ELI Blog

Values Trump Laws for Risk Management

|June 1, 2010|No Comments

Legal protections and the threat of financial damages clearly were not enough to prevent the recent catastrophic explosions on the BP deep-sea rig and in Massey Coal’s doomed mine.

Initially, the penalties imposed on BP were said to be limited to $75 million, a pittance compared to the vast wealth of sea-bottom treasure anticipated by successful drilling. In the case of Massey Coal, the company successfully contested fines and inspections, allowing them to reduce the cost of compliance while sowing the seeds of catastrophe.

In both of these tragedies, these organizations apparently had a distorted view of risk management. They apparently assumed that the risks of change, financial, operational, efficiency and others outweighed the costs and losses of less rigorous and, likely, legally mandated measures.

Laws can help change behavior, but only when they are fully enforced or potential violators believe they will be. But clearly, enforcement is not enough.For laws to affect how people act, the pain of the penalty must be significant. Without both elements in place, it’s naïve to think people will adopt new standards just because it’s the “legal” or right thing to do.

In business, this is particularly true when requiring organizations to change or maintain new standards involves reversing longstanding patterns of comfortable, familiar and profitable habits. If the old habits seem more cost-efficient and “normal” than adapting to the new, many will not change unless they realize they are likely to pay a significant, costly penalty if they don’t.

Obtaining enforcement by legal compliance is vital; it is also costly, involves multiple steps to work effectively. It is also expensive and often inefficient. How much better it would be for everyone if laws were the court of last resort, not the first or only, for driving change. It would be far easier in many instances if organizational values were the compass directing how individuals act make decisions.

Ultimately, these cases also represent terrible failures of leadership. Leaders are guardians of values. If leaders don’t take them seriously, no one else will either. Here, the stories beginning to surface indicate that leaders were aware of hazards in both the BP and Massey operations, which may have given rise to the resulting tragedies.

My view is that leaders, likely at multiple levels, failed to safeguard their values. Both stated they had a commitment to safe operations; both ignored evidence of substantial risk which, if taken seriously, might have averted these disasters. My guess is that leaders in both organizations may have concluded that spending money on additional safety and preventive measures would have resulted in “unnecessary” business costs.

Please don’t get me wrong. I understand that profitability is a key business driver. But by looking at profitability as a sole driver and not seeing other risks through the prism of their stated values, these leaders allowed a culture to develop that contributed to these disasters — and rocked their own financial stability and our worlds.

Stephen Paskoff is a former EEOC trial attorney and the president and CEO of Atlanta-based ELI, Inc., which provides ethics and compliance learning that aligns employee and manager conduct with organizational values, reduces legal and ethical risks, and creates professional, productive and profitable workplace cultures. Mr. Paskoff can be contacted at info@eliinc.com.

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