Having recently relocated from Qatar back to Dubai I had the unenviable task of sorting through the various insurance and risk related books and papers I accumulated over the years.
I do not know whether it was the mood of the day or the whistle-blowing experience in the recent past, but two particular literary pieces on the same topic caught my attention.
One is a short paper entitled, Psychopaths in the Boardroom and the other is Snakes in Suits: When Psychopaths Go to Work.
I started leafing through the two and certain statements leapt to life, particularly with reference to the regional (Middle East) insurance markets.
Probably the most prevalent statement with which most would probably concur is that of Dr Robert Hare, co-author of Snakes in Suits, when he says: “Not all psychopaths are in prison – some are in the boardroom.”
A study shows that they are more likely (four times more likely in fact) to be found in senior management than in society in general. This, of course, is not region specific but universal. Otherwise how would one explain the debacle that rocked Lloyd’s in the 1990s?
Or, why would a 2001 study by European insurance regulators of failures or near failures of insurance companies within their respective jurisdictions all point towards a failure of governance?
Similarly, why would a more recent study of over 50 property and casualty insurance companies in the US fail to reveal that moral hazard at management level was a common ingredient in all.
Does the interplay of governance and management have to be an eternal Tom and Jerry show with Jerry (embodying the key management) inevitably outsmarting Tom (personifying ethics or governance) despite the elaborate thought and preparation that go into Tom’s schemes?
Within the GCC region the market has had and still has its fair share of psychopaths managing insurance companies. Needless to say, not all fall into this category; but the ones that do stand out.
In his paper Corporate Psychopaths: Theory of the Global Financial Crisis, Clive Boddy attributes the crisis largely to the increase of psychopathic personalities in senior management.
Spared financial issues
Thankfully the Middle Eastern insurance markets have been spared the full rigour of the financial crisis – other than investment operations leaving a dent in the profitability of some of the companies.
If you add this to the relative boom preceding the crisis as well as the market stability that ensued post-2010, all these factors sustain relatively stable results and, therefore, help to sustain the existence of psychopaths in management.
In the relative absence of formidable corporate governance and/or supervisory regimes, most boards in the region would not fix what doesn’t seem to be broken. But by the time the proverbial hits the fan the ramifications can be significant.
History of failures
However, looking at the history of failures and/or near failures – or perhaps ‘restructuring’ is a better term in a region governed by boardroom Omerta – psychopathy has certainly played a big role in Bahrain, Oman, Kuwait, UAE and Qatar over the past decade.
The following are some tendencies or manifestations of psychopathic behaviour. I am sure that many readers would quickly identify several C-suite people with one, some or all of these attributes:
Boddy describes them as: “Cunning and manipulative, and great at engineering situations. Although they don’t have emotions themselves, they can create emotional situations.”
Paul Babiak, co-author of Snakes in Suits, aptly describes them as: “They’re not stupid. They can decode what’s expected of them and play the part.”
They are generally charismatic charmers and, whether centre-stage or pulling strings behind the scenes, still bask in the limelight.
They are charming to those in power but show malice to colleagues, peers or subordinates.
They lack empathy in decision making.
Dr Hare explains the behaviour by comparing psychopaths to “cars with great power but weak brakes”, in that, while knowing the rules, they do not necessarily feel inclined to be guided by them.
How would one otherwise explain the behaviour of, say, a broker walking away with tens of millions of debts with various insurance companies? How would one also explain why insurance companies would have written such business and run such credit risks in the first place?
No point in companies crying wolf and pushing for Directive 2 in UAE when their senior management ignored internal credit policies and treated their board of directors on a ‘need to know’ basis.
This is, of course, one relatively recent example. But the past decade displays these traits, from ARIG’s forays into primary market and health insurance operations, to ONIC’s facultative reinsurance misadventure and a Qatari reinsurer’s delayed provisioning for ‘incurred but not remembered’ claims, to at least four UAE companies undergoing extensive organic changes since 2005.
Companies in the region rely on regulation to provide governance or use regulators as the scape-goat for lack of governance. However, this blame game is completely unfounded.
Governance is not about systems or rules. Although it manifests itself in systems and rules, governance is a culture. A culture is the embodiment of collective behaviour. Therefore, sound corporate governance is positive or ethical collective behaviour supported (not legislated) by rules and regulations.
Enterprise risk management is more about ethics than it is about mathematics. Sound corporate governance, as a force of collective positive behaviour, is the only safeguard against psychopaths trying to ride roughshod.