The Biggest Myth Behind Regulatory Change

Why do so many responses from top management in business to impending regulatory change say more about the leadership qualities in those firms than the actual regulatory changes themselves. If the objective is to profitably grow and expand the business while adapting to changing market needs, then shouldn’t we first increase the probability that we have leaders with the right tools and volition to manage change reasonably and appropriately. That is rarely done well with managers, who insist on using a microscope rather than a telescope to manage their business.

Yet so often I see top management’s default response is to rail against the unfairness of the changes proposed, the regulators’ beliefs system and the effects of the proposed changes (higher customer prices, loss of jobs, increased red tape and so on). “It is not our fault”, “the regulators and politicians are out to get us and curry favour with public opinion”, “we are a soft  and easy target.” Some are reasonable assertions but they largely overlook management’s own shortcomings. Why? It is easier and much more comfortable to caste blame than to take a hard look at themselves in the mirror and the “causes” that triggered the change. The global financial services, re(insurance), media and gaming sectors are some of the most obvious examples. There are fine companies in each of those sectors with leaders, who largely steer their ships effectively through increasingly regulated waters (Amica Mutual, Travelers, KKR, Berkshire Hathaway, Willis, Pearson and Genting). Yet they are largely an exception to the rule.

Here are the prevailing conditions that exist in the best businesses:

1. Leaders, who are willing to be “champions of change”. Ready to take the lead through their actions, not just stick their heads in the sand or rely on “empty” prognostications. (“This is what I see coming, here is what I want your support for and this is what I am willing to be personally accountable for…”)

2. Leaders, who hold themselves and their direct reports accountable for anticipating changes not just implementing existing changes. (Performance evaluation, reward systems and recognition give equal or greater weighting to leader’s success in correctly anticipating changes rather than successfully implementing existing regulatory changes)

3. Leaders, who recognise that success trumps perfection. You rarely have all the facts before you set about responding to regulatory change. In almost all cases, there will be a need for changes mid-course (incorrect assumptions). You limit that impact by setting those expectations at the outset. You have in place before you move into the implementation phase both preventative and contingent actions for foreseen and unforeseen obstacles (incorrect assumptions or actions that don’t have the desired effect).

4. Leaders, who recognise that with any anticipated regulatory change that their decision-making and communication must take account of:

  • How important is the anticipated regulatory change? What is the impact on the firm’s strategy? How easy is it going to be implementing the appropriate changes? Does it require “hands on” or a delegated leadership approach to be successful?
  • Is there sufficient information for leadership to act on their own or does it require further inputs from others?
  • Do the resulting actions require people to buy into them to gain their support or will an edict from top management suffice?
  • Will the firm’s response to regulatory change, the outcome to be achieved and the route chosen require formal debate or informal support?
  • What level of time commitment is appropriate and reasonable for the anticipated regulatory change and successfully implemented?
  • Is the future health and well-being of the firm dramatically, moderately or barely improved by involving others (increased internal skills and experience) where the time is not an issue?

5. Rapid progress requires “signing up” formal and informal leaders within the firm, setting expectations about their behaviour and creating public examples of how you want others to behave. Top management’s ability to leverage those three key attributes in 90% of regulatory changes is instrumental upon the results achieved.

When you look at the market needs placed upon your’s and your competitors’ businesses by anticipated regulatory change, do you see leaders with the requisite qualities and the passion to successfully undertake the work? If you cannot unequivocally, say “YES”, then why should the firm’s key constituents (current or future customers, shareholders, employees, business partners or regulators) continue to support the business? It is time to take action, now.

© James Berkeley 2014. All Rights Reserved.

 

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