An informative new article in the Harvard Business Review addresses the risk of what the author describes as “ungoverned incompetence.” This risk arises when “someone does the wrong thing while trying to do the right thing, and organizational systems fail to catch it and contain it”—as opposed to more recognizable situations where the organization is harmed because of executive level malfeasance.
Three specific characteristics are cited as the most likely causes of “ungoverned incompetence.” First is the “collapse of competence”: when executives assume challenges that are beyond their capabilities to address. This can happen when the operating environment changes in ways the executives do not recognize, or they take on a project or initiative that they assume is within their capacity to address, when in fact it is not. Second is “shortcomings in self-governance”: when an executive is operating out of his or her depth and fails to notice it and to seek help. This situation can arise when the executive is encouraged (by hubris, denial, defensiveness, etc.) to act against their rational interest. Third is “inadequate corporate governance”: when critical information that identifies the possibility of failure is either (a) not passed from the management level to the board (either through a limited agenda or ineffective reporting systems); or (b) is delivered to the board, but the board lacks the skills to properly interpret the information.
The article’s premise is that such ungoverned incompetence becomes more likely as the organization assumes strategic risk due to innovation, M&A activity or an increasingly volatile business environment. As such, it serves as a very practical “duty oversight” lesson for health system governance—how key board committees can more capably recognize the warning signs of operational, financial or legal risk.