Papering over the Cracks: The Dangers of Regulation


An increasingly common reaction to problematic situations, whether economic, social, environmental or other, is to bring in the regulators to put in place restrictions and boundaries. While this might be the right approach in many instances, there is a risk that this becomes an easy way out rather than dealing with the root causes of the problem.

There are certain dangers that come with regulation. A ‘parent:child’ mentality can developed whereby the regulated entity starts to show childish characteristics that previously were not so prevalent. These can include the rejection of responsibility, petulance, or the development of a blame culture. Any concept of self-regulation, whereby the organisation puts in place its own checks, balances and positive regulating behaviours such as challenging questioning, may be replaced by simply following the regulations to the letter of the law.

Regulation can initiate a tick box mentality whereby organisations simply do just enough to comply without actually grasping the ethos with which it was made. The brightest minds of a firm or organisation can become embroiled in the challenge of how to comply with or even circumvent the regulation, rather than using their brain power for other more positive activities.

Any business person knows that the majority of management happens in the corridor or around the coffee machine. Working practices are established over a number of years and need reinforcement through structure, process and policies such as reward and recognition. Organisational culture again is developed over time, reflecting the characteristics of the leadership team and behaviours that are emphasised as valuable and important. When something goes badly wrong within an organisation it can often be attributed, at least in part, to the breakdown of the corporate culture. Is increased regulation a truly effective way of dealing with this? Should we also be considering more educational and developmental routes such as the establishment and recognition of positive behaviours, developing the ability to self regulate and taking personal, individual responsibility for ones actions?

There is a risk that the bright minds within the professional services and big business are spending too much time focussed on short term thinking – lobbying regulators, working out how to benefit from regulation or to circumvent it – rather than on longer term, strategic thinking about the future of their organisation and their industry. In general regulation tends to deal with the symptoms rather than the cause, focussing on managing the risk of an incident occurring again. However, what can be missed is the generation of an agreed understanding of why the incident or issue occurred in the first place. The causal issues are not clearly identified and agreed and therefore the regulators and in turn the regulation can loose sight of the problem that they are trying to solve.

Is the increased focus on regulation distracting our best brains, not only nationally, but globally, from focussing on some of the really big global issues that we need to face up to, such as the ageing global population or the environmental crisis that we are heading towards? It is difficult to break this cycle of short term thinking and the feeling that comes with it of lurching from one crisis to the next. However, imagine what could happen if even some of the individuals that are focussed on regulation could instead come together to focus their combined brain power on these global issues? That could have truly exciting results.