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Posted: April 11, 2014

Don’t Dodd-Frank your business

Simple but elegant is the answer

Todd Ordal

According to the Northern Colorado Business Report, there are now 1.2 compliance officers for every loan officer in Colorado banks. (I was tempted to put three exclamation points behind that sentence, but if its content doesn’t blow your mind, they wouldn’t help.)

Imagine the cost of health care if every doctor had to have 1.2 supervising doctors.

Picture the price of your cheeseburger if every McDonald’s employee needed 1.2 managers watching him. Heck, our schools in general struggle to produce good results with arguably more societal cost than any bank failure; perhaps we should have 1.2 principals for every teacher!

I’ll suppress most of my cynical thoughts about government intervention (by either party!) and the 848 pages and 349 rules in the Dodd-Frank Act that in part caused the above-mentioned ratio. However, this provides a great example of how not to run a business.

The best business environments are self-regulating or as close to self-regulating as you can get them. Ten-to-one reporting relationships are manageable and profitable when the rules are few and common sense prevails. Well-designed organizations take into account the weaknesses of humans, and they appeal to their well-being. This applies to government, families and businesses. It doesn’t mean there are no rules or regulations, but when given the choice between a rule and natural consequences, natural consequences get the nod.

One trouble with the regulatory/oversight mindset is that it tries to solve all problems. I’m sorry, but stuff happens! Even financial meltdowns occur. If you try to take all the risk out of capitalism, you end up with Cuba. If you attempt to remove all the danger from business with “oversight,” you might end up with a bankrupt company.

If you run an organization, you have problems. Trying to solve issues is part of your job. Designing systems so that problems are few is a more important part of your work. Only a terribly lazy manager (or one not accountable for expenses) would have a “problem” department that was 20 percent larger than his sales force.

I was once accountable for many retail stores, and I signed the leases. After a major restructuring, a large real estate department was built up and new leases required five signatures. I was good but nowhere near perfect in my record for successful stores, but the “new and improved” system resulted in no one owning the decision, which generated some miserable locations. Perhaps they should’ve added a sixth signature.

Don’t “Dodd-Frank” your business. Identify the natural human tendencies that work in your favor and those you have to watch out for and build simple but elegant solutions that are as self-regulating as possible.

Todd Ordal is President of Applied Strategy LLC. Todd helps CEOs achieve better financial results, become more effective leaders and sleep easier at night. He speaks, writes, consults and advises on issues of strategy and leadership. Todd is a former CEO and has led teams as large as 7,000. Follow Todd on Twitter here. You can also find Todd at http://www.appliedstrategy.info,  303-527-0417 or todd@appliedstrategy.info

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Readers Respond

Succinct and insightful. By Dennis Brovarone on 2014 04 21
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