Biz Prof: What do Bhopal, Enron and Meltdown '08 Have in Common?

• The Find: Sure, all three were massive business disasters, but Freek Vermeulen insists they also had the same underlying cause: a combination of excessive complexity and "the myopia of success," seasoned with a healthy dash of greed.
• The Source: The Random Rantings blog of Vermeulen, a strategy professor at the London Business School.

In the case of investment banks, financial engineers drew up increasingly complex financial instruments that, among others, incorporated assets based on the American housing market. Yet, the financial engineers didn't quite understand the situation in the housing market... in Enron, managers did not quite understand what its energy traders were up to.... and also Union Carbide's administrators had little knowledge of the workings of the chemical plant in faraway Bhopal.

When things started to work and bring in financial returns, as in the case of the banks, the usage of the instruments increased, sometimes dramatically, and they became bolder and more far-reaching. Iconoclasts and countervailing voices were dismissed or ceased to be raised at all.... the financial success of [Enron's] approaches suppressed all hesitation towards their business strategies.

Greed and a focus on short-term financial gain certainly play a role, but Vermeulen insists the reason all these problems grew to be as big as they did was the management system. "In combination, all these elements create a system that escalates risky short term strategies until it culminates into an irreversible course of action. Consequently, it becomes unseemly to do anything else."

For more of Vermeulen's long and complex argument, check out the complete post, which also offers suggestions to prevent future disasters.

The Question: Is Vermeulen on to something or just another academic muddying the waters?

(Image of Enron boss headlines by alex-s, CC 2.0)