and direction it engenders in both good and bad times, along with common/shared objectives are the driving force of business success. 

But without the counter balance of an independent Risk Culture this enthusiasm has the ability to drive the business right off a cliff.  The graveyard of corporate collapses is strewn with the results of misguided good intentions.  Nick Leeson (Barings Bank collapse) has always maintained his actions were not for personal gain. See http://www.news.com.au/finance/original-rogue-trader-nick-leeson-tells-story-of-how-he-bought-down-barings-bank/story-e6frfm1i-1226754124452. It started with him covering a colleague’s mistake. i.e. a common shared value. 

As covered in Part 2, I can’t stress strongly enough the need to have risk management integrated as part of the day-to-day operational management method of work and decision making, as this will return far greater rewards than workshops and lectures on “pulling together and doing the right thing".

Resources

paperbackfront  reduce non-compliance  reduce compliance costs
Free Excerpt: Mastering 21st Century Enterprise Risk Management
Guide to selecting & implementing Enterprise Risk Management
Webinar Videos
See recorded webinar on the Mastering 21st century Enterprise Risk Management
FastTrack Risk Management Data Sheet
How Fast Track provides risk management integrated as part of the day-to-day operational management method of work and decision making.

Tags: risk management, corporate governance, risk culture, due diligence