Resilience and integrity: Fundamental to system integrity

Author: Sandra Waddock

For a system to be resilient, no single entity should dominate or feel it’s above sanction, argues Professor Sandra Waddock of the Carroll School of Management, Boston College.

In the wake of the 2008 meltdown and resulting conversation about certain financial institutions being ‘too big to fail’, the combined issues of both integrity and resilience seem more relevant than ever. What do ‘too big to fail’, resilience and integrity have to do with each other? Well, consider: In early 2013, US Attorney General Eric Holder publicly admitted in Congressional hearings that ‘too big to fail’ was also, as the popular press put it, ‘too big to jail’.¹

Too big to jail? Wow! That startling notion highlights fundamental flaws in a system seriously lacking in systemic integrity — soundness, completeness and incorruptibility, the very definitions of integrity. We can question the integrity of institutions in such a system, where an anything-goes and constant-growth mentality can far too easily become rampant, where accountability is severely lacking and where the only results that matter are bottom-line results.

We need to seriously question the resilience of any system that has institutions and enterprises that are both too big to fail and too big to jail. For example, from an ecological perspective, when crops are produced in an agricultural system where there is little genetic diversity, there is greater crop vulnerability to diseases and blights, storms and drought. When financial institutions are globally interconnected in what amounts to a technologically boundary-less network deemed ‘too big to fail’, we risk the type of meltdown or crash already experienced in 2008 that some suggest may happen again because little has actually changed. When transnational corporations have global reach and dominate whole industries, they create limited real customer choice, interwoven supply chains and enormous (oligopolistic) market power, which place pricing and supply in the hands of a few. All of these global systems, and others, have huge ecological and social impacts. Their global interconnectedness reflects a reliance on a growth-oriented business as usual, which is in distinct contradiction to fundamental principles of resilience and, fundamentally, to principles of sustainability in a world increasingly affected by climate change and threats of ecosystem collapse.

What does resilience mean in this context? Ecologists tell us that resilience is basically how well a system is able to sustain its integrity when something changes. Thus, if one part of a system changes or fails, resilience allows a system to continue to survive and even thrive if it is not too reliant on that one element. Overreliance on any one aspect of the system, because that element is too big, powerful or interconnected with other elements, means that the whole system depends on that one element. Such overreliance puts the whole system at risk and means that system integrity, especially in its meaning of soundness, is fundamentally lacking.

Diversity — of institutions, enterprises and elements — is the key to assuring greater systemic resilience and integrity. Greater diversity, whether of natural species in an ecosystem or types and sizes of institutions in a societal or business ecosystem, means greater resilience and less opportunity for one entity to bring the whole system down, ensuring great integrity and, hence, soundness and wholeness. Of course, one consequence of greater diversity is that no single entity, whether financial institution, corporation, government or any other element, is so big as to be able to dominate and put at risk the system as a whole.

There is an uncomfortable yet potentially important implication to this assessment of resilience and integrity. Assume that the underlying goal of the business system and the accountability structure that supports it is to create system integrity: wholeness, completeness and incorruptibility, which assures business, human civilisation and the natural environment all simultaneously thrive by some definition of well-being that necessarily must go beyond financial results alone. If that is the case, then the current system, which relies on too-big-to-fail-and-jail financial institutions, massive corporate structures and supply chains dominated by powerful corporate interests, is simply not cutting it.

Such a consideration also questions the growth-at-all-costs mentality that now pervades both business and society. Ecological limits and the risk of collapsing ‘too big to fail’ entities suggest the need for a significant mindset shift toward greater understanding of the real implication of resilience in a business and societal context: greater diversity of enterprise and social institutions in general. To create greater system diversity — and hence more integrity and resilience and less risk — probably means creating more varied and, yes, smaller enterprises and institutions that are neither too big to fail nor too big to jail.

Sandra Waddock is the Galligan Chair of Strategy and Professor of Management in the Carroll School of Management at Boston College.

¹USA Today, April 3, 2013