Identity Verified Thinker in Business / Human Resources / Employee Relations
Mark Herbert
Mark Herbert
Mark is a Principal in the management consulting firm, New Paradigms LLC. His background includes over thirty years of combined C level executive and management consulting experience in high technology, financial services, custom publishing, and not for profits among other industries.

The High Cost of Compliance

Mar. 19, 2012 12:58 pm

Almost anybody that knows me or has had to sit through one of my presentations or read any of my books, blogs, or other ramblings knows that I am not a big fan of compliance for the sake of compliance.

I much prefer the atmosphere and environment created by engagement, the alignment created when people and organizations share a set of ideas and values and work towards common goals that are clearly articulated and shared. After thirty plus years of talking about it, it is great to see objective, factual evidence that validates what I believed intuitively- people embracing something they believe in voluntarily yields significantly superior results for the organization- period.

When I see fellow Human resource leaders and practitioners describe compliance with various governmental regulations as the key contribution that human resources organizations can provide to their sponsoring organization it almost causes me to scream.

I am a huge proponent of the concept of personal competency, the idea that each of us has both the right and responsibility to optimize ourselves. I am also a believer in respect and personal boundary management; that optimization needs to occur in a way that doesn't intrude on the rights of others.

With the advent of the Industrial Revolution and introduction of the concepts of scientific management, we began moving away from the basic tenets of personal competency and responsibility. We didn't do it to empower people; we did it to control them and to reduce costs. The central tenet of scientific management is that management manages and workers do. The theory of white versus blue collar management was born. It also gave birth to the idea of the disposable workforce.

That model has been firmly embedded in our American system for close to 100 years. I think very few people realize that the right to collectively bargain or unionize was not recognized until the late 1930’s and even then the system was crafted in such a way as to reinforce the belief of conflicting values and goals and an adversarial relationship between employer and employed.

Even today, collective bargaining; also known as unionization is demonized. While I agree that there are dimensions of the process that have been abused the reality is that for generations the working person was exploited. Many of the laws around health, safety, working conditions, etc. would not exist in the absence of collective bargaining. I believe firmly that in most cases companies that find themselves as the target of a unionization campaign will find their treatment of their employees, real or perceived to be a root cause.

When you optimize the interests of one stakeholder group shareholder/owners to the detriment of others like employees, community, or customers you create friction. Duh, this shouldn't be rocket science.

Compliance was introduced with the idea of dumbing down the skills and the expense associated with performing tasks. If you could take a complex process and break it down into simplified sub tasks the rent on the skills required is much lower. That is how we got the concept of white collar management- we will think, workers just do.

In return for being compliant we offered things like lifetime employment, pensions, etc. We also created the public school system with the goal of providing a supply of workers who were trained that compliance is the natural order.

Sorry to be a buzz kill if you were under the illusion that schools were created to upgrade the quality of life of average people.

In the sixties when the Japanese and Germans adopted more advanced management concepts that empowered workers and began making superior products available at lower prices our initial response was three fold:

  • Scream for trade restrictions and production quotas
  • Begin outsourcing to other economies where we didn’t have to comply with those pesky regulations
  • Begin reducing or eliminating the things we had traditionally exchanged for compliance like pensions, health care, etc.

Interesting how we never really examined root causes isn’t it?

Today I had the opportunity to read a blog post by Alessandro Di Fiore from the Harvard Business Review Blog Network that speaks to one of the other detriments to our compliance approach.

In his post he talks about the idea that creativity and entrepreneurialism, much like leadership, are believed to be inherited or genetic attributes. He goes on to indicate why that is wrong. A study showed that in identical twins although 80% of intellectual capacity (IQ) could be attributed to genetic predisposition only 30% of creativity is genetically disposed.

To put it simply, the tendency towards genius is likely genetically predisposed, but 70% of creativity is a function of environment, aptitude, and hard work! He further points out that much of our education and business models (which are compliance based) retrain people from utilizing this capacity. We teach them managers/executives/geniuses think, the rest of us should just do!

If you extrapolate that idea you could draw the conclusion that our current models are yielding an opportunity cost of 70% of our creative capacity.

Maybe I am taking the point too far, but when I look at a few things that I am aware of, including:

  • Highly engaged organizations outperform their competitors by as much as 100% on key performance metrics
  • Individual employees who self- identify as highly engaged contribute per capita productivity at 30 to 40% higher levels than their moderately engaged or unengaged colleagues
  • The Department of Labor indicates employee turnover costs the U.S. economy $5 trillion per year in direct and indirect costs
  • Presenteeism, the phenomenon where employees show up , but contribute at less than optimal levels costs another $200 billion per annum

I say, hmmm, maybe there is some truth to this concept.

  • Engagement on the part of U.S. workers, along with trust in leadership in every sector is at all- time lows.
  • Health care spending is out of control and a huge contributing factor is personal behavior/lifestyle management is barely being acknowledged.
  • Employers are whining that they can’t find suitable talent even given the high unemployment rate.
  • Most organizations still look at employees/talent as a transactional or disposable resource rather than a strategic investment.

There are those who believe that removing restrictions are the right solution. I wonder. The stock market is back at all-time highs. C level compensation increased at a rate of over 20% per annum the last two years, whereas average employee compensation increased less than 2%. It would appear the shareholders and the elite seem to be doing fine. It is the rest of the economy that is struggling.

My experience is that societal issues tend to be systemic rather than isolated. If you have people who are concerned about economic security it affects their ability to focus on higher order issues.

If we have a large segment of the population who are unemployed, underemployed, and don’t have access to basic social infrastructure it bleeds into other dimensions of the economy.

I want to be clear that I am not advocating for more governmental regulation or intervention. I don’t think government is well equipped to solve these issues. I do believe that we need to look at these issues systemically rather than serially or in a vacuum.

It appears to me that our current compliance models coupled with our disposable employee thinking is costing our economy trillions of dollars annually that could be redeployed to do some pretty amazing things.

Compliance isn't a good foundation for problem solving. It is apparent that the old models don’t work. We have numerous examples demonstrating a clear linkage between engagement, productivity, profitability, and even employee health. It isn't soft science anymore; the data is widely available and pretty conclusive.

Perhaps to paraphrase Di Fiore we need to stop waiting for geniuses to surface with a brand new model and get to work doing the work.

We don’t need new people; we need leaders who are willing to do things differently and begin to capitalize on that 70% of the creative capacity we are squandering……Are you one of those leaders?

Dave S Morse
March 20, 2012 at 4:04 am
Kudos Mark!

Spot on with this as always, Mark! Personal competency that is allowed to flourish in an environment of creativity, collaboration, and hard work would drive individual, sectional, and organizational performance to unprecedented heights and would reinvigorate the esprit de corps which was once America. Thank you for all that you do to this end, Mark.

I've Re-Tweeted and "Re-Facebooked" your blog. Have a blessed day!

Best regards,

Dave Morse

Thinker's Post
Mark Herbert
March 20, 2012 at 12:11 pm

Thank you David for the comment and support! I have always been concerned about the compliance mentality, but DiFiore's comments present it in a whole new light.


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