The Perils of Bad Policy

For good or bad, it’s the policies we make that drive our actions.  Our policies reflect our goals and priorities.  They drive our behavior, our processes, and our procedures.

Our business procedures are dependent on policy and without good company policy, our procedures do not provide value.  Bad policy cannot be corrected by procedures, no matter how well the procedures are written.  Here’s an example of bad policy…

The Glass-Steagall Act (aka, the Banking Act of 1933 – USA) was enacted in response to the massive failure of commercial banks in the early thirties.  Commercial and investment banking, among others, were separated in an attempt to minimize risk.

This risk-averse policy appeared to work for the economy in general, though it didn’t work for large investors and institutions that wanted to “compete with overseas institutions that (were)n’t hamstrung by archaic laws”.  Totally ignoring the issue of increased risk, banking and investment moguls pushed for a law like Gramm-Leach-Bliley…and they got it.

They (Citibank, Bear Stearns, etc.) managed to undo Depression-era restrictions on consolidating and diversifying, and they grew dozens of times over.  That is, until their hubris caught up with them and the “Great Recession” exploded onto the economic scene.  Derivatives processes — they failed in part because they were overly complex; they also failed because of the economic policies that allowed them to exist.

So what’s old is new again.  Members of the U.S. House and Senate are pushing for reenactment of Glass-Steagall, believing — perhaps rightly — that we all paid the price for this ill-advised change in banking and investment policy and we have to correct it.  And, who of sound mind can blame them?

Another possible example of bad policy: There was a story just this week of H&M and Wal-Mart stores, located on the isle of Manhattan, not merely tossing out unsold clothing but destroying it, making sure it could never be used or sold.  In this economy — and in the middle of winter, no less — a reasonable person has to wonder why that clothing wasn’t given intact to any of dozens of charitable organizations.

Granted, the parent corporation in each case probably doesn’t have a policy of “if we can’t sell it, we’re destroying it”.  I also hope no store manager would be so stupid as to have a procedure, formal or otherwise, for destroying unsold merchandise.

However, one has to wonder, “Did one employee ‘go rogue’ on the company? Or were employees told to ’destroy this stuff and get rid of it’?”  Just because it’s not written doesn’t mean it’s not policy.  Or, maybe they’ve had a policy of not putting unsold clothing out where someone could sell it (and for nothing but profit) and somebody just took that policy and ran with it.

I know what some of you must be thinking: “Well, I don’t run my business like that.  Besides, we’re much smaller than they are, and we have everything under control.”

Consider this, though. You’re in business to make money, and naturally you want to grow your business.  What policies do you have that enable you to do that?

Now, consider that in this hyper-competitive business environment — made all the more cutthroat by the global recession — a company might find itself bending its policies.  Oh, maybe just a little, at first.  Then, maybe a little more.

How far would you be willing to bend?  Which of your policies might have bent already under the strain of the recession?  (Your policy on wages? Your quality policy?  Others?)  Are these policies likely to bend back when the economy improves?

You’ve heard my opinion.  Now let’s hear yours.

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By the way, here are some excellent articles on this topic:

• “The AIG Fiasco Keeps Getting Worse“, Fortune online, 7 Jan 2010
• “U.S. Senators Propose Reinstating Glass-Steagall Act“, Bloomberg online, 16 Dec 2009
• “The Curse of Policy-Based Evidence“, Science & Development Network, 13 Aug 2009

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Originally published in 2010 by Bizmanualz, Inc. under the title The Perils of Bad Policy. All rights reserved. Reproduction permitted with attribution only. www.bizmanualz.com