Inactionable

Today in our Leadership and Corporate Accountability class we studied the fallout after Enron’s collapse in the early ‘naughts’.  Among the most explicit changes was the passing of the Sarbanes-Oxley legislation.  In looking at it, our classmate Emily could not have summed up my thoughts any better, “This is all common sense!”  In response to a fallout, Congress of course felt the need to legislate basic ethics and put in rules as silly as “It’s illegal to shred important papers during a federal investigation.”  What does this say about our society that this is necessary?  It brings to light the fact that we are a rule-based, not a principle-based society.  I maintain that the impact of this is that we open ourselves up to the tyranny of incrementalism and are vulnerable to creating a society that we don’t want to live in.

Looking merely at the side of law relating to business, our legal system is one of the most active in the world.  We legislate and litigate everything.  The law is prescriptive and concrete (or is made concrete by rulings) and then people and companies do their best to find ways around it.  This causes there to be an uproar for more laws (or litigation) as one group or another (customers, shareholders, employees, etc.) feels wronged and slowly but surely, every action is either classified as illegal or else unclassified and thus presumed legal.  This is in stark contrast to a principle-based landscape where an initial principle is laid down and folk are expected to follow it in good faith.  The benefit of our system is that there is (usually) clear guidance from the government about how they expect you to act.  Further, the government provides a level of regulation that, in theory, protects all parties from any societally-deemed wrongdoing.  The costs of it are the added bureaucracy needed for compliance (not insignificant), the bloated legal and auditing industries, and worst of all, the fact that trust is placed in the gov’t and enforcement bodies rather than in other members of society.  Parties become dependent on the law (not personal relationships) in order to trust others.  Is this a society that we want to live in?  One where rules are constantly prescriptive as to our behavior all to mitigate (or shift) risks?

This type of society has one other tenet that scares me immensely.  Namely, the fact that laws, once enacted, and a culture without trust in each other, once formed, are extremely difficult to undo.  Once a law is on the book, it stays because any attempt at repealing it would shift risk from the gov’t to individual actors (Analogy: Imagine a law outlawing swim pools got past.  It would be EXTREMELY difficult politically to ever roll it back because if anyone EVER got hurt in a swimming pool after that, it would be political death for whoever rolled it back.).  So we continue along the line of more and more regulation and eventually we create a society where it’s members refuse to take risk (any wrong can just be sued for), no one trusts each other, and the costs of complying with regulation becomes our main use of time*.  Does that sound like where you want to be?

*- My buddy who was in London after Sarbanes-Oxley was passed told me the nickname that they used in the UK for the legislation.  They called it “Guaranteed Employment for Accountants”.  Great.  Let’s throw money down the drain with more and more auditors.