Hubris syndrome & two national institutions
David Owen, former foreign secretary of the UK and founder of the Social Democratic Party, was educated as a physician and studied neurology. With this academic training, he has been a keen observer of personality disorders, especially among leaders. He has come up with a theory called the Hubris Syndrome. It is a “disorder of the possession of power, particularly power which has been associated with overwhelming success, held for a period of years and with minimal constraint on the leader”, explains Mr Owen. The syndrome manifests itself in recklessness, lack of attention to detail, massive ego and self-confidence, and disdain for most others. All these personality traits can lead to disastrous decisions, causing damage on a large scale.
Mr Owen perhaps referred to Western institutions where the damage owing to wilful blindness led to wrong decisions, causing institutional damage and widespread job losses. In third world countries like India, where the justice system can be made to serve the interests of the powerful, these characteristics immediately lead to two additional outcomes far worse than what Mr Owen witnessed in a relatively rule-bound society like Western Europe.
First, corruption on a humungous scale. In India, the moment people acquire power (whether in government or the private sector), they are tempted to misuse it. If they remain in power for long, the misuse increases exponentially. Second, in third world countries, characterised by a breakdown in the rule of law, the Hubris Syndrome can take a particularly vile turn. Hubrisfilled leaders can abuse the justice system, jail people on false and fabricated charges, and cause physical harassment and public humiliation.
Two egregious examples of this syndrome are right in front of us: The National Stock Exchange (NSE) and Infrastructure Leasing & Financial Services (IL&FS). IL&FS was founded by institutional money, but Ravi Parathsarathy ran it like a fief for three decades until his battle with cancer forced him to step down in July this year. During this period IL&FS has racked up a debt of more than ~1 trillion, mostly from public sector institutions, leaving a string of unfinished projects entangled in lawsuits, across an eye-popping 350 plus companies with a finger in everything from school management to waste management.
Mr Owen notes that charisma, charm, the ability to inspire, persuasiveness, breadth of vision, willingness to take risks, grandiose aspirations, and self- confidence are qualities often associated with successful leadership. Many found all these qualities in Mr Parthasarthy (although less so in the NSE’s leaders). He also qualifies for two of Mr Owen’s three causative factors: absolute power, acquired over many years, and minimal constraint. IL&FS, in retrospect, is not a shining example of what Mr Owen calls “overwhelming success”, but within India’s perverse system of judging success or failures, using public sector banks and government machinery to build a huge, too-big-to-fail white elephant was seen as a sign of success.
In the process, while a few IL&FS’s top employees garnered huge personal wealth, some business partners and questioning employees found themselves threatened with criminal defamation or had their life destroyed and forced to spend time behind bars on trumped-up charges. In third world countries, the Hubris Syndrome can lead to loot of public money and criminal behaviour.
The NSE was also founded with institutional money and headed by the late R H Patil with Ravi Narain and Chitra Ramakrishna as his deputies. While the NSE was a spectacular success in careful risk-taking and innovation of Dr Patil — unique in the Indian context — things changed after a decade or so of near-monopoly. That’s when Mr Owen’s four causative factors applied perfectly well: Long period in power, enormous success, leading to absolute power, and minimal constraint. It escaped punishment for two major regulatory failures (the flash crash of 2010 and client code modification by brokers). It also emerged successful in bruising battles with rival exchanges, during which the NSE deployed vile tactics to intimidate and humiliate existing employees, regulatory barriers on competition, fake charges about software, etc.
As Mr Owen would put it — the NSE top management had developed a “massive ego and self-confidence and disdain for others”. So, when the co-location scam hit the NSE in 2015, due to “recklessness and inattention to detail” (manifestation of the Hubris Syndrome), the NSE tried to brazen it out and file a defamation case against us. Former senior employees had told us that the NSE’s top management was supremely confident about their ability to manage the scam investigation with ease. They couldn’t, and it led to the ignominious exit of two former managing directors.
We have designed laws and codes to constrain hubristic behaviour within organisations. But they failed in the NSE and IL&FS due to failure of internal (the board) and external oversight (regulator), even when some of their actions were illegal, not just ethically wrong. Since early 2008, the NSE pretty much has controlled the regulator, as also the ministry of finance, and after the co-location scam, its board had to be purged. With dozens of former senior government officers on its rolls and a pliant board supporting it, the IL&FS top management stayed out of scrutiny. The lessons from the hubristic behaviour of these two institutions are clear. The question is: Will policymakers learn from them?