Understanding Organisations

There have in recent years been a number of catastrophic failures involving large, heavily-regulated organisations, including the 2007 worldwide collapse of financial institutions, subsequent scandals involving major UK banks, the 2010 Gulf of Mexico Oil Spill, the collapse of Enron, Bernie Madoff's Ponzi scheme, and the mis-management of the Mid-Staffordshire Hospitals.  There have also been far too many smaller scale but locally catastrophic failures of regulation,┬ásuch as Grenfell Tower.  Can any general lessons be learned?

Perhaps the most important over-arching lesson is that regulators need to understand the behaviour of large organisations.  They are not merely supersized versions of individual-led smaller firms.

Here are some notes which go into more detail:-

Finally - It would be a great mistake to seek to avoid all regulatory failure.  Although it is clearly necessary to regulate the behaviour of organisations that can do so much damage to wider society, we must not over-regulate such organisations and so impede their growth and innovation which are in turn so important for employment and the wider economy.  It is extraordinarily hard to get this balance right. Every significant regulatory failure is followed by calls for stronger regulation, inevitably followed some time later by equally strident calls for regulators to adopt a lighter touch, and be more pragmatic. But the catastrophes listed in the first paragraph of this note were surely so dreadful that they cannot be characterised as the result of risks which were worth taking.


Martin Stanley

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