When Performance Measures Drive Bad Behaviour: Lessons for Regulators

Screen Shot 2019-08-20 at 12.19.34 PM

The Wells Fargo Cross-Selling Scandal

A great piece in this week’s Harvard Business Review (“Don’t Let Metrics Undermine Your Business”) by Michael Harris and Bill Taylor, about the problem of performance metrics. While the article is aimed at private sector companies, the analysis applies equally well to the regulatory sector.

Regulators have been working hard in recent years to develop performance measures. This is a laudable task, but my concerns parallel those raised by the authors in the HBR piece.

Due to the human brain’s tendency to surrogation, staff will substitute easy-to-grasp concrete performance measures (e.g., time to complete an investigation) for more abstract strategy. To some degree, this makes sense. We develop strategies, and try to measure our performance against them. In our minds, the metrics and the strategy are one and the same. But they are not.

We know that performance measures are always imperfect; to become obsessed by them is a mistake, particularly where the measures are in some ways perverse, and take place within the context of a bad culture.

The authors use the recent cross-selling scandal at Wells Fargo as an example. Sales staff were given high (and arbitrary) sales targets to meet, to cross-sell clients on multiple bank products. Due to deep and pernicious cultural issues, including tolerance for questionable sales practices, a relentless focus on numbers, and pressure from managers whose incentives depended on meeting sales quotas, sales staff began opening accounts and issuing credit and debit cards without customer authorization. After multiple investigations and hearings, the CEO resigned, the leadership structure was changed, and the bank paid over a billion dollars to financial regulators as settlement.

According to this Harvard Law School Corporate Governance and Financial Regulation analysis of the scandal:

Some outside observers alleged that the bank’s practice of setting daily sales targets put excessive pressure on employees. Branch managers were assigned quotas for the number and types of products sold. If the branch did not hit its targets, the shortfall was added to the next day’s goals. Branch employees were provided financial incentive to meet cross-sell and customer-service targets, with personal bankers receiving bonuses up to 15 to 20 percent of their salary and tellers receiving up to 3 percent

Of note, Wells Fargo was once known for sound banking practices, and emerged as the least-tarnished of the big banks following the 2008 financial crisis. Yet within a matter of years, something changed. A key plank in Wells Fargo’s strategy – deep customer relations – became entirely subverted by the bad metric, combined with bad culture and a perverse incentive culture.

Lessons for Regulators

What is the moral of the story for regulators grappling with the effort to measure their performance in some meaningful way?

I will summarize the lessons for regulators as follows:

  1. Involve key management in strategic planning. Do not set strategy in an executive vacuum; otherwise it will always be a confusing, meaningless abstraction for managers and employees.
  2. When planning strategy, focus on internal measures in addition to external measures (e.g., stakeholder awareness), so that strategic performance measures are not entirely irrelevant to operational staff.
  3. In developing performance measures, be transparent about the limitations of such superficial measures as turnaround time. In the regulatory world, timelines are important for reasons of statutory compliance, fairness, and stakeholder satisfaction. But they never tell the full story. For example, if managers pressure investigative staff to complete investigations within a given (and perhaps arbitrary or unrealistic) time frame, understand that you may be motivating staff to game the system, to cut corners, to skip important risk assessment, investigative planning and execution steps, and to skimp on procedural fairness.
  4. An excessive emphasis on timelines can also lead to a kind of rigid process blindness, in which staff are unable to effectively deal with novel information that should affect risk assessment, or other requirements (such as accommodation requirements under human rights legislation), due to their fear of missing timelines.
  5. While it’s necessary to measure regulatory program performance activitiesand outputs (or deliverables), regulators should focus performance measurement where possible on outcomes, and ensure that the designation of these outcomes results from deliberate analysis by staff and management:Screen Shot 2019-08-20 at 12.26.22 PM
  6. For example, investigations departments should consider supplementing timeline metrics with metrics reflecting quality and fairness of investigations and regulatory decision making.
  7. Regulatory managers may not be driven by bonuses in the same way their private-sector counterparts are (although regulatory executives are increasingly being given performance incentives). But it is essential to be aware of the cultural example management is setting. If poor-quality work, corner-cutting or unfair processes are tolerated in order to meet timelines, the accountability for that deficient work product rests with management.

“Learning is not compulsory….but to survive, we must learn.”   – W. Edwards Deming - The Rebirth of the Learning Organization

Through my work as a consultant, management experience, and recent study of organizational analysis, I have come to better appreciate the now-mature idea of the learning organization.

Becoming a Learning Organization

Despite decades of organizational theory promoting the idea of the learning organization and its contribution to continuous improvement, organizations still struggle to develop learning cultures.

Peter M. Senge, who published “The Fifth Discipline: The Art and Practice of the Learning Organization” in 1990, visualized the key disciplines or practices of the learning organization as follows:

According to Senge, organizations need to tap into their members’ capacity to learn, and put into place the right structures to foster continuous learning. This, in turn, increases the organization’s chances of gaining new information, and applying it to better anticipate and adapt to changes in the environment.

The idea remains challenging to define and even more difficult to operationalize. This classic 1993 piece from HBR defines learning organization as follows:

A learning organization is an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights.

The author, David A. Garvin, notes that traditional definitions of learning organization tend to be abstract, and not necessarily useful guides to implementation in the real world. Further, the creation or acquisition of knowledge within an organization is not sufficient to create a culture of learning. Translating that knowledge into new behavior is also necessary, if continuous improvement is to take place.

In a subsequent 2008 article, Garvin and his co-authors discuss a survey tool to help organizations gain an understanding of how well their organization (and units within their organization: teams, divisions, projects, etc.) learns relative to other organizations.

The authors discuss three measurable building blocks within the learning organization: a supportive learning environment, concrete learning processes and practices, and leadership behavior that provides reinforcement.

As noted by Norman Jacknis, the idea of the learning organization is currently undergoing a rebirth. He points to the idea of the learning organization as a “holy grail”, but also the failure of knowledge management initiatives in many organizations. Jacknis points to the emergence of analytics and big data as making the process of organizational learning easier and better. Instead of acting as memoirists, experts can now “…help kick off the building of the model and even assist in interpreting the results of the analytics.”

While the focus of these discussions is often on the competitive advantage conferred on learning organizations within the private sector, the model is also relevant to non-profit, governmental and regulatory organizations.

See also related ideas – just cultureproblem-solvingroot cause analysis

Creating a Learning Culture

If you are a manager concerned with continuous improvement, you need to think about how to create a learning culture within your organization or team. Tomas Chamorro-Premuzic and Josh Bersin outline four recommendations to accomplish this:

  • Reward continuous learning: Create a formal, effective reward system and create a climate that nurtures critical thinking and encourages speaking up.
  • Give meaningful and constructive feedback: Managers are understandably reluctant to have difficult conversations with staff. It is of course easier to provide positive feedback over negative feedback. But managers need to be able to highlight knowledge gaps and skills deficits, as staff may be unaware of their own limitations.
  • Lead by example: Leaders’ routine behaviors have a strong influence of the performance and behavior of their teams. Leaders need to display curiosity and learning of their own. If you want your team to read, you should read. If you want to encourage your team to be critical thinkers, you need to model this behavior.
  • Hire curious people. See below.

Selecting the Right People

When recruiting new staff, we tend to focus on the candidate’s C.V., i.e., his or her existing education, experience, knowledge and hard skills. These are unquestionably important factors to consider, and indeed one means of gaining new knowledge within an organization is to recruit new staff with that knowledge.

However, we are not as good at screening candidates for the softer skills that matter so much in the workplace. For example, how has the candidate demonstrated a willingness to take accountability for his or her work? To accept constructive feedback from managers and peers? To admit to error, demonstrate humility, and show a willingness to learn and change?

The authors suggest that proper selection of staff allows managers to facilitate potential, rather than work against a person’s nature. There are measurable traits that correspond with an individual’s propensity to intellectual development and learning, and personality assessments measuring openness to new experience, tolerance for ambiguity, critical thinking, and inquisitiveness.

In short, to create a learning culture, managers need to foster the right environment (provide rewards for continuous learning; give meaningful feedback; lead by example) and hire people who are hungry to learn.


How does your management team fight?


Watch this pithy video from Harvard Business Review, on the value of productive conflict in management decision-making.

Conflict is an essential feature of any management meeting or decision-making process. If your team does not engage in productive conflict, it will not make good decisions, and team members will not take accountability for results.

Management meetings are a microcosm of the full organizational leadership dynamic. Too often, they fall into an unhelpful “nice” vs. “nasty” dichotomy.

On the “nice” side, there is (excessive) emphasis on and reward for managers being very nice, even meek, at the meeting table (with the possible exception of the most senior managers). I call these Stepford Wives meetings. Voicing strong opinions is discouraged, and seen as threatening to the group dynamic. Decisions are driven by consensus. Some team members remain largely silent. They are disengaged, fearful, and/or political, waiting to see which way the wind is blowing before saying anything. . Because authentic opinions are not always welcome, some managers quietly stew as the group appears to move in a given direction with which they do not agree. It is only natural that a roomful of managers will not actually hold the same opinion on a proposed course of action, and should be cause for concern if multiple viewpoints are not expressed. In this world, if a “consensus” is achieved at all, the withholding managers may not fully support its actual implementation. The fight, such as it is, will take place behind the scenes. This is a less than ideal outcome.

Another danger of an over-emphasis on “nice” is paralysis. No consensus is ever achieved, and therefore no decision made, and no action taken. This is also clearly not an optimal outcome for a management group, whose job it necessarily is to make hard decisions about which initiatives to drive forward (and which to not), and how to do so.

On the “nasty” side, the management table is more reminiscent of the Lord of the Flies. The prevailing atmosphere is one of distrust, even paranoia. No ground rules are enunciated, and no common understanding exists of the purpose of the meeting or even the objectives of the organization. In this hostile Darwinian environment, it is the loudest and most aggressive voices who dominate. And “dominate” is the correct term: this is nothing but a competition, a savage pageant of egos, where the best ideas do not often win, and where the objectives of the organization are not key drivers of decision-making. Some team members are silent here too, mostly out of fear. Thoughtful voices are not sought out. While decisions may get taken at this table, they again will not be supported behind closed doors, as less aggressive managers who do not agree with the decision finally express their opinion by failing to fully support implementation.

In either unfortunate scenario, the decisions made, if any, will not be the best ones.

The answer, then, has to be be productive conflict, which in turn requires a foundation of trust.

Patrick Lencioni, in his leadership fable, The Five Dysfunctions of a Team, cites “Fear of Conflict” as the second dysfunction of a management team, not surprisingly following the first dysfunction, “Absence of Trust”. As Lencioni wisely illustrates, management teams need to fearlessly engage in open debate, to arrive at the best possible decisions. But in order to do so, a foundation of trust must be built, one in which team members are willing to show vulnerability, and the cornerstone is laid by the CEO. Lencioni goes on to show how productive conflict instills commitment to the decision, which in turn sets the stage for accountability, which begets results. And aren’t results, after all,  the raison d’etre of leadership?

The online democratization of higher education: do MOOCs work?


MOOCs (massive open online courses) have been with us now for over a decade. The idea that anyone with a high-speed internet connection could participate in a wide array of courses and programs – and even obtain professional certificates or degrees – at no cost or low cost seemed rich with promise.

In recent years, criticisms have inevitably arisen. Completion rates are low. Courses lack academic rigor. Good education is not one-size-fits-all, and online courses lack the personal touch of teachers and professors. Programs remain Western- and English-language focused, and are primarily benefiting those from wealthy countries who already have degrees, over those in the rest of the world.

These concerns need to be taken seriously. But I can’t help but wonder if it’s too early to throw the proverbial baby out with the bathwater? I am not an educator, but am keenly interested in continuous quality improvement, and it seems to me that these criticisms merely highlight opportunities for improvement. They should not necessarily disqualify the effort entirely. Continue reading “The online democratization of higher education: do MOOCs work?”

How Not to Engage Employees and Improve Performance: The Effects of Bureaucracy

Screen Shot 2017-08-12 at 8.42.08 AM

What We Learned About Bureaucracy from 7,000 HBR Readers

Gary Hamel and Michele Zanini/August 10, 2017

Very interesting piece from HBR on the often-deleterious and hidden effects of bureaucracy on organizations. While the study surveyed employees in private sector organizations, many of the findings are nonetheless instructive for leaders in the public, quasi-public and not-for-profit sectors.

What did the authors find?

Not only do managers and front-line staff have very different perceptions about many key workplace issues (an area that deserves further exploration itself), but bureaucracy steals time, undermines empowerment, frustrates innovation, and breeds inertia. Not surprisingly, bureaucracies breed politicking, rewarding canniness over competence, and incentivize pettiness and parochialism, such as the building of fiefdoms and hoarding of resources.

Not all large companies appear to suffer from excessive bureaucracy. “Companies like Nucor, Morning Star, Spotify, Haier, and others have demonstrated that it’s possible to run large, complex organizations with a minimum of bureaucracy, and that doing so yields substantial performance advantages.”

Professionals and Substance Use Disorder: An All-Too Human (and Regulatory) Challenge

Screen Shot 2017-07-17 at 4.47.49 PM

The Lawyer, The Addict is a heartbreaking story in the New York Times about the shocking prevalence of substance use disorder (an umbrella term covering “addiction”) in the U.S. legal profession. The piece focuses on the search for answers by the former wife of a Silicon Valley lawyer who died of complications related to his opiate addiction.

I’ve worked extensively in this area with professional regulators, including the College of Physicians and Surgeons of Ontario and the Law Society of Upper Canada, where I developed an array of resources and procedures for the regulator to use when dealing with lawyers and paralegals whose health problems interfere with their ability to practise.

All professions have trouble acknowledging and addressing issues such as mental illness, substance use disorder and dementia (a growing problem for baby boomers) amongst their colleagues. The health professions are at least able to see the problem as a health issue, but I believe that lawyers have historically tended to view it as a failure of will or moral courage. Nor does it help that many lawyers are so-called “high functioning” alcoholics, whose problem is quietly known and implicitly acknowledged but not necessarily addressed early on by colleagues. Continue reading “Professionals and Substance Use Disorder: An All-Too Human (and Regulatory) Challenge”

So You Think You Have A Data & Analytics Strategy?

Screen Shot 2017-06-26 at 11.59.58 AM

So you have the right technology, and an analyst or data scientist or two on staff. Is that enough to claim you have a full data and analytics (D&A) strategy? No – it’s not.

Much more is needed – and most organizations are not there yet:

  • Buy-in at the senior leadership level.
  • A deliberate D&A strategy, with a common understanding of and commitment to the strategy across departments, including objectives, goals and measures of success.
  • The willingness to build the right cross-organizational structures and processes, and commit the appropriate technological and human capacity needed to implement and sustain the strategy.
  • Full integration of the D&A strategy with the business strategy, so that analysis truly drives decision making.
  • The willingness to change direction if your analysis indicates that’s the right thing to do.
  • Full involvement of non-D&A staff – the business experts – into the strategy.

Embracing Big Ideas to Improve Healthcare

Excellent discussion by Dr. Thomas Lee (Harvard T.H. Chan School of Public Health), on how big ideas are needed to improve healthcare. He brings diverse thinking from business, sociology and psychology into a mutually reinforcing cycle. I’ve taken the liberty of reducing his video (link below) into graphic form.

Screen Shot 2017-06-08 at 12.36.06 PM.png

Unblock Your Potential: 7 Steps to Breaking Your Bottlenecks


What is a bottleneck, and who cares?

Anyone who has managed an operational area, whether in manufacturing, services or regulatory/government operations, knows the headache of bottlenecks, those troublesome spots in the process where production gets held up for any number of reasons. They are as inevitable as the turning of seasons, and unfortunately we get too accustomed to them, but they still need to be broken. Bottlenecks generate enormous costs from unnecessary overtime to staff frustration and conflict, to unhappy customers, to lost productivity. In order to break bottlenecks, managers need to create an environment of continual process improvement.

What is continual process improvement, and why does it matter?

Process improvement is a means of devising and incorporating both significant process breakthroughs, and small incremental improvements. The approach used here is adapted from the “Plan-Do-Study-Act” (PDSA) Cycle developed by W. Edwards Deming, and the Toyota Production System (TPS, a type of lean manufacturing). See Appendix A below for helpful links.

Continue reading “Unblock Your Potential: 7 Steps to Breaking Your Bottlenecks”

Why Non-technical Skills Matter – A Lot – When It Comes to Preventing Errors and Accidents

In safety-critical fields such as aviation, nuclear energy, and healthcare, employees’ technical skills are naturally important. We want our surgeons to know how to conduct surgery properly. But we often fail in these settings to recognize the equal importance of non-technical skills (NTS), such as situational awareness, communication, coordination, problem solving and teamwork.

Last fall, I presented at a master class of the Canadian Network for Agencies of Regulation (CNAR). There, we had the pleasure of hearing Rhona Flin – a psychologist from the University of Aberdeen who works with safety-critical industries – speak about NTS. I have included here a Ted talk by Ms. Flin about this subject.

Much of the work on NTS originated with aviation investigations of the 1970s and 80s, such as the runway collision of two 747s on the island of Tenerife in 1977, which to this day remains the most deadly collision in aviation history. The accident investigators in that case did not find technical problems with either of the jets involved, nor did they find any deficiencies in the technical skills of their aircrews. What they did find was a tragic series of coincidences compounded by non-technical problems, including miscommunications between the jets and air traffic control, hesitation of the KLM cockpit to confirm their takeoff status, and impatience on the part of the KLM captain, leading him to take off in heavy fog without proper clearance. The fully-fuelled KLM jet struck a taxiing Pan Am 747 on the runway, setting off explosions and killing 583 people.

Continue reading “Why Non-technical Skills Matter – A Lot – When It Comes to Preventing Errors and Accidents”