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When is too little regulation just too little regulation?

August 11, 2009

A Continental baby-jet sits on the tarmac in a remote airport for 9 hours, without working toilets, food or water.  Penalty – only “oops, sorry about that and here’s a voucher for a free flight so we can strand you again”.

Goldman Sachs bankers will get huge bonuses again even though the US Gov’t bailed out both their firm and AIG, who then had to pass $13B back to Goldman.  Deduct the $13B from Goldman’s profit of $3.44B and there isn’t much room for a bonus payment.  Penalty for selfish and ‘Hollywood’ accounting– none.

Banks have developed brand new and not completely understood highly complex derivative based products, saleable at high fees.  Here we go again.

A few months ago we posted an entry decrying the lack of individual penalties and disciplinary actions at the personal level on Wall Street saying that until we discipline individuals, just like we do our children, don’t expect any decent behavior.  Do you think the pilot who allowed passengers to stay on a plane for 9 hours (and in another case 13 hours) in terrible conditions is being penalized for bad judgment?  Or their Dispatch Center supervisor who didn’t bother to resolve this issue mainly because their toilets and water cooler were still functioning?  Do you think the subcontracting company for Continental is being punished?  Bottom line – in life, discipline comes in various forms.  As a child, it’s your parents and school officials, as adults it’s Society’s norms and the Legal system and in business, it’s Regulation.

Every time there’s talk about a Passenger’s Bill of Rights, the airlines say it will encourage delayed and cancelled flights.  This is pure malarkey.  Do you think an airline wants a multi-million dollar piece of equipment stranded in Rochester, MN?  Do you think they want to deadhead it to the right airport to be deployed per their indicate schedule?  Ronald Regan did the right thing –when the Air Traffic Controllers went on strike, he fired them.  See ya!  If the airlines threaten in effect to go on strike, we can allow in-country landing rights between cities for foreign carriers. At some point, we have to regulate for Society’s benefit.  This idea of no regulation and the magic market will fix all is not some ideal, it’s selfishness justified as ideology.  Do you really think the great Alan Greenspan actually thought the ‘market’ would force banks to protect their shareholders?  Why should they, as long as they as individuals were not penalized and actually rewarded? So what if the bank where I currently work goes belly up, like I couldn’t find a job at another – I’m a producer?!

We all know the drill.  I’m supposed to insert right here the sage insight that there shouldn’t be too much regulation, that it will turn all of us into Commies and Collectivists, and so I’ll spare you.  But I will add another antidote.  In the 60’s GM made Ralph Nader famous by fighting him and his book as hard as hell, resisting vehicle safety regulations.  Nader used the Corvair as his focal point, and despite GM’s public pronouncements, they didn’t change anything until it became personal.  At the time, the Corvair was what GM execs bought their own kids when they went off to college and the accident rate was unacceptable.  So in public they fought hard, but having been with their own kid in the ER is rough but effective personal discipline.

The sage advice on regulation I will give sounds radical but really isn’t.  In each piece of regulation have company penalties affecting shareholders and move some penalties down to the actual contributor/employee level and let the bottom-up pressure stop the excesses of group selfishness.  Your boss can tell you to do something wrong, but until it affects you personally, there’s little reason to not comply, and simply saying “this is wrong” does not undo the damage caused.  Once penalties reach all participants, the actual amount of detailed regulation can be reduced because everyone’s natural self-protection circuit will be on full alert, averting most bad behaviors. As for this inciting anarchy in the workplace, forget it.  Eisenhower, seeing the atrocities carried out by individual German soldiers during WWII, formulated the rule allowing a soldier to resist an order if they believed it to be illegal.  Look, I’m not an idiot and I know the average soldier needs/wants to please and obey their officers, but they can still say no to the most obvious and egregious order. This also stops an officer from ordering something stupid and it becomes self-correcting, which is the best form of regulation. It also means we don’t have to delineate every possible situation, allowing interpretations and loopholes then needing closure by even more regulation.  Regulate at the personal level and the total amount of regulation can be reduced.

One concluding tidbit.  A person I know, we’ll call him ‘R’, was a top, top, top derivatives salesman for a now defunct major firm.  Great salesman by day, he was a coke, booze and strippers fiend at night, along with some of his co-workers and even customers.  His wife and kids, despite living in an awesome house in Northern NJ, had enough and told him to dry out or they were gone.  Being basically a decent type, he started to go straight when his fellow employees intervened, complaining now that he was stone cold sober, he was loosing his edge.  I urged ‘R’ to stay the course but peer pressure and pleasure being strong motivators, R lost his family and was eventually promoted. Was there an HR policy about drug use?  No doubt, but again, only regulations are consistently heeded, rules are evoked at whim in the real world.

In this time of potential health coverage reform, we’re going to duke it out about too much vs. too little regulation. Let’s remember those passengers on the tarmac in Rochester – no regulation at all, no toilets.

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations and key initiatives. He can be reached at rich.eichen@growroe.com

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One Comment
  1. Wow what a great article. Is NO BODY watching??? Nope. They’re not…too vegged out on day time TV in their lounger waiting for the next scoop on American Idol.

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