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Distorted Behaviors

May 20, 2009

A prosecution has begun in the UK as a result of a wife murdered by her husband. The husband was found guilty some time ago, with the facts uncontested. This prosecution is by the wife’s family and is alleging negligence by the Crown Prosecution Service and the local police because of their failure to prevent the death.

The story is sad and the facts certainly suggest a failure of judgment and a failure to act by the relevant authorities. But the thing that interests me is the reaction of the local police chief to the threat of being sued. He suggested that such cases are against the public interest because they create a defensive and secretive culture and, as a result, mistakes are not acknowledged and improvements will not be made.

In other words, our reaction to the allocation of blame and the threat of penalties is to deny responsibility and sweep the facts under the rug.

Although on one level the family understandably want their issues addressed, I also sympathize with the perspective of the police chief (even though his attitude may lead some to question the entire purpose of policing and the courts). Evidence from the United States shows exactly what can happen when trial lawyers get their hands on similar issues. The stories that Ed Dauer tells us regarding the health sector and bloodbanks are a case in point. A culture of blame and retribution creates a response of secrecy and hidden information; the result is often that improvements do not occur and performance problems persist.

Another example of the weakness of control and compliance cultures is of course in the area of financial services. As I commented several months ago, it is interesting that the industry that collapsed is arguably the one with the greatest global regulation. Philip Booth of the Institute of Economic Affairs made this observation in The Sunday Times on May 18th. “Regulation and government intervention distorted behaviour,” he asserts. “Market participants cannot be perfected by regulators. They therefore must not be cosseted by regulation ….. but face the financial consequences of their own actions”.

Similar distortions of behavior result from many of today’s contract practices, as regularly revealed and discussed in IACCM’s studies of the Top Ten Negotiated Terms. Terms and conditions drive specific focus – for example, through performance indicators or service levels. They also generate open or hidden actions and information flows, based on the way that reviews are conducted or risks allocated. Companies that impose unbalanced risk terms may think they have won the negotiation and somehow protected themselves. But in truth they have simply encouraged self-protection and an environment where everyone seeks to avoid blame. So rather than discuss and address performance issues, they are instead hidden from view and turned into continuing areas of dispute.

2 Comments
  1. Tom permalink

    I followed along for the first four paragraphs. In fact, I like where paragraph five was taking me in terms of regulation and free markets. But I’m not sure that the last paragraph really had anything to do with the previous ones. I think the link is questionable or, at least, now drawn well.

    • Tom, thanks for your comment and apologies if the connections were not clear. I guess the overall point is that we often assume that risks can best be managed by the application of rules and controls which then result in punishment if they are broken. However, there is plenty of evidence that in fact they cause distorted behaviors and frequently also cause secrecy, self-protection and ‘cover-ups’. This applies in may areas – at a social level, a corporate governance level and an individual contract level.

      In reality, if we want improvements, if we want people to admit mistakes and work to reduce their frequency, we must also build systems and incorporate positive incentives to openness and a readiness to admit fault.

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