When I read the tragic tale of the Titan Submersible which imploded a week ago, killing all five people aboard, I had a familiar sinking feeling.
“Where was the board?”
Like in the collapse of Theranos, WeWork, Weinstein & Co, Wirecard….where was the board?
My curiosity is always piqued when I see a company that tried for the moon and failed so catastrophically that they put the entire operation at risk.
As I read the list of red flags that led up to the tragedy, it was like a song I’d heard before:
2012 - Celebrity, adventurer, environmentalist and entrepreneur David de Rothschild appointed to the Company's Board of Directors
2018 - Marine Technology Society (closest thing to regulatory body) said in a letter: “Our apprehension is that the current experimental approach adopted by OceanGate could result in negative outcomes (from minor to catastrophic) that would have serious consequences for everyone in the industry.”
2018 - David Lochridge, former director of marine operations, sued the company claiming wrongful termination for raising concerns about the safety and testing of the Titan.
Feb 2023 - a couple sued the company for failing to refund their trip fee of US$105,000 each when the trip was postponed for more tests.
These by themselves are not illegal or even unshakeable offenses.
However, the red flags bear a striking similarity to other patterns of failure at board and senior management level, including:
OceanGate’s all male, tech startup focus may have lacked the cognitive diversity to have productive dissent among the members.
In addition to de Rothschild and OceanGate founders Stockton Rush and Guillermo Sohnlein, the board included:
Rothschild is a high profile name conferring credibility (and a now potentially unhelpful link to the Titanic) reminiscent of Theranos’ board, which included high-ranking officials like Henry Kissinger.
Board composition in the privately held company included expertise around relevant technologies, funding and risk (one member founded a risk management solutions company) which makes it surprising that risk management was not more of a strength of the board.
It’s not clear yet what roles the board of directors played in the company - it's often the conversations had or not had and how well that determines outcomes - but they will certainly come under scrutiny for what now appears to be a string of red flags that might have been managed rather than flippantly discarded.
Research shows that a lack of cognitive diversity on boards yields greater risk across a spectrum from corporate policies to financial decisions. (Interestingly, the article shows increased innovation and spending on R&D correlated with diverse boards).
The reasons for this are myriad, ranging from herd mentality, lack of willingness to upset the status quo, blind spots based on lack of breadth of experience and others. Incentives of fame, fortune and the meaning derived from being part of a big moonshot innovation, can also play a part in lack of productive dissent.
Failure of risk oversight
The story has yet to be told about how the OceanGate board reviewed the risks that did come their way. Risks are not inherently bad - a business with no risk isn’t working optimally. The response to those risks is often where egregious behavior comes to light.
Many companies that fail will look back at a road littered with indications that there were concerns to address. The infrastructure project over budget and timeline, whose board when faced with expert advice asks zero questions. The WeWork board that allowed uncomfortable provisions in the IPO prospectus such as licensing the name from a separate company owned by the CEO and co-founder.
One of the key patterns I see in failed boards is the inability to address risks presented from key stakeholders - especially customers and employees.
OceanGate had a classic case of a whistle blower who not only sued for wrongful termination but specifically on safety grounds, another similarity to Theranos. They routinely dismissed criticism from all kinds of external parties. Good corporate governance enables transparency and feedback between employees, management board and investors. Not defensiveness.
Setting up good internal controls to ensure feedback from stakeholders for risk management is just good governance. Acknowledging small failures before they become big is a key aspect of managing innovation and is possible by scenario planning, building in key checkpoints on assumptions and crisis management preparation. Taken together the skills involved in preparing for the future - both good and bad - is an underweighted skill in most boards.
Board in thrall to a Charismatic Founder
Elizabeth Holmes, Adam Neumann, Stockton Rush - they all seem to be charismatic iconoclasts who were happy to tell people they “just didn’t understand” when confronted with challenges to their vision.
In my interview with John Carreyrou, WSJ journalist and author of Bad Blood, the account of Theranos’ downfall, he mentioned the Silicon Valley startup culture of ''fake it ‘till you make it” as an issue for boards to consider.
Yes, moonshots require taking more risk than the average utility company. But great innovators manage that risk by putting in safeguards to prevent "the wrong kind of wrongs", as Professor Rita McGrath writes about in her great piece on the Titan tragedy.
Of course if you have a cozy board without the requisite appreciation for or capabilities in board oversight and managing risks, it is easy to get bullied by a CEO who can tell you things are being taken care of and even straight out lie.
Currently, cofounder and board director, Sohnlein, said CEO Rush was “committed to safety” and “very well aware of the risks” involved.
But was the board aware of the risks involved?
Or just believing all that they were told?
Ultimately, some of the same things I write about as positives in an organization - having a transformative mission that everyone wants to belong to - can be a downfall for directors who want to be part of the dream and therefore don’t want to rock the boat.
The key is the culture within that gets you there. Conflict avoidance, hubris, sidelining diverse viewpoints and treating customers and industry players poorly doesn’t indicate a well-oiled machine on the way to victory.
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