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When we Ignore a Burning Fuse

In four months time we will know the immediate impact of the "Y2K" computer bug; the bug through which computers with 2-digit date fields cannot distinguish which century we are in, and which may cause computers to try to do things they are not meant to do, such as dividing by zero. That this would be a problem was known in the 1960s. There were plenty of Y2K whistle blowers. Despite no serious denial within the computer industry that the habit of programming computers with 2-digit date fields would become a problem, those who were in a position to act to eliminate this prob lem did not do so. Not only was there no push to delouse the software of the time, there was no leadership from within the industry to discontinue the 2-digit habit. Software was still being written in the 1990s on the assumption that the year 2000 would never come.

Other problems of this type include the asbestos industry, the tobacco industry, the baby formula industry, and the problem of fluorocarbons and their impact on the ozone layer. Indeed many global environmental problems may never be resolved until it's too late, on account of the same kind of man agerial psychology that gave us the Y2K bug.

This year a new potentially serious problem has come, belatedly, to our attention. It is the problem of kapton-insulated wiring in a large proportion of our commercial aircraft. A fuse wire explosion is believed to have caused the fire that downed the Swissair flight off the coast of Nova Scotia last year. The problem - aired on TVNZ's Assignment programme last Thursday, courtesy of BBC's Panorama series - is being ignored today by everyone outside of the aviation industry's whistleblowers. The technical people - including those in the US military - have long understood it. But the manag ers of the airlines, of the aircraft manufacturers, and of the aviation regulators all choose to deny by pretending that the problem does not exist. From the viewpoint of managerial economics, Nelson's choice (choosing to "turn a blind eye") is rational.

Kapton has yet to catch on to the public imagination, but it will. This problem - unlike Y2K - really does cause planes to fall out of the sky. The problem with kapton insulation is its propensity to explosively ignite when chaffed. While the problem in an aeroplane is literally a fast fuse burning, kapton wire is burning on a very slow fuse within the industry. Our models of management have no means to deal with impending disaster. And I mean disasters that are happening, not just disasters that might happen.

Industry-leading executives choose to ignore problems that might destroy their industry-leading firms. They pretend that they haven't heard the Cassandras among their workforces. Further, to discontinue an unsafe practice would be an admission of being aware that the practice is unsafe. The Cassa ndras are not sacked or persecuted; that would also be an admission by the managers of awareness of the problem.

Aircraft manufacturers do not wish to recall all of their past product to rewire every aircraft. That would be too expensive. Yet that is what they would have to do if they admitted to there being a problem. Instead their response is to exacerbate the problem by continuing to produce faulty produ cts; products which will eventually, as planes age, cause the deaths of many people. Kapton is still used by Airbus, despite its discontinuance by the United States military in the 1980s. Boeing no longer uses it in new aircraft, but continues to service kapton-wired planes with kapton wiring.

This is more than a "tragedy of the commons". It is a capitalist managerial death wish; an outcome of a blind "culture of contentment", to use JK Galbraith's memorable phrase. Managers are content to make profits for their principals and high salaries for themselves, regardless of the consequence s to their customers, or to society.

According to managerial economics, managers are accountable only to their principals. For workers, the principal is the boss. For Chief Executives, the principal is the board of directors. In the New Zealand public sector, the principal is a Minister of the Crown. Managerial managers are hired ha nds, employees programmed to serve their principals, no matter how unprincipled their principals might me.

The solution to the managerial conundrum is social responsibility. Socially responsible business directors will seek to maximise returns to all of their stakeholders; not just the shareholders. Although Roger Kerr (chief executive of the New Zealand Business Roundtable) believes that directors ca n best serve society by exclusively focussing on the bottom line, businessmen like BSR's (Business for Social Responsibility) Dick Hubbard understand a wider set of stakeholders to be their true principals. That means they will, if necessary, commit business suicide where their activities comprom ise the safety of the public and there is no other way of rectifying the situation.

But what of chief executives? Can they serve more than one master? Can they commit business homicide on their employers? Or murder-suicide? The answer is that they must be prepared to. Chief executives of companies like IBM and Boeing must be prepared to destroy the company they work for and upon whom their careers depend, if a greater good requires such a sacrifice. Socially responsible executives will place the safety of the public ahead of the sanctity of their principal-agent contracts.

The computer industry is healthier for having confronted (eventually) the 2-digit century bug. The aviation industry will likewise be healthier when its managers confront the kapton fuse that's slowly burning right now. A number of the firms that dominate the industry at present will become victi ms, whether through the costs of doing the right thing or through eventually facing the greater costs of denial through pretending there is no problem. (Swissair has done the right thing, accepting full liability for last year's tragedy. The cost to its principals will be huge.)

For capitalism to work effectively, professional managers must be loyal to their employers. But, professional values imply a wider loyalty. Where the interests of their shareholders clash with the interests of their industry, the loyalty to the industry must take precedence over the loyalty to th e firm. And where the interests of humankind clash with the interests of an industry, then the principled chief executive will try to commit industry suicide for the sake of the planet and its inhabitants.

When the invisible hand of capitalism does work for the public good, it works more by principles than principals. Managers must operate by a code of professional ethics that requires them to take a very enlightened view of their interests and the public good that capitalism ultimately serves. Chief executives in the commercial aviation industry should have already seen and heard enough. If they don't act, more kapton-insulated planes will fall out of the sky. Unlike Y2K, we don't have a specific date upon which the best minds of the industry can focus. And we have no idea how many cra shes will happen before enough of the industry's senior managers assume their professional responsibilities.


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