EQ Journal

Quick, what do Walkerton, the sponsorship scandal, Enron, Sarbanes Oxley and the Accountability Act have in common? They all are either causes of bad laws going on the books or bad laws themselves.

I am often asked what new rules an organization should bring in to control bad behaviour. In reality, this is often a dereliction of managerial duty. You can’t really control bad behaviour with new rules. Recently, an account executive with the (now defunct) Ottawa Renegades pleaded guilty to theft of season ticket money. The amount stolen was around $33,000 although no one is really sure. Anyone with access to a ticket spitter could do it—simply print out a bunch of tickets and sell them for cash.

Now why don’t more people do that? Well, first, there are checks and balances in most of these systems and you are likely to get caught… eventually. So it’s a pretty dumb thing to do. Then there is the fear of getting caught and the fear of punishment and the resulting publicity that ruins your reputation and your career and, basically, your life. But the real reason people don’t do it, is that most folks are honest, most of the time.

Civilization would absolutely disintegrate if that were not true. There is no way you can have a police officer looking over everyone’s shoulder all the time so we rely on self-policing. Given human instincts for violence and greed, it is a wonder that there isn’t more crime.

But when crimes do occur—whether that is some low level official falsifying water tests and killing innocent people or high level executives cooking the books to keep themselves in stock options—that is the wrong time to create new laws to address such behaviour. That is because you usually can’t control this type of behaviour with rules because these people either don’t think that rules should apply to them or don’t think they will get caught. So any number of rules is unlikely to curb these types of behaviors.

The falsified water tests in Walkerton were done by someone lacking proper training and in an environment where drinking on the job and other risky behaviors were tolerated. If someone is willing to use whiteout to conveniently place a ‘0’ on an e-coli test then new rules and more inspectors working for the Ministry of the Environment are unlikely to stop that. But it requires a lot of new public funding.

Draconian rules brought in by Sarbanes Oxley to redress accounting fraud in the US are driving public companies to go private and new IPOs to list on the London Stock Exchange’s Alternative Investment Market (AIM). This can’t be good for the US economy; but it is good for accounting firms, law firms and private equity firms in the US and terrific for AIM too.

The Law of Unintended Consequences is a perverse and pernicious force in life, especially when it comes to government action. Governments typically react in knee jerk fashion to the latest pressure group and want to be seen to be doing something. One of Canada’s recent Prime Ministers was famous for doing nothing (M. Jean Chrétien comes to mind) and the media mocked his ‘don’t-worry- be-happy’ shtick. But the best governments do their best when they do the least and probably M. Chrétien understood this.

Last week, I dealt with a plan examiner in a small town near Ottawa. She had found that a renovation project by one of my clients (adding a three-season sun room on a sona tube foundation to an existing home) was .3 metres (one foot) inside the required side yard setback. Now in many larger cities, staff are afraid of using their judgment to provide clients (yes, a renovator is a customer and should be treated like one by the city) with any leeway whatsoever. Consequently, most staff would require a minor variance application, which could cost several thousand dollars and delay the project by weeks if not months. Instead, this examiner asked the builder to come into the city office, stroke out 3 metres and replace it with 2.7 metres, initial the change and be done with it. She just used common sense.

There is a lesson in this for all enterprises—pushing down decision making into the rank and file—democratizing it so to speak, will vastly improve efficiency and customer service levels when it is combined with staff training. MBNA Bank is famous for this; telephone their call centre and you will find you are talking to a decision maker not some factotum robotically trained to parrot the company FAQ. They can and do make decisions—they can extend credit or not, raise interest rates or lower them and many other things besides.

Now when you do this, you take risks that some dunderhead will misuse his or her new power—maybe that MBNA tele-centre employee will lower interest rates for all her friends’ credit cards, but so what? That is what management is for—finding and getting rid of this type of behaviour not penalizing everyone else and retarding the company’s overall efficiency and degrading the level of customer service.

A large telecommunications firm with tens of thousands of employees sent out a memo to staff that they couldn’t use their telephones for personal calls (no more checking whether Suzie got home from school OK on Company time!) or their PC-based calendars for personal appointments. How dumb is that? Try keeping a business calendar and a separate personal one too. There is no way—you’ll either miss business appointments or personal ones. So some things can’t help but be a mix of personal and business interests.

Some Banks won’t let their employees have access to the Internet lest they be tempted to surf the Internet for personal purposes. Not having access to the Meta mind of the Net (Google) and personal productivity tools is a ridiculous reaction to abuse of the Net by a few stupid employees.

Where is management in all of this? Got some problem employees on your accounting team? Someone stealing from your business? Someone playing video games on their PCs all day long or going to adult sites? Someone falsifying health data? You already know who they are. Everyone in the organization knows who they are. Just fire them! Don’t penalize the 99.99% of honest employees by creating new layers of bureaucracy that won’t work on the dishonest .01% anyway.

Dr. Bruce
(April 16, 2006)