Tick the Box Culture

February 1, 2012 § Leave a comment

taking

We all love a good sat-nav disaster story. You know the ones — where some dozy bloke ignores the warning signs and drives into a lake because the TomTom lady told him to. What a dope. What happened to his common sense? We’d never do anything so daft, we say to ourselves.

Except we do. That is to say, many intelligent people in important jobs slavishly follow the procedures and, ignoring all the warning signs, end up doing really dumb things.

Just look at the really dumb things many of the world’s biggest banks did in the run-up to the financial crisis. Most had highly sophisticated risk management systems that told them everything was fine despite obvious warnings that they were heading for disaster. So they just kept going until they drove into the lake.

According to Sir Mervyn King, the Governor of the Bank of England, some of the regulators were just as bad. They followed the detailed procedures but ignored the alarm bells of mounting debt. They left their judgment at home.

There is nothing new about criticism of a “box-ticking” culture, which has probably been going on for as long as there have been boxes to tick. Some Tory MPs argue that the problem increased under the Labour governments, which were very focused on process, targets and regulation. This seems a bit unfair, given that the trend has been visible in other walks of life.

Whatever the truth, there certainly seems to be a new resolve to do something about it.

The commitment to end the culture of “tick-box” regulation was enshrined in the coalition agreement and the Prime Minister has slammed the way in which health and safety legislation has undermined personal responsibility. Everyone thinks that as long as the boxes have been ticked, they will be safe or they won’t be blamed and if anything goes wrong compensation can be claimed.

Peter Fahy, the Chief Constable of Greater Manchester Police, has warned that the tick-box culture had spread throughout the public service. Calling for a return to commonsense policing, he said there was a generation of police officers who were too frightened to use their own professional judgment.

Most recently, David Cameron has blamed box-ticking in local authorities for the fall in the number of adoptions in Britain.

It is much easier to make a commitment to change this culture than to achieve it, but Sir Gus O’Donnell, the outgoing head of the Civil Service, believes real progress is being made. He reports that the Government’s red tape challenge, designed to scrap unnecessary regulations, has been embraced enthusiastically by Whitehall.

But to be really successful this needs a big change in the way civil servants view risk and failure, he says. They must be prepared to take more risks and have a “grown-up approach” to failure. “We should celebrate success and learn from failure.”

Part of the problem, he believes, is a media environment in which “failure is punished much harder than success is celebrated”. There is something to this, though it is rare for civil servants to be held personally responsible for huge failures — the disastrous NHS computerisation fiasco springs to mind — particularly if they can show that they ticked all the right boxes.

Sir Gus argues that the environment is more punishing for ministers and civil servants who take risks and fail than it is in the private sector. But there is a worrying drift towards process-driven box-ticking in business, too.

It seems to be one reason that executive pay has got so out of control in Britain. In the 1990s, company boards and big City shareholders came under fire for bumper payments to executives that did not appear to be justified by performance. They reacted by calling in consultants, who designed highly complex compensation schemes that calculated bonuses according to how top executives performed against myriad targets.

Critics say that this appealed to boards and shareholders partly because they could distance themselves from individual awards by pointing to the rigorous process that determined them. Executives were able to game the system and pay continued to soar. But boards and shareholders could shrug off outrageous awards, saying “there was nothing we could do. He hit all the targets”.

What is needed is for boards to take back responsibility for executive pay and to exercise more judgment about executive performance rather than leaving it to a mechanical formula. Of course, this will be much more uncomfortable for boards and could open them up to legal challenges.

It would be ridiculous to suggest that we can do without rules or to deny the gains from the introduction of a more rigorous and quantitative approach to management in the public and private sectors. But this must not be allowed to squeeze out judgment and personal responsibility.

Sir Mervyn, who will soon become responsible for financial regulation, says it is essential that there should be detailed rules governing the way financial institutions conduct business and treat their customers. But when it comes to the safety of the financial system, regulators should be able to exercise their judgment. They should be able to tell a bank that it is taking too many risks even if it hasn’t broken any specific rules.

This alarms many City firms, which critics say have adopted the highly bureaucratic and legalistic approach to business that dominates Wall Street. “How can you run a business if you don’t know what will be allowed and what won’t?” asks one City lawyer.

The trade-off between rules and judgment is particularly tricky in financial regulation. Northern Rock would not have got itself into so much trouble had there been the sort of limits on low-deposit mortgages seen in other countries. But the Financial Services Authority has been persuaded not to introduce such rules and to continue to rely on the good judgment of lenders.

Whether this proves the correct approach to risk remains to be seen. But it is surely right that, even in financial regulation, we need to fight against the dangers of box-ticking while recognising that it will lead to some mistakes.

Stifling freedom of thought and individual responsibility will cost us dear. If everything comes down to ticking boxes, the Chinese will beat us every time.

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