When I open the paper, here’s what I read:
Volkswagen is surreptitiously warming the planet. HSBC is laundering money from dubious sources. Servier is making money off of a health risk. The Carlton offers room service that goes way beyond the mini-bar. A minister, self-styled tax-avoiding Savanarola, proves to be overly fond of Swiss and Asian bank accounts. A political party knows just how camouflage campaign funds. Etc.

And society is then left carrying the bag. One by one, like the little pearls on a necklace, these matters delight the media and strangle shareholders who watch helplessly by as the capital they were counting on melts away to nothing overnight. Not to mention the total disappointment of voters who still believed in the righteousness of the State.

To be honest, beyond the American government—whose legendary upright and rigorous posture constitutes a wonderful stock in trade for many—we have to acknowledge that the Regulator today masterfully imposes standards that are less and less indulgent and more and more voluminous. Not even a genius would be able to grasp the sum total of all the regulatory texts that bear upon the Western world of finance.

In companies, this has led to overlays of minute controls at many different levels and by many different stakeholders that operational people consider to be slowing down the business and draining corporate resources. Probably these controls eliminate some of the risks of non-conformity. But not all of them.

We wonder whether the corporate “sieve of controls” used to prevent an expensive slip-up is fine enough to block the highly unexpected “misdemeanors” of one individual or of a small group of reckless players. In Black Swan Nassim Nicholas Taleb shows that highly improbably events (involving a limited number of people) can have major consequences.

So let’s think about this:

How can we ensure an individual makes a good decision if s/he can benefit from a bad one with complete impunity (at least, s/he thinks so)?

Morality and Performance, a modern-day dilemma

One can be technically brilliant and morally blind. That’s the really dangerous combination that spawns high-level bandits.

And this gap isn’t new. We are far too quick in opposing moral values and performance whereas in reality they complement one another. This is obvious in sports where, when moral values and performance are separated one from the other, we see one biker faint by the side of the road and another being dispossessed of his championship titles.

The more regulation there is, the more the famous “grey zone”, where one seems to be in conformity but is actually behaving in a morally reprehensible way, is narrow and the risk great. That’s just how it is. And our societies, with their overwhelming media attention, are fed to the gills and blinded by the performance need and quick to lead weaker individuals into error. They think they’re still in the grey zone. But they aren’t any more.

Why, at a given moment, do individuals who is subject to strict rules, decide to cast them off and not only expose themselves to considerable personal risk but also jeopardize their organization? Partially because they think they can get away with it. But there’s more. These individuals have lost the sense of moral meaning that governs collective action in a civilized society. They have lost their faculty for good judgment.

The blind spot of compliance is the individual!

People have to think hard about the regulatory consequences of bad decisions. And they need to reflect on the subject of moral values. The Romans didn’t choose Courage, Justice, Prudence and Temperance as their cardinal virtues by chance. Interesting to think about, isn’t it? But who actually talks about it? It’s something that companies hesitate to raise.

Learn to exercise judgment

Our experience is that when people start talking about regulatory norms words flow fast and passions fly high. It’s as though this subject, unspoken as it is and often concealed behind social conventions or a lack of competence, is struggling to find a way to express and streamline itself and to morph into a healthy set of norms. To facilitate this discussion it’s better to know about philosophy than about multiplication tables. But those folks are few and far between in companies that basically value the “hard” sciences and so the risk of someone, someplace, tripping up, remains, particularly in regulatory-sensitive companies.

Respond to the younger generation

Let’s make no mistake. The choices and positions of the younger generation, who are often described as off-hand in their approach to life, prove that they hold to moral values their elders sloughed off a bit too quickly. Their start-ups are motivated by ecological anxieties and distrust of large institutions, be they public or private, that are seen as too political or politicking. This new generation is open to diversity and refuses the double language and waffling that prevail in the traditional world of big companies.

Starting a few years ago, we started involving professionals who know little about balance sheets but are able to lead a conversation about judgment—and how it needs to drive decision-making—with some of our clients. In this way we have sought to trigger convergence among team members around choices that blend ethics and effectiveness without compromising either.