What is Groupthink?
Groupthink is one of the most widely-used but least-understood terms in Business [1]. We all know that Groupthink refers to the tendency of a group to coalesce around a common position, for example a Board of directors on a corporate strategy or senior management on a cost-cutting program. It is what groups do after all, otherwise they will break up in conflict.
The term Groupthink [2] was first used in 1971 by Irving Janis, a US research psychologist, who studied a number of really bad decisions made by the US Government, such as the failure to foresee the attack on Pearl Harbour, the Bays of Pigs invasion and the escalation of the Vietnam War. He concluded that the people involved were all exceptionally bright, strong-minded individuals but that the search for concurrence
“becomes so dominant in a cohesive group that it tends to override realistic appraisals of alternative courses of action [and] refers to a deterioration in mental efficiency, reality testing and moral judgments as a result of group pressures”.
In other words, unity trumps good decision-making. Similar psychological biases were evident in the space shuttle Challenger disaster and the initial problems with the Hubble Space Telescope.
But Groupthink is difficult to study. How can we identify when a group decision has been arrived at as a result of a robust and wide-ranging debate or alternatively through a process rushed to achieve agreement? Without being part of, and yet independent from, the decision-making process we cannot see when and how concurrence became the goal rather than finding an optimal solution to the problems being faced.
Usually, in studying Groupthink, we are faced with information gathered post-event that is provided by people who have a vested interest in portraying the decision-making as being rational. It is only by going back to source material can Groupthink be confirmed as opposed to being suspected. But such material, e.g. Board minutes and alternative proposals, is rarely available to researchers or even regulators.
A case of Groupthink – Royal Bank of Scotland
A case of what appears to be Groupthink was the decision of the Board of the Royal Bank of Scotland (RBS) to acquire a substantial part of the ABN-AMRO bank in 2007. Ian Martin’s book ‘Making it Happen, Fred Goodwin, RBS and the men who blew up the British Economy’ describes how an initial suggestion by the CEO, Sir Fred Goodwin, to become involved in the acquisition of ABN-AMRO was rebuffed by the Chairman because the Board had recently agreed to suspend its largely successful acquisition spree in favour of an ‘organic growth strategy’. However, over a period of only six months and a few Board meetings, the entire Board changed its mind and agreed to pursue the purchase in a deal that would ‘Beat Barclays!’ The deal was a total disaster, ultimately resulting in the forced acquisition of RBS by the UK Government. And there were no excuses, the deal had been a disaster from day one! Fred (now ex-Sir) Goodwin is widely castigated as the villain of the piece but the whole Board of directors were to blame for not doing their jobs. In fact, there was insufficient due-diligence because the RBS bid was unwelcomed but no-one spoke up.
Concurrence of opinion on strategy and tactics is a good thing as it helps engender steadfastness when the going gets tough. But if a group’s concurrence is wrong to begin with, it makes the identification and reversal of a bad decision extremely difficult and can result in a disaster if the decision is not reversed.
Janis’s model of Groupthink is complex and multi-faceted requiring a knowledge of the internal workings of a group, although some aspects can be studied by considering disclosures such as Annual Reports and Investor briefings. Information is, however, available in some situations. For example, a study [3] by a team of sociologists at the University Of California, of the minutes of the US Federal Open Markets Committee (FOMC), found that the members of the Federal Reserve Board “whose job it is to make sense of the direction of the economy were more or less blinded by their assumptions about how reality works”. In other words, the body that sets interest rates for the USA, and arguably the whole world, was suffering from Groupthink in their assumptions about how the US economy actually works.
Is Groupthink collusion? Certainly not! Dictionaries agree that collusion is ‘secret cooperation for an illegal or dishonest purpose’. Although the cooperation (e.g. Board discussions) is usually kept secret, the ABN-AMRO takeover, for example, was never dishonest or illegal. But what if the agreement was to hold back the ‘whole truth’ to regulators, as happened, for example, at Washington Mutual?
Can Groupthink be reckless? The ABN-AMRO acquisition was obviously reckless, not least because the RBS Board did not do full due-diligence on the books of its target. However, recklessness is not (yet) a crime, but may soon be as the newly enacted UK Government’s Banking Reform Act makes reckless activities that cause a bank failure a criminal offence.
People Risk
The risk that a Board of directors and management make decisions as a result of Groupthink is a People Risk as it can lead to substantial losses to, even the bankruptcy of, a firm.
This blog is one of a planned series that will discuss documented cases of People Risk in general and Behavioural Biases, such as Groupthink, in particular.
It will also discuss other manifestations of Groupthink, namely ‘Teamthink’ (or the risk of a group within a firm making bad decisions based on team-concurrence rather than corporate policies) and ‘Systemsthink’ (the risk of a group of independent companies making the same bad decisions at the same time based upon the mistaken belief that ‘everyone is doing it, so it must be OK’)
It is obvious that those functions within a corporation that deal with People Risk on the frontline, such as Human Resources, Risk Management, Audit and Compliance, must understand such concepts because not only can they result in significant damage to the firm, but the biases require very different approaches to tackling them.
References for Groupthink
[1] Turner M.E. and Pratkanis A.R, 1998, ‘Twenty-Five Years of Groupthink Theory and Research: Lessons from the Evaluation of a Theory’ Organizational Behavior And Human Decision Processes, Vol.73, Nos.2/3, February/March, pp. 105-115
[2] Janis I., 1971, ‘Groupthink: The desperate drive for consensus at any cost’, in The Classics of Organisational Theory, (eds. Shafritz J. M. and Ott J. S.) Wadsworth
[3] Fligstein N., Brundage J. and Schultz M., 2013, ‘Why the Federal Reserve Failed to See the Financial Crisis of 2008’, Department of Sociology, University of California Berkeley http://sociology.berkeley.edu
[4] McConnell P. , 2013, ‘Northern Rock – The group that thinks together, sinks together’, Journal of Risk and Governance, Vol. 2, No. 2, pp. 105-133
People Risk Management 
Awesome post! Sadly, groupthink happens quite to often within the workplace, sometimes resulting in bad decision making, risks, etc. It’s something within the workplace that should looked into and monitored to keep costs low. Thanks for sharing!
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