I was recently watching the documentary "Inside Job" on the 2008 financial crisis. What struck me is that despite all the structures and warning systems in place, crisis cannot be avoided if the intent isn't there. Any number of theories or even proofs can be rubbished under the pretext that "it's too complicated to fire foresee" if there is conflict of interest (read, personal gain).
It made me think that even while the film seemed to suggest due regulation as the medicine, there are merits to the other side of the argument. The very reason socialist countries failed was over-regulation and the resultant systemic corruption. India/Bharat is a classic case study. And there is a movie based on a true story for that too (Ek Doctor Ki Maut). Bharat is learning its lessons and is on the journey of reducing the levels of regulation in order to foster innovation.
The solution, as it usually does in any sphere of life, is in the middle path. It lies in achieving optimal balance. You can write books and books of regulation but lie stuck unable to achieve pragmatic justice as is shown in Bharat's judicial system. Or you can ignore your duty and leave it to the greedy markets at the peril of humanity as was done by the American financial system.
It's no doubt a tight rope if you get boggled by it. What I think we need instead is an in-principle practice of 80% regulation and 20% audit. Nobody likes to say it this way. People build careers writing regulation or battling and systematically undermining it. What is needed is the acceptance that we need regulation in every sphere, but to come up with the optimal levels for it.
Derivatives should not have been unregulated (the cause of the financial mess). Nor is there a need for a state owned airline (Bharat's Air India).
In management practice too, have rules along with the purpose/intent and guiding principle be scoped out for each activity. Post that, instead of defining procedural rules to the last dot, keep some room for flexibility and make the audit more accountable and stringent.
Quite often, quality or risk management aspects of management is simply shadowing project teams with pointless meetings, tracking and escalation than focusing or adding any contextual value. Either they should get closer to context and individually contribute, or rather let the project ensure quality/risk management under guiding principles and be audited for those (than say, a specific set of documents existing).
The nature of audit also simultaneously has to change. It can't be the way Arthur Anderson and the credit rating agencies did it (getting away with calling ratings as opinion). Quite often it is seen auditors come with a checklist, have little hands on of the system in question, and rate based on docs submitted. Questionable if the docs amounted to the practices on the ground. Instead they'll have to be on their toes now and cross-check execution outcomes in detail or randomly pick areas to look at in depth, knowing that regulation has left room for flexibility. Again, for the same reason, they should ensure that purpose, not procedure is paramount.
In summary, an 80-20 ratio of regulation-audit balance will reduce cost (of scripting and sticking to regulation beyond the purpose) and increase efficiency (optimal use of talent and time, under the parameters of principles than procedures).
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