It is not hard to spot some of the priorities in our world today:

• regulate financial institutions
  
  
• mitigate environmental risk
  
  
• reduce mindless bureaucracy

They are certainly complex, and sometimes seem almost insurmountable. Yet one thing is certain. If we can't discuss the issues, we will never overcome them.

Regulate financial institutions

While most will agree on the urgent need to better regulate our financial institutions, what specifically should we do?

William Black made some interesting points in an interview with Barron’s Magazine in April 2009.

He was a deputy director at the former US Federal Savings and Loan Insurance Corp. (FSLIC) during the thrift crisis of the 1980s, and now serves as an associate professor, teaching economics and law at the University of Missouri, Kansas City. At FSLIC, a government agency that insured S&L deposits, Black prevailed in showdowns with the powerful Democratic Speaker of the House, Jim Wright, and helped identify the infamous Keating Five, a group of U.S. senators (including Sen. John McCain, the Arizona Republican who lost his bid for the presidency in 2008) who tried to quash his attempt to close Charles Keating's Lincoln Savings & Loan.

Wright eventually resigned amid unrelated ethics charges, and the senators were reprimanded for poor judgment. Keating went to jail for securities fraud.

Concluding the interview Black had this to say:

A new seriousness must be put into regulation. We don't necessarily need new rules. We just need folks who can enforce the ones already on the books.

The bank-compensation system also creates an environment that leads to mismanagement and fraud. No one has to tell someone they have to stretch the numbers. It is all around them. It is in the rank-or-yank performance and retention systems advocated by top business executives. Here, the top 20% get the bulk of the benefits and the bottom 10% get fired. You don't directly tell your employees you want them to lie and cheat. You set up an atmosphere of results at any cost. Rank or yank. Sooner rather than later, someone comes up with the bright idea of fudging the numbers. That's big bonuses for the folks who make the best numbers. It sends the message -- making the numbers is what is most important. There is a reason that the average tenure of a chief financial officer is three years.

Compensation systems like I have just described discourage whistleblowing -- the most common way that frauds are found in America -- because the system draws upon the cooperation of everyone.

The basis for all regulation and white-collar crime is to take the competitive advantage away from the cheats, so the good guys can prevail. We need to get back to that.

Mitigate environmental risk

If countering widespread financial fraud is a top priority in our world today then so too is reducing the risk of environmental catastrophe.



Among the reams of comment on the BP oil spill in the Gulf of Mexico was an interesting piece in the New York Times on Thursday July 22, 2010 called Workers on Doomed Rig Voiced Concern About Safety, which had this to say:

Only about half of the workers interviewed said they felt they could report actions leading to a potentially “risky” situation without reprisal.

This fear was seen to be driven by decisions made in Houston, rather than those made by rig based leaders,” the report said.

“I’m petrified of dropping anything from heights not because I’m afraid of hurting anyone (the area is barriered off), but because I’m afraid of getting fired,” one worker wrote.

“The company is always using fear tactics,” another worker said. “All these games and your mind gets tired.”

Investigators also said “nearly everyone” among the workers they interviewed believed that Transocean’s system for tracking health and safety issues on the rig was “counter productive.”

Many workers entered fake data to try to circumvent the system, known as See, Think, Act, Reinforce, Track — or Start. As a result, the company’s perception of safety on the rig was distorted, the report concluded.

A more accurate title for this article would have been Workers on Doomed Rig Were Afraid to Raise Concern About Safety!

Clearly, we need employees who are not afraid to blow the whistle to counter financial fraud, and workers who are not afraid to raise concerns about safety to mitigate environmental risks. Similarly, in the Public Sector, we need outspoken critics to expose mindless bureaucracy.

Reduce mindless bureaucracy

Recent problems in the British Public Sector have much to do with previous governments' mindless obsession with targets. It is explained in this piece in the The Independent newspaper on 5 April, 2004, entitled Mr Blair may find that he has finally lost what he really cares about:

In 1997, a substantial majority of civil servants welcomed the Blair Government with enthusiasm. They had spent the previous few years chaffing in frustration, because the Tory parliamentary party was paralysing John Major. Good civil servants also welcomed the Blairite's emphasis on delivery. Forget Sir Humphrey; the best officials want to get things done. But then they discovered what their new masters meant by "delivery". It was the paper-boy approach to government; the only delivery that mattered was the next day's headlines.

Good civil servants also believe they have a duty to maintain the traditions and values of the British civil service, which, at its best, has always stood for a rigorous and disinterested approach to the problems of government; for administrative principles untainted by party politics. That did not suit the Blairites. They wanted to politicise everything, and one of their favourite instruments was targeting.

It is not necessarily a bad idea to set targets, which can focus people's  minds on what they ought to be trying to achieve. In this case, however, the targets took over. Once they had been set they had to be met, even if this meant sacrificing more desirable objectives, including the truth. Doctors bribed to claim that their patients have given up smoking; top exam grades which no longer mean much; orders to avoid arresting illegal immigrants - that is how Tony's targeting works. It does as much to help the British people as the pigs' targets did for the other animals' welfare in Animal Farm.

Targetitis has become the Blairite equivalent of legionnaires' disease. It poisons offices. Its first symptom is an uncontrollable suppuration of paperwork, with doctors, teachers and policemen all sicklied o'er by the pale cast of form-filling. As the data in the forms must tell the great leader what he wants the voters to hear, much of it is about as reliable as the material which told Stalin how well his five-year plans were working.

The second symptom occurs in the most acute form of the disease, targetitis ministerialis. When this strikes, the sufferer rapidly loses all contact with truth. There follows a decline into cynicism and moral lassitude, accompanied by the progressive collapse of the intellectual faculties. The invalids wander the corridors of Whitehall, babbling the same dual refrain: "What does number 10 say?" and "If this gets out, I've had it".

We need greater candor throughout the Public Sector: the National Health Service,  Education, other blighted departments, and not least the Police. Sometimes, however, the mask slips…

Over breakfast last week a senior police officer reeled off impressive crime figures for his patch. All crime was down by 20 per cent, the number of violent offences had fallen by 10 per cent and vehicle crimes had been halved.

Then he paused, dropped the political mask that so many chiefs have to wear, and admitted that none of these numbers gave him any reassurance. "The problem is that the crimes that really worry people, and me – the teenagers running around with knives and guns – seem to be getting worse" This is the story of policing in the past few years: a maddening obsession with measuring performance.

See This numbers racket never added up, The Times, October 24, 2008.

Police coyness fools no one. Commentators were quick to point out:

Anyone familiar with "The Wire" TV series will know this as "duking the stats". We all know violent crime has increased massively in the past 10 years. Police are under so much pressure to make arrests, reduce serious crime, that the stats are bound to be massaged.

Mike Gow, Nottingham, UK

I served from 1971 to 1988 with Lancs and GMP until I retired owing to injury on duty. Stats have always been recorded in a manner that presents a Force in a favourable and positive light. It is done so to enhance the reputation of Chief Constables and to please Government. The truth is immaterial. 

Ian Gossop, Padgate, England

Such targets do more than mislead the public, they destroy trust. As Jan Berry, head of the Police Federation, said in an interview with the BBC in December 2007:

Government targets are causing a breakdown in public trust. Police were being set too many performance targets, and not being allowed to use their discretion.

We do things these days which we can count, rather than things that can't be counted.

There are loads of minor offences which previously could, and should have been, dealt with with some words of advice, like playground disputes between pupils, that are now appearing in the crime statistics. There has been a sense of persecuting middle England in order to make the statistics look good.

Home Office targets were distorting police priorities and encouraged them to arrest people for minor offences, such as speeding, rather than concentrating on serious crime.

Fran Banks, a commentator from Essex, sums up the public misgivings:

Quite simply the government are using the police to nick the public for any offence that raises money for them.

A senior retired British Police Officer put it to me this way:

I've lived through a period in the Police Force where detection rates have dropped from 90 per cent to 30 per cent. Actually, even 30 per cent is misleading. If we are lucky enough to catch a criminal, which is only about five per cent of the time, they will usually ask for other offences to be taken into consideration. That's where the the 30 per cent comes from.

The problem is targets. Most of the time nobody monitors what the police do. For example, if they have been set a target to catch 50 speed offenders a day, they will do that in the first two hours then do nothing the rest of the day, yet still feel they've done a good day's work.

Before all these targets, we would look carefully at cars that were driving suspiciously. That's where a lot of our arrests came from. Not now. All the police care about is meeting their targets.

If you go along to your local Police Station to report a suspected fraud, they will now direct you to an accountant who can help you gather the evidence. There is no Fraud Squad anymore, because there are no targets for it.

So it was not surprising to find Libby Purves, a  level-headed  columnist, arguing in The Times in August 2008 that “we must train people to break rules”.

Something is wrong. We read too many stories about this craven, inhuman, poltroonish cowering behind rules and routines, and about individuals who get into trouble for momentarily breaching them in the name of humanity or sense.

Employees should be allowed to be people too; and a good bureaucrat should feel safe to judge which value scored highest at the critical moment. We all see examples of this gentle accommodation every day. But we also know that those who break small rules for human values run a real risk, because of that corporate anxiety and depression. It is brought on by soulless micromanagement from the top and a culture that assumes the citizen is a moron.

Dean from London agrees:

I was a Police Officer for 10 years. We constantly had to make split second decisions based on little or no information or facts. We used initiative, instinct, common sense, tact and diplomacy. It saved me from a beating many times. Couldn't happen now with target driven culture Britain.

In a world of target-driven control, even thinking is unsafe!

Thus it was encouraging to hear David Cameron, the UK's new Prime Minister, saying at a Civil Service Live conference in London in July 2010:

You need to know, instinctively, what will get a green light or a red light from me. If you want to make our public services more transparent, open them up to make them more diverse, to give people more power and control, you can be confident it will get the green light. But if you want to set targets, set new controls, impose new rules, don't bother because you're likely to get the red light.

‘Bureaucratic accountability', introduced by Labour through targets and top-down management, had to be replaced with 'democratic accountability', he added.

"From now on governments will have to fix the budget to fit the figures, instead of fixing the figures to fit the budget." declared George Osborne, the chancellor, after the creation of the Office for Budget Responsibility in June 2010.

We shall soon enough see if this amounts to anything other than just more government spin.

For it is far easier to spot what clearly has not worked than to determine what what will.

The vital ingredient - so often overlooked or underplayed in financial regulation, environmental risk reduction and Public Sector management - is the absolute necessity of making it safe to talk.

Managing the unexpected

However, Karl Weick and Kathleen Sutcliffe’s important book Managing the Unexpected: Assuring High Performance in an Age of Complexity (2001) does explore those characteristics common to organizations in which candor is valued.

They studied highly reliable organizations, such as nuclear aircraft carriers and hospital emergency departments, that do risky work but remain relatively free of accidents. Their research showed that the success of such organizations depends on a culture of collective mindfulness. They observed that such organizations have five priorities.

1. They are preoccupied with the possibility of failure and so encourage error reporting, analyze near misses and resist complacency. 
   
   
2. They seek a complete and nuanced picture of any difficult situation.
   
   
3. They are attentive to operations at the front line, so that they can notice anomalies early while they are still tractable and can be isolated.
          
4. They develop capabilities to detect, contain and bounce back from errors, creating a commitment to resilience.
          
5. Finally, they push decision-making authority to people with the most expertise, regardless of rank.

In such high-reliability organizations (HROs), constant loops of conversation and verification take place over many channels.

Continuous talk sets up expectations. These expectations enable people to spot failures, hear the unexpected, maintain the big picture of operations involving several simultaneous conversations, see what needs attention, and infer who needs to make the relevant decisions.

What is unique about carriers and other HROs is that they do these things mindfully in the belief that safety is not bankable. HROs are clear that you can’t fix the safety problem, store up safety, and then move on to something else.

The business implications

Thus people in business and the community are realizing that the traditional style of management, “top down and from the centre”, that served generations so well, does not work in our world today.

Companies are discovering that:

• They compete less and less as standalone enterprises, but increasingly succeed or fail as part of a supply chain that competes with other supply chains.
  
  
• These supply chains are no longer dyadic (that is, made up of single links like a chain) but have morphed into webs with multiple suppliers and multiple customers at each interface.
         
• These webs are increasingly demand-driven rather than supply-driven as buyers gain access to far more information via the internet.
         
• The whole constellation of these complex relationships is in flux, forming and reforming faster and faster.

As a result, large enterprises (like BP) are finding it far more useful to see their businesses as portfolios of strategic alliances than portfolios of business units. Furthermore, they are beginning to recognise that they cannot be the major player in every relationship. In partnerships this complex, each party cannot get its way simply by command and control. Therefore, the question becomes how you control when most of what you seek to influence is beyond your control.

The alternative to management top-down and from the centre, is management bottom up and at the edges (which I call interfaces).

In essence, we are finding that organizations in business and community are behaving less and less like machines (that is, susceptible to mechanical controls that work like the governor of an engine – set targets, monitor performance, identify variances, take remedial action). Instead, they behave more and more like complex adaptive systems that are able to learn in their parts and as a whole. Thus they are able to circumvent all efforts to coerce them.

We need to learn how to seduce not coerce. Consequently, today’s most enlightened CEOs, like Cisco’s John Chambers, define their job as  “coordinate and cultivate” rather than “command and control”.

  

Who needs a Yala?

If you are a manager facing the bewildering array of complex relationships, in many of which your organization may only play a minor part, what should you do differently Monday morning?

Here is where the Yala comes in. The Yala is not a process, philosophy, or mindset. The Yala is a web-based tool. It provides a systematic approach to improving the performance of complex relationships. This begins by understanding the key places where people from different organizations need to work together to get things done; continues by clarifying “the results we need here”; then raises the issues that demand attention; and, finally, invites a broad range of candid views (not mere conformance to some “party line”).

The Yala is not yet another social network. It assumes self-organisation will take place. Instead, the Yala is a tool to make complex collaborations (that is to say, work across multiple organisational boundaries) easier and more enjoyable. Some parts of the solution are obvious and widely available: for example, frequent interaction, mindful risk assessment,  and communication over the internet. But these are not sufficient. To significantly improve the chances of successful cooperation, the Yala supplies the discipline and architecture to create an environment in which it is safe for participants to talk.

The Yala's uniqueness lies not only in what it does, but also in what it doesn't do:

• Focuses on the message... not the messenger.
  
  
• Encourages dissimilar ideas... does not prescribe.
         
• Displays patterns... does not score, average or rank.
  
  
• Stays in the moment... stores no history, projects no trends.
         
• Controls who knows... allows no casual observers

Thus the Yala helps those in the trenches understand the bigger picture – a sure-fire way to improve performance – and helps those higher up to understand what is going on in the trenches. Aiding people at all levels to recognize emerging patterns of thought enables the whole system to react sooner to the unexpected, respond more intelligently and recover more completely.

 

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