COMPLIANCE
The problem with safeguards
Gareth Stears, pensions technical consultant at Aries Insight, observes and comments on how they can be self-defeating
M y business is compliance, which is all to do with rules and regulations, which themselves are all essentially ‘safeguards’: measures taken to stop bad things happening. Compliance might not interest you, but safeguards should. Any process you undertake (from running a payroll to driving home at the end of the day) ought to have them. And safeguards can go wrong; spectacularly, disastrously wrong. When disaster occurs, our first instinct is the blame the person at the wheel. You probably remember the 2017 Academy Awards, when La La Land was given ‘Best Picture’ by mistake. At first, Warren Beatty was (jokingly) blamed. He was the announcer. Later, blame shifted to Brian Cullinan, from consultancy giant PwC. He’d handed Beatty the envelope containing the ‘Best Actress’ winner, Emma Stone, star of La La Land . Scapegoating is reassuring. If it’s a person’s fault, rather than a systematic problem, nothing needs to change. It’s a primal impulse. Cullinan had to hire security after the Daily Mail posted a photo of his home. The name comes from the ancient practice of a town confessing their sins to a goat, and then expelling it from the community. The problem is that another goat has to be expelled the next year, and the year after that. Blaming Cullinan feels like the end of the matter, but it wasn’t the whole story. Why did Cullinan even have an envelope for Best Actress, when Leonardo Di Caprio had walked out on stage with it just a few
moments before? Cullinan was holding a duplicate. When his colleague handed Leo that envelope, Cullinan forgot to throw his copy away. The duplicates were a safeguard against loss. But they also added the risk that a human being would forget to do something. PWC didn’t lose the contract, but Brian Cullinan couldn’t be involved anymore, and stricter protocols had to be installed. But are stricter protocols, with more safeguards, the answer? Consider the Fermi 1 nuclear plant, which suffered a partial meltdown in 1966. The cause was an object lodging itself in the reactor, preventing coolant from reaching a portion of the fuel and allowing it to melt. The object turned out to be a metal plate that had broken loose. The plates had been added, late in the design process, as an additional safety measure. Safeguards can have unintended consequences. The medicine’s side effects can be worse than the disease. This is a danger with regulations, too. Banning one practice can encourage worse behaviour, like landowners shooting rare animals so their land isn’t declared a protected habitat. Plus, complying with extra regulation comes with a cost. Time is spent getting to grips with it. Money is spent on legal advice. Resources that could be better used growing the business. This burden is given a name: compliance. There’s another side to the story. You only tend to hear about the downsides of regulation. When they go wrong it makes a great news story, but if a regulation works as intended there is no story to tell. If it works,
without side effects, it’s probably worth the time and money, but it doesn’t get the credit. There’s no credit, but where there’s a problem, there’s blame. First, there’s blaming the scapegoat. With broader, societal problems, you might hear blame laid at the door of ‘a few bad apples’. This is the same thing. It’s the people who need to be replaced, not the system. But those replacements might be equally forgetful, or naïve, or dishonest. Next year we’ll need another goat. Then there’s the authorities. They get criticised for not solving the problem, and will tend to regulate to put an end to the story. It is usually some time before we know if the remedy was effective, or if it led to different problems. It’s tempting to think this might eventually work. If you keep adding safeguards, making protocols stricter, then eventually every problem will be covered. The problem is new safeguards reorganise the system, sometimes in unexpected ways. If you’ve added lots of safeguards already, the system will become too complex, and consequences become more difficult to predict. You have to safeguard against the safeguards not working. What was PWC’s solution to the La La Land debacle? There will now be three envelopes for each award. Safeguards proliferate over time. This is famously true of rules and regulations, despite regular promises to address this; to ‘cut down on red tape’. This isn’t as easy as it sounds. In a complex system, the red tape you cut may have been preventing something unexpected. If the problem safeguarded against happens again, then you’re the scapegoat. So, there only tends to be one direction: more safeguards, more rules and regulations, more compliance. Even I don’t think that’s a good thing. n
...more safeguards, more rules and regulations, more compliance...
| Professional in Payroll, Pensions and Reward | October 2020 | Issue 64 32
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