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Governance lessons to be learned from TSB debacle

By | 19/11/2019 in Blog posts

The long-awaited probe into the IT crisis, that left 2m TSB customers without access to their current accounts, highlights key governance failings

Law firm Slaughter & May has published its much-anticipated report on TSB’s mishandling of its migration to a new IT platform, in April 2018, which left the bank reeling for weeks and could eventually total £400m.

The report looks at where and why the board failed to address ‘common sense’ challenges, concluding that:

  • The board ought to have paused and reflected
  • There should have been more robust questioning
  • Where there were obvious warning signals it failed to consider opting for risk mitigants

The report also highlights where fault lies with those reporting into the board:

  • The full scale and complexity of the development not being made apparent to the board
  • The relevant facts were not sufficiently highlighted
  • The board was not provided with an accurate view of outstanding defects

Governance shortcomings

Damning as these observations are, they focus more on the omissions that occurred, rather than shedding any real light onto why they occurred.

Other than stating that the board should have appointed independent experts, to guide them, the report does not provide any real insight on how the board might have adjusted its behaviour to have been more effective. In particular, it does not address the question as to why, the TBS board failed to ‘interrogate the status of the programme’, ‘pause and reflect’, ‘question more robustly’ or ‘consider the extent to which the board could rely on the opinions of [Risk] and [Audit]’.

This may well have been outside the author’s terms of reference, but the right lessons still need to be learned from these corporate debacles. So it’s important to understand that the real issues that often underlie the effectiveness of a board are typically related to process and behaviour.

It’s the behaviours of the board that created a culture that allowed it to go ahead with a project about which it did not have sufficiently accurate and sufficient information. By allowing it to feel sufficiently comfortable about not challenging more deeply or insisting on more accurate or sufficient information. While, it is the processes which were not sufficient to ensure that the defence (audit and risk) mechanisms in place were competent and sufficiently well-resourced to ensure the board was able to interrogate itself and allow itself the space needed to ‘pause and reflect’.

Three questions boards need to ask themselves

Going forward, the report’s exposure of the governance failings at least, highlights the need for boards to ask themselves three key questions when governing mission-critical projects:

1. Is sufficient thought being given to the composition of the board?

Does the board have the necessary expertise to oversee a complex project, be this a technology transformation of others? How wide is the knowledge gap between the executive and non-executive layer? Do independent experts need to be extensively relied upon to compensate?

2. Does the culture within the board allow for sufficient challenge?

Do the behaviours exhibited and the process in place encourage challenge? Is there a sufficient awareness within the board of any cognitive bias and appreciation of different types of questioning that can be deployed to unravel complexity? Is the organisations ability to resource the project, and the effectiveness of the resources in place, being questioned?

3. Does the Chairman allow enough time and scope for the board to ‘pause and reflect’?

Where important projects are listed on the agenda, is enough space being given for the chairs of Audit and Risk to report and how much challenge is there from those who are not members of those committees? Are non-executives being given the opportunity to build their relationship with the executive and share their expertise and any concerns?

These are just some of the questions any board needs to ask itself if it is to learn the lessons of this and other corporate debacles.

James Bagge is the executive chairman and co-founder of Bvalco, a board evaluation consultancy focused on helping boards become fit for the future

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