The Regulatory “Wet Blanket”

In all my years of working with organizations on performance management, few things have frustrated me more than forces that dis-incent performance. One of the worst dis-incentives of performance is the regulatory environment that many businesses in today’s economy are subject to.

Don’t get me wrong…regulation is a necessary evil in today’s business environment, particularly in light of the Enron’s, AIG’s and Worldcom’s of the past few years. But it’s when regulators overstep their role and begin interfering with the day to day management of the business that I begin to take issue.

Case in point. I am currently in the process of working with several west coast utilities on a regional benchmarking initiative focused on comparing their performance vis a vis each other, and identifying the practices and strategies that are employed by leading performers. This is a common approach employed by innovative companies to enhance their corporate performance by leveraging the collective wisdom of their peers. It’s a simple “learning tactic” designed to help company’s push the envelope of performance by leveraging the competitive spirit of industry peer groups.

Well, today, I got a huge surprise when I was told that one of the members was hesitant to take part in the data collection phase because- get this- the regulators have declared that any benchmarking data must be turned over to them. I’m not sure what frustrates me more. On one hand- the regulators who have turned an innovative practice into something that is feared and despised…a way for the regulators to use benchmarks as another “gotcha” control tactic. On the other hand, companies that are so weak that they allow themselves to be manipulated by regulators so much that they stop doing the right thing. They avoid innovation because of the fear that the regulatory hammer may ultimately fall—one day. A pretty nasty place to live…giving up innovation just to avoid a future regulatory penalty that may or may not occur.

Come on guys—let’s break the cycle. This crazy merry-go round will not stop until one of the parties- preferably both- end this dance. Corporate leadership: so what if your innovation causes regulators to make their standards tougher? Dis you really think this was going to be a cake walk? If that’s where you’re living, you’re not the kind of person the performance management industry needs carrying the torch.

Regulators: stop using benchmarks as a hammer. Use benchmarks as a yardstick, …a stretch target that, when achieved, is met with big time reward, rather than simply avoiding a “slap on the hand”.

Fixing this problem will take work on both fronts…a different philosophy of regulation, if you will. But this will never happen unless one party breaks the cycle. Why not be the one who goes first?