Lessons from the UK Post Office scandal – Adrian Wooldridge

In the wake of the United Kingdom’s Post Office scandal, a global predicament emerges, revealing the inherent flaws of bureaucratic systems worldwide. Gary Hamel and Michele Zanini, renowned management thinkers, argue that institutionalised disdain for employees and customers, rooted in bureaucracy, stifles innovation and fosters a power-focused culture. US lawyer Philip Howard attributes the issue to “trained helplessness,” urging a cultural revolution to restore individuals’ authority. As the Post Office debacle exemplifies the “normalisation of deviance,” experts advocate questioning the relevance of bureaucratic mindsets in the information age.

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By Adrian Wooldridge

The United Kingdom’s Post Office debacle, which continues to dominate British politics despite military action against Houthi terrorists, is simultaneously a very British affair and a very global one. (For newcomers, between 1999 and 2015, hundreds of UK postal office employees were wrongfully prosecuted for theft and false accounting by the government-owned Post Office after computer glitches led to shortfalls in their accounts.) It is very British because it involves quirky institutions and class prejudices. The Post Office has the right to arrest people, a legacy of its Victorian origins. The gap between senior managers in London and the “sub-post masters” in the provinces is a class divide as well as an organizational one (the term “sub” is doing a lot of work). Yet it is global because the propensity of institutions to do dumb things and then stick by them even as evidence of their dumbness becomes undeniable can be found everywhere.  

In my last column I explored the way that scientific management had encouraged managerial idiocy, particularly since the frenzied expansion of the management-consulting and masters-in-business-administration industries from the 1980s onwards. But, as the Post Office scandal metastasized and interest in it spread, I felt compelled to consult three notable authorities on organizational misbehavior for their views.

Gary Hamel wrote one of the defining management books of the 1990s with C.K. Prahalad, Competing for the Future (1994) and most recently teamed up with Michele Zanini to write Humanocracy: Creating Organizations as Amazing as the People Inside Them (2020), a book that they are now revising. Though he lives in Colorado, Hamel ends his day by reading the latest developments in the Post Office saga in The Times and the Telegraph.

Hamel and Zanini think that the Post Office case is a particularly egregious example of something more general: the institutionalized disdain that large organizations hold for their employees and customers. The basic problem lies with bureaucracy. Bureaucracies inevitably exact a cost because they point upward rather than downward. These costs were tolerable when so many bureaucracies were first built in the late 19th and early 20th centuries, when the amount of information was limited, and the average worker was poorly educated. The people at the top played a vital role in coordinating and interpreting information. Bureaucracies are becoming increasingly counterproductive in a world in which information is ubiquitous and education commonplace. Yet they continue to metastasize.

Bureaucracies insulate the people at the top of the organization from practical experience and deprive the people at the bottom of initiative. The bosses are treated as if they are infallible while frontline workers are treated as if they are expendable. Bureausclerosis may help to explain two of the most dispiriting features of the modern economy: why the average size of companies is increasing and why productivity is so disappointing.

Hamel notes that bureaucracies direct energy toward the pursuit of power rather than innovation or customer service. The sort of people who succeed are good at deflecting blame (and taking credit) rather than at solving problems. Zanini notes that bureaucracies habitually double down when they make a mistake. People who have risen by flattering their bosses are unlikely to tell them that they are making a terrible error. If the leadership commits an ethical lapse, the whole organization is toxified.

Philip Howard is a US lawyer who published a book on The Death of Common Sense in 1995 and has been writing about the subject ever since. His new book, Everyday Freedom, is due out next week. Howard thinks that the root of the problem is “trained helplessness.” People usually know how to fix things — teachers know how to keep order in the classroom, police chiefs know who the bad apples are, local officials know that they need to build new infrastructure. But they are all prevented from using their best judgments because they are trapped in systems that are more concerned with avoiding mistakes (and penalizing people who make mistakes) than on getting things done.

Howard puts a lot of blame for the current situation on his own profession. In the 1960s the legal profession rightly began to recognize that many people had abused their authority in perpetuating racial discrimination. But the profession then overcorrected by calling all authority into question and looking for ever more excuses to sue. “We designed a governing system that would avoid abuses of authority,” Howard says, “only to replace authority with prescriptive rules and objective processes. Rule by the rule book.” This transformed the US from a can-do-culture into a compliance culture (which usually means a can’t do culture). It also opened opportunities for interest groups, not least public sector unions, to make it impossible to sack their members.

The result is the institutionalization of idiocy throughout the organization. Employees no longer have the freedom to do what they know to be the right thing, even as bad actors can hide in the thickets of rules and regulations. The people who run the organization are often as powerless as the people they manage: Just as surgeons practice defensive medicine to make sure that they are not sued, managers practice “defensive management” to protect themselves from blame for mistakes.

Howard’s comments are flavored by his experience of America’s hyperactive legal system. But the problem that he diagnoses — people’s growing inability to do what is right in the face of an ever-expanding set of rules — can be found across the world. Who hasn’t been infuriated by ponderous health and safety regulations? Or by training sessions designed by compliance people who have no idea about the work that we’re supposed to do? Or by box-ticking forms that multiply by the day?

In 1922, Franz Kafka wrote a classic novel, The Castle, about bureaucracy, drawing on his experience working for an insurance company in Prague. (As he once wrote to his fiancĂ©e, “Real hell is there in the office.”) But what would he have made about the US federal government, where, in a study of the largest departments, New York University’s Paul Light counted 1,070 deputy assistant secretaries, 236 assistants to the assistant secretary, 204 deputy deputy assistant secretaries and 153 deputy assistant assistant secretaries?

What can be done about this dismal situation? Hamel and Zanini argue that institutions need to devolve more power to people on the frontline: the people who work outdoors where the wind of the real world blows in their faces, as Intel’s Andy Grove once put it. They point to three companies that have made a long-term success out of doing exactly this. W.L. Gore & Associates, a US materials science company, insists that each of its employees is a “risk management function.” They are given power but also obliged to speak up if they see a potential risk. The company has never had a major scandal in its 66-year history. Handelsbanken, a Swedish bank, devolves decision-making to its local branches, including decision-making about corporate clients. If a branch makes a housing loan, it carries that loan on its own books. The bank has outperformed its northern European rivals in terms of return on equity every year for the past half century and sailed through the 2008 financial crisis unscathed. Haier Electronics Group Co. Ltd, a giant consumer goods company based in Qingdao, China, is broken up into more than 4,000 microenterprises that consist of ten-to-fifteen employees, a radical model in the business world in general let alone in a top-down country like China. All these organizations have one thing in common according to Hamel and Zanini: They recognize that in an age of dispersed information you need to give more power and responsibility to the periphery and reduce the role of the center.

For his part, Howard invokes the first rule of recovery: recognizing that we have a problem in the first place. Dysfunction is becoming so ingrained in our institutions that we take it for granted rather than recognizing its truly destructive growth. His second imperative is to restore people’s authority to make responsible decisions. This requires nothing less than a cultural revolution — restoring people’s authority to make judgments rather than forcing them to operate according to a prescribed set of rules, and reducing the penalty for making honest mistakes.

Sadly, the ability of human beings to ignore or deny what is staring them in the face is as old as human civilization. “Nothing is easier than self-deceit,” Demosthenes warned in the fourth century BCE, “for what each man wishes, that he also believes to be true.” It also affects the greatest of businesspeople as well as minnows like Post Office CEO Paula Vennells. In Denial: Why Business Leaders Fail to Look Facts in the Face and What to Do About It, Richard Tedlow tells how Henry Ford almost bankrupted his company in the 1920s and 1930s by refusing to acknowledge that cars had become a consumer good. He blamed everybody — the marketing department for not working hard enough and the people who bought him the news of declining sales for cooking the books — before questioning his own strategy. Companies do all sorts of things to institutionalize denial, from employing “mindguards” to protect the company from adverse information to trash-talking their competitors to creating a blizzard of management speak (“troubled assets” for worthless bits of junk).

But just as dangerous as denial is the “normalization of deviance”: the process whereby dysfunctional behavior gradually becomes part of the everyday routine of business life. The phrase was invented by the sociologist Diane Vaughan in her analysis of the disastrous decision to launch the Challenger space shuttle. It depends on the dialectic between seeing and not-seeing: You see that something is going on but at the same time you fail to see how problematic it is.

The “normalization of deviance” is as good a phrase as any to explain what went on in the Post Office. Senior managers got into the habit of lying about the number of complaints they had received about the Horizon IT system; of sending debt collectors to threaten and bully the unfortunate sub-post masters; and of using the legal system to silence critics and deterring plaintiffs from seeking redress. Over time, actions that strike reasonable people as cruel and unusual became as routine as chatting about the latest episode of Succession over the coffee machine.

The Post Office debacle ought to inspire companies to take more precautions against getting things so drastically wrong. Bosses should employ more awkward people who like to question corporate group think. Companies ought to make regular use of “red teams” that have a remit of probing for weaknesses. But as Hamel, Zanini and Howard rightly prescribe, the people who run organizations need to ask more profound questions about whether the bureaucratic mindset that was formed when information was scarce is still relevant in the information age, and whether we are replacing yesterday’s contempt for the horny-handed sons of toil with an equally damaging contempt for people who don’t happen to have fancy university degrees and managerial titles.

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