When executives use storytelling to mitigate their strategic errors

What should executives say in the event of a strategic mishap, when the shadow of bankruptcy begins to hang over the company and employees and investors start to panic? The recent setbacks at Casino and Alstom in France, and the early 2023 debacles at Credit Suisse and Silicon Valley Bank (SVB) further afield, are reminders of the eternal and permanent possibility of veering off course, alongside the well-known examples of Kodak and Nokia.

Denial and finger-pointing are the most common reflexes of executives exposed to such episodes. SVB’s bankruptcy stemmed from “rumors and misconceptions”, pleaded its Chief Executive Officer (CEO)… several months after being ousted from his post.

However, although the notion that infallibility goes hand-in-hand with power can blind its holders to the point of denying the obvious, our studies show that other forms of storytelling can, on the contrary, provide meaning when a strategy needs to be rebuilt on new foundations. In an article recently published by Strategic Organization, we identified a dialectic process employed by top executives to circumvent the paradox of remaining in power after, and despite, a strategic failure.

Two “editorial lines”

This storytelling perspective, brought to light by analyzing dozens of interviews with board chairs and chief executive officers of major European financial services companies employing a total of almost one million people, is based on the notion of strategic errors. It has two main dimensions.

The first dimension is counterintuitive. It involves recognizing and mobilizing the strategic error, and seizing upon it to drive change. Announcing the error can effectively eliminate two alternative, but less credible, “editorial lines”: denial, which becomes increasingly risky as the crisis develops; and accusing individuals or groups, which is perceived as too easy. In the famous Kerviel affair back in 2008, this second approach was the strategy chosen by former CEO Daniel Bouton and Société Générale, and it proved costly for both.

Introducing this notion of error appears to be a subtle step, because error implies a certain assumption of responsibility on the company’s part. Acknowledging and mobilizing the error means asserting that the company has deviated from a rule it should have followed. Executives who adopt this approach state the rule that should have been respected, with this rule serving as a guide for defining a new strategy.

Prudence, the hallmark of UBS, is now order of the day at Credit Suisse, replacing its former quest for profitability at all costs. However, this shift required bankruptcy, public intervention, and the removal of top management. At Alstom, the “order growth” mantra has been replaced by a focus on deliveries and cash flow. For the time being, the executive team has managed to hold on.
Mobilizing the notion of error in storytelling enables executives to dramatize the situation to create a perception of urgency. Mistakes frame crises and give them meaning, catalyzing strategic renewal in the here and now.

The second dimension of storytelling we identified, however, allows executives to distance themselves from mistakes and the associated failure. Although all of our interviewees recounted episodes that they had personally experienced, each was careful to dissociate their own role from that of the organization.
Collectivizing error and failure emerged as a defining feature of their narratives. As the chairman of one of Europe’s leading banks explained to us:

“It’s not my mistake, it’s not this or that person’s mistake. It’s a problem we have to solve together.”

This collectivization is useful for executives as it alleviates the stigma that may directly affect them. It has another advantage: it dilutes the guilt of teams and employees by making the whole organization bear this guilt. It gives the company a new mission – to overcome the crisis and embark on a new phase.

An act of power

But this dilution of responsibility is not enough. Since the notion of fault and the associated guilt remain inherent to the crisis, executives still need to find ways of mitigating it. In addition to collectivization, we identified three narrative mechanisms that accomplish this objective:

• The first is temporalization. In this case, the argument is that the company was unable to adapt quickly enough to an unforeseeable external change. For example, one of our interviewees explained how his company, a major French insurer, defaulted after a reversal of case law – deemed to have occurred too suddenly.
• The second mechanism is isolation. In essence, the narrative states that the strategic error developed in a business unit so specific and so remote from the main organization that it naturally escaped attention.
• The third and final mechanism is generalization. The executive narrative attempts to justify the error by stating that all organizations in the same sector have been affected – a plausible explanation for banks, for example, in a climate of interest rate rises.

In our representation, although collectivization appears systematically in corporate narratives, the mechanisms of temporalization, isolation, and generalization have proven to be mutually exclusive, responding to the need for clarity emphasized by a recent article in the Harvard Business Review.
From a practical point of view, recognizing a strategic error could open up new opportunities for executives. In reality, it is an act of power. When circumstances deteriorate, it may even be their last resort before the ship goes down – and a way to hang on to their position in the company.

The research was conducted with the support of the “Chaire Baillet-Latour sur le management des erreurs à la Solvay Brussels School of Economics & Management.”