15 May 2017 by Anthony Fitzsimmons and Derek Atkins
Risks from individual and collective behaviour are regularly at the root of failure, but can lie unrecognised for years before manifesting themselves
United Airlines Flight 3411 on 11 April was sold out. Shortly before closing the aircraft doors, United sought four seats for its own staff, offering up to $1,000 per passenger. No one volunteered, so United selected four fare-paying passengers to disembark.
Three left voluntarily, but the fourth, Dr David Dao, refused. He was eventually removed forcibly by Chicago Airport security personnel. He suffered concussion, broken teeth, a broken nose and bleeding.
United described Dr Dao as ‘disruptive and belligerent’. CEO Oscar Munoz wrote to staff supporting the action, adding there would be lessons to be learned. Reports emerged that could be described as character assassination of Dr Dao, though their origin is unclear.
In heavy trading, United’s share price briefly dropped by nearly $1 billion (about 5%) during the day, but recovered. Calls to boycott United emerged on social media.
A report by ABC News the next day, reconstructed events from passenger videos, showed Dr Dao behaving impeccably until he was pulled from his seat and dragged along the aisle to the exit as passengers protested.
“Munoz said there had been a ‘system failure’ that also disempowered staff from using their common sense”
Asked what had gone wrong, Munoz said there had been a ‘system failure’ that also disempowered staff from using their common sense. He said he had initiated a review of the system.
When asked whether Dr Dao was at fault in any way he hesitated before replying: ‘No he can’t be. He was a paying passenger sitting on our seat in our aircraft.’ He continued: ‘To remove a booked, paid, seated passenger, we can’t do that.’ Three officers from Chicago airport were placed on administrative leave.
Munoz’s contractual right to become Chairman was cancelled and the board began work to add improved customer-centricity to executive-bonus criteria. United rapidly settled with Dr Dao, whose lawyer said Munoz had ‘done the right thing’.
Before he took over at United Airlines in September 2015, Munoz, was CEO of CSX Corp, an American real estate and railway company, and a non-executive member of the airline’s holding company board.
As the Chicago Business Journal put it: ‘Munoz comes to his new post running the world’s second-largest airline with what appears to be little or no experience in the airline industry, other than serving on United’s board of directors. But Munoz is said to have a strong marketing background, which couldn’t hurt as United seeks to reinvigorate its public image.’
“The airline’s Wikipedia entry contains a warning that it ‘contains content that is written like an advertisement’”
Munoz’s marketing skill was recognised when he was awarded ‘Communicator of the Year’ by PR Week in March 2017. At the time, United was receiving consistent and strong criticism from customers on consumer affairs websites such as Yelp.
From January to March 2017 United garnered two 4* ratings (5* is the maximum) on Yelp, one 3* rating, two at 2* and 21 at 1*. The 1* ratings were accompanied by comments such as ‘I flew United two weeks ago as I had no other option. Never again’ and ‘Someone needs to stop this miserable organization, fly any international airline and you will never go back to a US carrier again (sic).’
The airline’s Wikipedia entry contains a warning that it ‘contains content that is written like an advertisement’. There is no reference to a $2.25 million penalty and non-prosecution agreement in connection with corruption allegations that cost Munoz’s predecessor his job, or to fines in 2013 and 2016 imposed by the US Department of Transport for unfairly holding passengers beyond three hours on delayed aircraft.
It mentions four customer service incidents, but not the globally reported ‘United breaks guitars’ episode that led to a viral song and a Harvard case study.
Risk professionals are adept at managing the risks they are specifically responsible for, but they lack the authority and skill to tackle behavioural and organisational risks at all levels, including the top. This is an important hole in risk management.
Weaknesses in these areas are regular root causes of failures. Typically they lie unrecognised but incubating for years before they cause severe, often reputational, damage. In the meantime, they manifest in minor ways that are dealt with successfully and dismissed as unimportant.
Many of these ‘minor’ failures are, however, tell-tales of systemic weaknesses with root causes at senior levels. The successful management of the minor crises they cause leads to complacency and a misplaced belief in the power of PR, while leaving the organisation predictably vulnerable.
Complacency affects us all, especially leaders. Gillian Tett lambasted Gordon Brown ‘and every other Western leader’ as ‘shockingly complacent and negligent’ about what was driving the boom in financial services before the crash.
She might have added central bankers and economists to her list. Atul Gawande tackled complacency among surgeons in his 2014 Reith Lectures. We demonstrated complacency in a large group of company secretaries and general counsel.
“The board’s attention to the executive bonus structure suggests an appetite to fix the fundamentals”
When such weaknesses eventually cause an unmanageable event, outsiders get to analyse its root causes properly. The discovery of a history of tell-tale events and management’s failure to learn of, and from, them regularly helps to tip a manageable crisis into a reputational catastrophe that sweeps aside leaders.
Crisis management is like fire brigades and sticking plaster – they fix symptoms, but not the fundamentals.
Munoz has tackled the problem of forcible removal of passengers with high-quality sticking plaster. United announced 10 changes to its policies, including limiting the use of law enforcement to safety and security issues; not requiring seated customers to give up their seat unless safety or security is at risk; and increasing payments to customers for voluntarily giving up their seat, among other things. These measures address symptoms and immediate causes, but not root causes.
The board’s attention to the executive bonus structure suggests an appetite to fix the fundamentals. CEO incentives have huge consequences. But the board needs to get those changes right: it is easy to create unintended undesirable incentives.