Does Law inform or enforce culture?
If ‘the Law’ is the codification of cultural norms and practices, does the Law then not inform culture?
Policy, social malice and engineering of social outcomes bend these laws into legislative blunt instruments designed to enforce cultural behavioural changes on a grand scale, trouncing the common law of good judgment, neighbourly relations and common sense and thus freedom in their wake?
Within the above question and assertion lies the ‘malice of the free market’; where misguided and misinformed regulation channels behaviour and economic interactions in directions and with outcomes not anticipated or foreseen. Thus unleashing the ‘law of unintended consequences’.
Take as an example the economic condition referred to as Moral Hazard.
A definition is:
Moral Hazard occurs when a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk.
Moral Hazard therefore flies in the face of the principles of personal responsibility and thus accountability for our actions to a wider stakeholder community.
Is Moral Hazard perhaps promoted and therefore amplified by the fact that business leaders are not more formally educated in their fiduciary responsibilities?
Is this a function of weak or inefficient corporate governance structures and frameworks, or merely an oversight that is readily addressed by ‘occupational licensure’ or the professionalization of directors by only allowing formally qualified persons to serve on certain corporate boards?
Would this formalisation process of understanding fiduciary responsibility hinder the spirit of free enterprise and risk-taking or enhance the governance and risk aptitudes in a controlled and more channelled and focussed practice? Would it have as a positive consequence an amplifier effect for raising the corporate governance and Enterprise-wide Risk Management practices?
Related articles
- The Big Design: Moral Hazard, and the EU (themarketsoul.com)
- Individually smart, collectively dumb! (business2buddha.wordpress.com)
- How Moral Hazard Learned to Stop Worrying and Hate Santorum (esquire.com)
- A Question is Bothering Me… (fsaraceno.wordpress.com)
The Sustainability Gene
The CBI published a report entitled “The shape of business – the next ten years” in late 2009.
The authors identified 5 key drivers affecting the business environment, namely:
1. Changing finance and capital conditions,
2. The decline of trust in business and markets,
3. A less benign macroeconomic environment,
4. Social and demographic change where the recession will have a major influence,
5. Sustainability and resource issue.
We pick up our cue from the fifth driver being Sustainability for today’s post.
Our comment serves more as an aide-mémoire to return to in more detail in future articles. This post also does not serve as a commentary on the CBI’s report, but rather as a general opinion on the nature of sustainability and human a nature and is therefore pure conjecture.
We believe that sustainability as understood to mean the impact we have on the planet and the resources we consume, is not a natural human phenomenon, in the face of self-interest (as per the economic definition of the term) and competition for scarce resources.
In other words sustainability flies in the face of human kind‘s natural tendencies to compete for resources, either by war and confiscation, or by trade and exchange for those scarce resources.
We therefore contend that as human actors interacting with and through the free market mechanism, we do not naturally possess a ‘sustainability gene’, but instead have to develop a new model and framework for ensuring that this objective is effectively pursued and becomes part of the underlying psyche of being in business and discharging our fiduciary responsibilities.
Linking to our previous post ‘The Markets do not need certainty’, we contend that it is structure that helps shape markets and creates the conditions conducive to the effective operation of those markets. Other factors will ultimately affect the efficiency of the markets and some of these factors include Innovation and such like.
In conclusion, let us wrap up with a few quotes on sustainability:
- You can never have an impact on society if you have not changed yourself. Nelson Mandela
- The very process of the restoring the land to health is the process through which we become attuned to Nature and, through Nature, with ourselves. Chris Maser
- We can learn whatever we need in nature because we are part of nature. Human beings are part of Creation. We live by the same laws as all of nature. Anne Wilson Schaef
And in the final quote above we possibly see a glimmer of hope for a possible answer to our ‘Sustainability Gene’ deficiency. Somehow Adam Smith’s ‘self interest’ and the modern free(ish) market system require an injection of nature law and justice.
Whatever that shall be.
Related articles
- Sustainability? Ask the CFO, says KPMG (nigelcameron.wordpress.com)
- What Is America’s “Worldview?” (papundits.wordpress.com)
- Growth Vs Protection! What is your Perception…? (consciousnesssintegration.com)
- Adam Smith’s Psychology (psychologytoday.com)
- Biodiversity is Important! (environmentechnology.wordpress.com)
- Will is Power… from the Selfish Gene to the Transcendence of the Human Being (claudiafeitosasantana.wordpress.com)
End to End or Integrated systems and thinking processes
Silos.
We hear this management buzz word quite often touted in office settings, and conferences in the media, etc.
We argue today that silos are cultural norms. They are national cultural models possibly endemic of certain national cultures. We certainly have no empirical evidence for this, so this is pure opinion and conjecture on the part of theMarketSoul contributors.
In our previous article titled Increased Friction Costs we briefly touched on the issue of processes being back to front in Britain. Processes are very much driven by the national ‘Carrot & Stick’ approach, rather than an enablement, ‘build and they will come’ approach where solutions are found and embedded then suitable and profitable markets are found for those solutions.
Now we can argue that in a very narrowly defined risk management culture and faced with the reality of reduced opportunity to obtain and procure financing to ‘build solutions on speculation’, we just cannot afford to change our exiting disastrous management and control processes.
But this is exactly where we have to stop the train as quickly as possible and change direction to ‘climb the hill ahead’ so that we can experience the potential and opportunity to ‘see the view from another mountain top vantage spot’…
We are in a tight spot. That is a fact. However, we are being held to ransom at the moment by a ‘political’ system and governing party trying to string out the last days of their tenure in power. [This article was initially written before the General Election in Britain].
There is hope, there is a sliver of light and opportunity on the horizon. However, we will need to learn to deal with some pain, as we readjust the ‘crowding out’ of growth by the public sector and debt burden. However, we need to recognise that we will have to apply a bit more ‘market discipline’ to finding, scoping, building and implementing solutions to our problems.
Small and localism are in fact parts of (but not the entire) solution, where small providers (entrepreneurs) are incentivised and tasked with coming together to experiment and create solutions, that hopefully mitigates the risk of large scale failure, but at the same time find scalable solutions that can rapidly be deployed to solve some of the challenges we currently face.
In IT deployment and development projects they call this kind of rapid, ‘low hanging fruits’ approach to development work Agile Development or AD for short. Maybe this together with the professional service chains and clustering we will touch on in subsequent articles is the way forward.
Related articles
- Comments on the COSO draft update of the internal controls framework (normanmarks.wordpress.com)
- Proactive Risk Management (paulevery.me)
- Integrate risk management with the rhythm of the business (normanmarks.wordpress.com)
- Bridging Departmental Divides: Workplace Design Offers a Smart Solution (forbes.com)
- What is the difference between cultural knowledge and cultural awareness? (nadiaabunuwar.wordpress.com)
The Markets do not need certainty
There has again been a short period of drift and volatility in ‘The Markets’ recently.
And yet again we have heard the old refrain:
“Markets hate uncertainty”.
This we assert is yet again a misused turn of phrase. It is not uncertainty that markets hate, because inherent within market processes and market operations is the principle of uncertainty. This is also known as - Information Asymmetry.
So, if it is not uncertainty that markets hate, then what is the missing ingredient that delivers these periods of volatility?
We believe what markets require above all else is:
Structure.
Yes, structure and clear operating parameters, in other words a framework within which to operate is the key.
Whether that structure and framework is delivered via regulatory mechanisms or liquidity or a political landscape that sets the parameters in terms of policy guidelines and fiscal and monetary controls, it does not matters.
Remove the nebulous shifting and drifting borders and put in place a framework that sets the framework and outline of the playing fields and markets respond positively to these signals.
Refrain from doing the work of ‘framework establishment processes’ and markets and their participants become ‘restless souls’ aimlessly drifting within the ‘nebulous fog’ of uncertainty, clearly waiting and anticipating the regularity that structure delivers to the ‘Market’
Related articles
- Frameworks, frameworks, frameworks… (themarketsoul.com)
- Market volatility rules as traders ponder (optionsanimal.com)
- Why Uncertainty Is Your Friend (juangreatleap.com)
- John Tropea: We have been badly in need of a framework that explains the certainty and uncertainty associated with outcomes (johntropea.tumblr.com)
The Value of the Synthesist (as opposed to the Analyst)
We had some very rewarding conversations recently with business partners and peers regarding the Value of Synthesis versus Analysis.
Synthesis we believe to be a ‘higher level’ skill and experience set than traditional analysis. Synthesis requires a natural ‘incubation period’. Very few people are natural ‘synthesists’. You grow and mature into a ‘natural Synthisist’.
Analysts can be taught. In fact a very lucrative business education industrial complex has been built on the back of ‘creating a production line of analysts’. We call them Business Schools churning out master’s level analysts with the three-letter MBA title behind their names.
Don’t get us wrong on this one. We are not criticising MBAs or the Business Schools that produce them. Far from it; because we believe that part of the ‘evolutionary process’ of ‘incubating a mature synthesist’ is having a deep and fundamental understanding of analysis and the factors that contribute to making a good analyst.
Two of the key words we used in the above paragraphs were:
- Incubate
- Mature
We pause to reflect on these two words, because they are part of a natural evolutionary cycle.
Synthesis is a development process. It doesn’t just occur overnight. The process takes many years, many forms, much frustration, heart-ache, high failure rates, desperation, etc. We hope you understand the philosophical underpinnings of the argument.
The drivers that help define and shape good synthesists are many fold, however, two of the more basic building blocks include:
- The Tyranny of the Status Quo
- The Language of the Artist
What do we mean by these two concepts?
The Tyranny of the Status Quo
Mediocrity, lack of risk taking and proper risk management, a ‘level playing field’, universal access, no economic ladder to climb and a social ideology that creates an amorphous mass of despair is what drives the tyranny of the status quo. It is the antithesis of Innovation and Creative Thought. It is the Socialist ideology that drags us all down to the lowest common denominator.
The Language of the Artists
We believe it was Peter Block who claimed in that business life has become ‘infected’ with the language of the Engineer and Scientist. We ‘Business Process Reengineer’ this and that; we ‘Reverse Engineer’ this or that process. We contain, seal and measures finite risks and processes, much like a scientist would work in a ‘Controlled Laboratory Environment’.
But what we really need is the language of the artist and philosopher. We require poetry, motion, flow and creativity in order to establish the correct environment for innovation to ‘spring forth’ naturally and spontaneously.
Even though you would think this to be a natural phenomenon, it is very difficult to achieve in the ‘controlled environment’ of Shareholder Value Creation, due to the narrow focus on hard facts and cool numbers, underpinned by the ‘negative risk management cycle’.
In an article we recently published in a boutique Risk Management Training and Consultancy’s Quarterly Risk Update, we referred to both the positive and negative risk management perspectives.
Negative risk management is “[the] approach in an organisation that is designed to prevent the downside consequences of a transaction, such as (1) mitigating a potential loss or (2) the cost of not complying with regulatory requirements”, whereas in positive risk management “the upside is managed in conjunction with a risk based approach to general management. This is the starting point of Enterprise Risk Management”.
Financial Controllers and CFOs have to ensure that shareholder value is continuously created and then as measured and reported within the framework of Internationally Accepted Financial Reporting Standards and the generally ‘rules based approach’ to compiling those Financial Reports.
This is not a simple task and should we ‘interfere’ here with the language of the artist and philosopher in this process, we are certainly dead set on the course that will lead to ‘confusion, value destruction and financial ruin’. But aren’t we there already?
Has the most recent ‘crisis of confidence’ in the financial system as practiced by the ‘Financial Engineers’ and ‘Quant-type’ mathematicians and scientists not just proved that the old paradigm does not create value, but is still subject to ‘deep-rooted and fundamental’ long-term business cycles?
And yet what do we do? We blame the ‘selfish and selfless’ market capitalists for the problem, rather than address the basic condition that drive the imbalance, namely the ‘imperfect market’ that we create with over burdensome regulation, control and ‘dare we mention the term again ‘financial and business process (re-)engineering’.
We continuously oscillate on the pendulum between the free and ‘planned or controlled’ market forces.
Until we recognise the fact that our policy interventions, ill conceived regulatory frameworks and processes and the financial reporting and ‘engineering’ standards help drive the market mechanism to points of ‘disequilibrium’ where the natural ‘clearing mechanism’ of matched supply and demand cannot function normally; then we will just have to accept the consequences of the natural ‘boom and bust’ economic cycles.
To have ever utter the immortal, nay, ‘notorious’ phrase “we have abolished boom and bust” was not just arrogant but utterly naive and demonstrated a lack of a basic understanding of market forces in the ‘planned and controlled’ market economy camp.
Therefore, to conclude this brief post on the Value of Synthesis, we challenge mature ‘incubated’ professionals to step up to the challenge of redefining the new economic landscape by utilising the language of the artist and philosopher and to practice just a little bit of ‘Loony Intelligence’ in the process.
For further information and more in-depth discussion on this subject, please contact us by clicking this link:
The “Harsh” Market
It is true. This is not a playground, kinder-garden experience…
As we don’t live a purely Command and Control or 100% Free Market environment we have to constantly adjust our actions and interactions with the market around us based on factors such as:
Geography
Jurisdiction and cultural norms
Experiences
Sophistication levels
Access points
Openness
Image via Wikipedia
There are many other factors to add to the list above, but we are referring to the behavioural aspects inherent in any market interaction.
One of the greatest challenges facing the political class in the UK at the moment is the Truth or Dare conundrum.
We are specifically referring to the urgent need to cut public sector spending, yet the painful reality that it is:
a) Very difficult and not politically expedient to admit the ‘Truth as seen by any politician’ (see the ‘Forces of Hell’reference uttered by Alistair Darling on trying to speak the truth
b) People cost money (and a lot of money)
c) Efficiency savings are akin to an admission of guilt and proof of mismanagement
Most public sector jobs are not subject to ‘market-forces’ at the best of times, therefore the automatic adjustment mechanism and signal that ‘price’ sends is not a factor in the equation.
What do we mean by this?
In a free market driven environment, price is the single most important signal and measure against which both suppliers and ‘demanders’ (consumers) measure value. In the absence of all other qualitative factors, price has a very important role to play in ‘clearing the mismatch between supply and demand.
So when we experience either a supply or demand shock, as the Credit Quake of 2008 – 2009 has proved; we need to face harsh realities and make serious behavioural changes.
We are still not able to face up to the difficult ‘adjustment phase’ that both ‘deleveraging’ and the new economic reality, post-election 2010 has in store for UK plc.
Many a household across the length and breadth of the UK (and beyond) has had to come to terms with the stark realities of the ‘market mechanism’ and adjusted their behaviours and ‘prices’ to move towards a new economic equilibrium, yet the public sector has not had to face this tough reality.
Maybe because the Public Sector in Britain now accounts for between 52.1% – 53.4% (depending on which economic Think Tank’s research you believe), the crowding out of the private sector and ‘loss of touch’ with the economic reality of market mechanisms has been softened.
However, irrespective of who governs Britain and runs UK plc after the ‘expected’ elections in May 2010, the winner will have to make a few very hard choices:
- How to reduce the dependency on and of the Public Sector and bring the percentage that the Public Sector ‘consumes’ of GDP to below 40%
- How to ‘financially engineer’ the public debt and bank guarantees the current administration dished out in 2008 – 2009 (Anywhere between £200 – £350 Billion)
- Run the country along more traditional market disciplines,
Therefore managing the country along market principles as opposed to a ‘socially engineered’ artificial egalitarian level playing field.
The ‘ladder’ exists for a reason in the true market environment, to help set aspiration and make the system work in order to ensure progress, growth (over the long-term) and advancement.
This all favours innovation as a driver for feeding the need for progress, growth and advancement.
In our next article we will continue our theme of Innovation, with part 6 of the series.
Let’s keep on ‘following the money’ on this occasion
Image via Wikipedia
Related articles
- Pension gap increases between private and public sector (moneyexpert.com)
- Bonuses in public sector under review – BBC News (bbc.co.uk)
- How spending cuts will impact house prices (confused.com)
- Achieving better results from public sector institutions (apperi.org)
