What do the Pope, Obama, and Madoff’s Investors Have in Common?
Bad due diligence.
Pope Benedict XVI revoked the excommunication of an Holocaust-denying Bishop; Barack Obama nominated cabinet members that could not be confirmed or, like Republican Sen. Judd Gregg, had fundamental policy disagreements; and people who invested with Bernard Madoff’s lost their money to a scam.
These recent stumbles illustrate a curious paradox: In an era characterized by unprecedented access to information, sophisticated organizations and individuals often make unforgivably uninformed decisions. It is as though the Vatican, the White House, and Wall Street have yet to discover Google. But, obviously, they know about Google and other powerful search tools and therefore it is equally obvious that in all three cases the blind spots were caused by something even more powerful than ignorance or bad vetting procedures.
There is little doubt, for example, that, knowing what he knows today, Benedict XVI would not have revoked the excommunication of the British bishop, Richard Williamson. According to Williamson, six million Jews were not slaughtered by the Nazis: No more than 300,000 Jews died in the Holocaust. Indeed, not to put too fine a point on it, the bishop has gone so far as to say that not a single one [died] in the gas chambers. As one might expect, Pope Benedict’s decision to welcome such a peculiar historian back into the bosom of the Church was met with a strong and adverse international reaction. Angela Merkel, for example, demanded that the pope make clear that [Holocaust] denial is unacceptable, and accused the Vatican of not satisfactorily explaining the decision to revoke Bishop Williamson’s excommunication.
The Vatican responded immediately that the Holocaust was a proven historical fact. But just as the Vatican has no doubt about that the Holocaust did happen, it should not have had any doubts about Bishop Williamson, who, after all, is not known for hiding his opinions. The prelate repeated his well known views on Swedish television in November. The interview was aired on January 21 — the day news broke of the decision made official by the Vatican three days later. How did the Vatican’s efficient, well-oiled machine fail to see the available information about Williamson and his ideas during the process leading up to this controversial decision?
A similar thing happened at the White House. Barack Obama and his team have trumpeted their goal to have a transparent administration and zero tolerance for conflicts of interest. Those who aspire to a position in the Obama administration must answer a rigorous and detailed questionnaire with 63 intrusive questions (number 54: Please provide the addresses of all the Web sites where your name appears for professional or personal reasons, including Facebook, MySpace, and others. Number 63: Please provide any information about you or your family that could be embarrassing for you, your family or the president ). Moreover, the Obama team is well known for its state-of-the-art use of information technology. And yet, several of the U.S. president’s nominees for critical positions had to withdraw their candidacies — much to the embarrassment of all involved. Why was Sen. Judd Gregg as surprised as the White House by the irreconcilable policy differences that should have been easy to anticipate by just looking at the Republican senator’s voting record? Again: How is it possible that these candidates underwent a vetting process without anyone in the White House detecting the problems before having the president announcing them? How is it possible that the candidates were unaware of the problems that sooner or later would come back to haunt them?
The same blind spots affected Madoff’s investors. It is true that a simple Google search would not have been enough to discover that they were being ripped off. But it would have been useful for them to have paid more attention to the red flags that had been raised overt the years about Madoff. Not everyone in Wall Street was blindsided, and those who probed deeper tended to walk away from investing with Madoff. In theory, the financial sector should be the most transparent of markets. Billions of dollars are spent on auditors, controllers, credit-rating agencies, investment analysts, and a long list of etceteras. And none of them were any good to Madoff’s investors. Why not?
The explanation for the Vatican, the White House, and Wall Street’s blind spots has nothing to do with the information on which the wrong decisions were made. It was there for anyone who wanted to see it. The blindness, instead, was caused by a most powerful human motivation: self-interest. The Vatican had great interest in welcoming back into its fold the ultra-traditionalist group that included Williamson. The White House and its candidates were very interested in finalizing the senior appointments. Senator Gregg wanted to be secretary of commerce. And the intermediaries that fed Madoff’s funds made lots of money persuading gullible and greedy investors that their money was profitably and safely managed. The only thing blinder than self-interest is love.