"Does Increased regulation reduce corporate responsibility?"
This was the title for the annual open debate held as a regular event by the UK Institute of Business Ethics sponsored this year by Simmons & Simmons.
The event was held under the Chatham House Rule so these observations are the result of a distillation of what was debated there and my own prior knowledge. This means, though, that no attributions or acknowledgments of insights contributed by others can be made.
An understandable reaction by most businesses is that regulation invariably increases the complexity of doing business and could lead to obfuscation if regulations are too detailed. They can detract from seeing the bigger picture and also be a distraction to understanding the business itself.
Invariably, extra management time and costs are incurred and the threat of criminal proceedings is frightening.
There are also issues of accessibility, clarity and coherence, with a veritable succession of tides and unceasing waves of EU Directives, laws, departmental guidelines, regulations, standards et al that have to be navigated with guidance from Court rulings and opinions.
So why is regulation needed at all? Perhaps it all comes down to "performance," both individually and collectively as is manifest in our behaviour. And what constitutes appropriate regulation depends upon the nature of the subject matter, or context, and the form of the regulatory mechanisms and material.
For example, for health and safety issues, particularly in construction where the safety record has improved considerably, simple rules for particular situations become a statement of sensible good practice for remaining safe and healthy. However, in more fuzzy areas such as economic regulation, financial services and data protection, there is a real danger that a list of rules alone will simply be shuffled down to operational levels who simply "tick boxes" without consideration of reasons why, and the underlying principles, if any.
Taking a leaf or two from the writings of Adam Smith we are reminded of the effect of natural human instincts: that the pursuit of self interest by an individual, maximising revenue for himself in a free market, tends to maximise the total revenue of society as a whole. But in his time, the "invisible hand" as it were, was underpinned by a good dose of moral sentiment, cultivated by the strong Christian tradition. So we can see from the left hand side of the figure following that a positive impact on society can be achieved. Additionally, Adam Smith also pointed out that the division of labour, despite achieving productivity gains, induced a certain stupidity of mind, the early equivalent, perhaps of a tick box mentality!
However, we also know that selfish cattle owners overused their rights to free grazing on common land and, with no regard for their co-farmers, ruined the nutritional value of the land leading to the "tragedy of the commons." So greed had to be tempered by regulation to control access. So we can see from the right hand side of the figure that we can still aim for a positive impact on society despite human greed.
However, regulation always seems to be behind the curve of personal aspiration and performance improvement. What holistic perspectives enable us to control bad behaviour and cultivate good behaviour and get to grips with systemic failures and successes?
Two possibilities come to mind for further dialogue.
Winston Churchill once said, "The empires of the future are empires of the mind." Also, leaders and managers are always seeking ways to create more adaptive and responsive organisations and maximise knowledge value. So firstly, consider the ways in which different aspects of knowing have been represented and synthesise them to understand better the evolution of knowledge itself.
Drawing on the work of past colleague Verna Allee in her book "The Knowledge Evolution - Expanding Organizational Intelligence," I depict in the following diagram two dimensions, learning and performance, of her knowledge archetype, arrived at by analysing sixteen theoretical constructs for representing and understanding different aspects of knowing.
The right hand side depicts different aspects of performance. On the left, are corresponding aspects of learning. These are set in the traditional triangle of controls for project performance, (schedule, quality and time) with an additional vertical dimension that enables us to pin point different tasks and operations.
Suffice to observe at this point that a case can be made for applying principles to aspects in the blue zone and leaving rules firmly for the orange zone.
Secondly, utilise simple but effective approaches for visualising the effect of behaviour in organisations systemically. For example, the diagram following uses a powerful approach for combining the formal work flow with the informal conversations that impact board performance. The recent USB shareholder report (a comment on that to an ACCA related meeting is here) highlighted that conversations about the meaning of comprehensive risk management reports did not take place. Could this be the result of NED effectiveness being blunted by collegiality or group think? Would a more diverse representation on the board be appropriate or is it simply a lack of any one individual not being prepared to be "the difficult one?"
Ultimately, it seems that there is no such thing as a corporate ethic, but simply personal matters of conscience, recognising that human nature is fallible.
So, a holistic view of the place of ethics in making choices is particularly appropriate. Usefully, the knowledge archetype introduced above provides an excellent starting point for such a conversation. A more comprehensive snapshot of its contents can be seen on the attachment. Referring to this, maybe we should pin point our conscious attention on ethics when there is an over-riding concern for integrity in assessing performance, when our focus is on caring why (purpose) actions are taken, when our learning is value driven and generative; when our perspective is possessing the will, motivation and adaptability for success, plus the capacity to deduce new effects by integrating different disciplines; when our horizon is "very long" - up to 20 years. Maybe it is at this mode , one up from the top of our pyramid illustrated above, that we should develop principles and then cascade them down to the nitty gritty of specific rules and standards.
By combining what we have so far, maybe we have started the journey to replace the pursuit of self interest by the pursuit of negotiated self interest from a holistic (or systemic) perspective.
A final point. A past Chairman of the SIB, Sir Andrew Large, once agreed with me in the presence of the late Lord Weatherhill, at an ICF meeting that it would be a good idea to have some engineers on his team! At least we do add the odd diagram to punctuate the text that is the natural domain of legal minds who appear comfortable with visualising meaning from words alone!
Maybe the lack of an engineering input is one reason for the occasional corporate governance failure.
Mind map of related aspects of the Knowledge Archetype
Table of 16 alternative author's views of knowledge aspects
This page has URL http://tinyurl.com/lfjlgl
Copy of a version of this note....
IBE Open Debate 9th July 2009 .pdf