More carrot, less stick

I had Radio 4 on in the background yesterday and heard a swathe of listeners’ texts and emails calling for tougher regulation of the banking sector – this following bank chiefs’ profuse apologies in front of a parliamentary committee.

Such reactions are, of course, entirely predictable. But, as the panacea for avoiding future crises, they’re also completely misguided.

The idea that tougher and/or more effective regulation can prevent the kind of behaviour that led to the collapse of the banks is predicated on some massive assumptions – not least that an authority exists (or could be created) that is even capable of policing global financial institutions. Penalties only carry a threat if there’s a realistic chance of being caught.

Even if it were practically possible, you also have to question whether it’s desirable to have this as the central plank of any strategy to encourage more responsible and sustainable behaviours.

Put too much emphasis on regulation and you risk creating a scenario where people can effectively devolve responsibility for their actions – in essence, it becomes the regulator’s responsibility to root out any wrongdoing; anything that escapes their scrutiny must, by definition, be OK.

In any event, as I have argued repeatedly on this blog, compliance with regulations represents the bottom rung of the ladder where CR and sustainability is concerned. The major gains for business, society and the environment come when companies raise their aspirations, using sustainability as a lens through which to challenge the existing business model and identify opportunities for innovation (a la Interface).

In that light, surely it makes more sense to use a lot more carrot and a lot less stick? The onus should be on rewarding good behaviour, rather than penalising the bad. That’s the only way to achieve the necessary change in mindset and embed sustainability in company culture.

The thorny issue of bankers’ bonuses is a case in point. I don’t believe for a second that curbing bonuses will lead to a mass exodus of talent (there’s more than a whiff of the prisoner’s dilemma to that argument).

Nevertheless, I suspect the secret to avoiding future crises lies less in punative measures – e.g. reducing their size – than it does in changing the criteria by which performance is measured and rewarded.

What we have here is a case of WYMIWYG – What You Measure Is What You Get!

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