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Bravado and confidence, admirable in some fields, can be disastrous if unchecked in high-risk professionals

In the past few months we’ve been reading about the public inquiry into Dr. Charles Smith, the Ontario pathologist whose questionable testimony led to wrongful convictions, and the financial scandal generated when French trader Jerome Kerviel evaded bank controls leading to the loss of 4.9 billion euros at Societe Generale SA.

The Dr. Smith case is particularly disturbing. Smith was a forensic child pathologist with no training in forensics – none was required or available in Canada when he rose to prominence. In frequent testimony as an expert witness, Smith, by his own admission, supported the prosecution in disregard of his obligation to provide balanced, objective testimony. Smith’s poor practices and mistakes, many of which date back to the early ’90s, resulted in wrongful imprisonment and financial and emotional devastation for several Ontario families.

Through the lens of risk management

The Smith (and Kerviel) examples illustrate how we are underestimating risk and using inadequate controls.

To understand the risks associated with professional behaviour, look at its two parts – Risk equals impact (the potential harm) times likelihood (the probability that harmful behavior will occur).
This classic risk definition helps to distinguish between risks of the job (profession + responsibilities) and risks associated with the person (skills + motivation). Impact depends on the job and likelihood depends on the person.

Risk controls – the boundaries around impact and controls to reduce likelihood – rest with the regulators and institutions that are accountable for protecting the public.

The Dr. Charles Smith case was a high-risk situation even before issues emerged

High impact: As Director of the Hospital for Sick Children’s Pediatric Forensic Pathology Unit and a frequent expert witness, his job was high impact with potential to strongly influence judicial outcomes.
Originally a child pathologist at the Hospital, his promotion to the director role increased his authority and endorsed his expertise.

High likelihood: With no training in forensics and a flawed understanding of the expert witness role, Dr. Smith was very likely to make mistakes. Yet he confidently presented himself as an expert in the courtroom and with his professional colleagues.
In terms of motivation, Dr. Smith was personally dedicated to his work and passionate about determining the causes of suspicious child deaths. This sense of mission likely reinforced his confidence and his reputation.
Not the typical physician’s job, forensic pathologist and medical expert witness roles are not covered by Canadian professional education or regulation, though they are in some other jurisdictions. The institutions accountable for Dr. Smith exercising these responsibilities properly – the Coroner’s Office, the Hospital and the judicial system – did not provide adequate oversight. By their own evidence at the inquiry, the Chief Coroner and Deputy Chief Coroner did not supervise Dr. Smith’s work, relying instead on reputation and friendship.

The Jerome Kerviel case is also instructive

Medium impact became high impact: Jerome Kerviel’s job as a junior trader for Societe Generale SA was to use large volume trades to arbitrage small price differences between equity index futures and forward contracts. In risk terms, this is medium, even low impact work, if the job is performed correctly within established boundaries.
However, Kerviel did not work within the boundaries of his job. Instead he engaged in high risk trading by taking bets on the European market’s direction. By his own admission, he exceeded his limits and faked e-mails to make it look like he had hedged his positions.
High likelihood: In this case, Kerviel’s skills included those he learned in his previous position within the bank’s compliance department. He understood the controls and devised ways to disguise his unauthorized activities. Though apparently not trading specifically for his own gain, he was a junior employee driven to succeed and eligible for bonuses worth several times his salary.

The bank’s controls failed to protect it from Kerviel’s activities. But there were signs. According to the bank, Kerviel described fake trades as mistakes, canceled them and then replaced them with other transactions.

So, what’s the prescription – how can we prevent risky professionals from harming the public?

  • First and most importantly, gain a more complete understanding of risk – not just the profession, the actual job; not just the skills, but also the possible motivation.
  • Determine who is responsible for managing risk – the regulators, the institutions, the professionals and the consumers of services. Each has a role.
  • Put the controls and supporting tools in place – remedies are much easier to see in light of the risks that they are guarding against.
  • Finally, always review specific issues in the context of overall risk – they are the warning signs that can help us prevent future harm
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