Sociology shedding light on the credit crunch

Management experts provide new insights into what led to the biggest loss in British company history.

Economists and financial experts have come up with a thousand different technical explanations for what caused the credit crunch, but these still leave us thinking:
“How could such intelligent people have got into this mess?”

Can sociology, applied to the fields of management and leadership, supply this
missing piece of the jigsaw – providing a convincing account of the crisis based
on an understanding of how society and institutions change human behaviour?

Dr Sarah Robinson, Senior Lecturer in Management and Organisation Studies at the
School of Management, thinks it can. She is in the middle of researching and writing a series of papers on the rise and fall of the Royal Bank of Scotland – whose collapse in 2008 was one of the key events in Britain’s own particular credit crunch.

Dr Robinson is working with her co-author Ron Kerr, Lecturer in Organisational Studies at the University of Newcastle.

“During the bank’s heady expansion in the 2000s from a Scottish into an international company, RBS executives missed problems of ‘toxic assets’ and bad debt because they were distracted by their bid to legitimise themselves through successful competition against the banking leaders of the English elite,” says Dr Robinson. “This irrational behaviour contributed to Royal Bank of Scotland’s fall.” Owing to its mistakes, the RBS reported a staggering £24bn loss for 2008 – the largest in British company history.

Dr Robinson and Dr Kerr go still further back in time, looking into management style in the period leading to the point the bank imploded. It is a story of “violence” – albeit “symbolic” and “economic” violence.

“Previous management culture at RBS had kept power by relying on ‘symbolic violence’,” says Dr Robinson.The expression, coined by the French
sociologist Pierre Bourdieu, means the creation by leaders in those they lead of the belief that their subordinate position is just and natural.

“But the RBS modernisers instead wielded ‘economic violence’ to acquire
and retain their leading role.” This economic violence was a form of
leadership that operated through the threat of destroying people’s economic power by laying them off or forcing them to meet aggressive sales targets.

This tactic had another use. “The management reputation for overt economic violence within RBS’s Scottish headquarters created a ‘cultural capital’– a kind of credibility through being hard and ruthless – which they would use in their battles for power in the City of London,” suggests Dr Robinson. RBS won crucial City support for its 2007 takeover of Dutch bank ABN Amro, at what is in hindsight considered too high a price.

In their next paper on RBS, published in July, Dr Robinson and Kerr suggest the 2005 opening of its isolated new corporate headquarters near Edinburgh was a form of “objectified symbolic violence” – allowing executives to establish psychological superiority over RBS employees by creating a “corporate court” where “corporate princes” were divorced from the rest of the world.

This article originally appeared in LE1 Winter 2012

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