Rules, mediocrity and practical wisdom

I highly recommend psychologist Barry Schwartz’s recent presentation at the TED 2009 conference.  It is a 20 minute talk on how our bureaucracy-obsessed society should nurture practical wisdom. 

He discusses how when things go wrong, we scramble for two tools – better incentives and more rules.

He says rules and standardized processes and procedures are insurance policies against disaster and they are often successful in preventing it.  But, while rules can be useful, they are not enough.  The more rules you have, the less practical wisdom you will have.  The reality is that real world problems are ambiguous and rigid rules can remove opportunities for improvisation and prevent people from inventing combinations that are appropriate for the situation and people at hand.  Rules are often implemented at the cost of initiative, creativity and passion – yet these are vital to organizational success.  Rigid rules can perpetuate mediocrity because ‘that’s just the way things are done around here’.  People start saying things like ‘Don’t look at me – I just work here’.

I can personally relate to what Schwartz is saying.  After the Enron, Worldcom debacle, the Sarbanes-Oxley Act was passed.  This act was great for accounting firms because it provided them with a conveyer belt of guaranteed, hefty income.  Part of the act required management to test, document and then assess the adequacy of their internal controls/rules over financial reporting.  While this legislation may have produced fewer future Enrons, it injected despondency, endless monotony and career doubts into most staff members and auditors (including me) who had to test, document or audit a company’s controls/rules.  I saw how it drained people of qualities such as vitality and ingenuity – the very qualities that make us human.

I wonder what regulations will be passed after the current financial crisis.  In interviews on the topic of practical wisdom, Schwartz has highlighted how business was about doing what was profitable and legal.  Now it is important to do what is profitable and right.   How do you nurture in people the desire to do the right thing?  How do you give them the tools so that they’ll know what the right thing is?  How do you implement rules but also leave room for creative improvisation and personal judgment?

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