07.01.08 RULES VS JUDGEMENTS

 Whilst clearing some space in our loft the other day, my wife turned up my original Indenture of Apprenticeship with a medium sized firm of Accountants in the early 1960’s.

The four page document set out the mutual responsibilities on each party.  On my part I had to serve the Masters in their profession and employment foresaid, honestly, faithfully and diligently and at no time absent myself from the same without liberty asked and obtained under pain of two days service for each day’s absence.  In exchange for my diligence and discretion, my Masters bound themselves to teach and instruct the Apprentice in all the parts of the said profession and employment of Chartered Accountant and to conceal no part thereof from me but to do their utmost diligence to cause me to learn and conceive the same.

In the event that either party failed to perform their duties, a penalty of £50.00 could be imposed on the failing party.

My Contract came to my mind when I was having a conversation concerning a small client with one of the Scottish Bank’s Call Centres which are employed to deal with smaller customers.

I required a small overdraft for my client.  I knew and I assumed the person on the other end knew, that the client had substantial funds held by that Bank in currency and in addition had a significant property on which there was no borrowing whatsoever.

As soon as I said the client would require a small overdraft, the immediate response was “All the Directors will need to give a Guarantee!”.

My immediate response was “You must be joking!”.

The reply to this was “If a limited company gets an overdraft then the Directors must give a Guarantee”.

I suddenly realised that I was dealing at a level in the Bank which was foreign territory for me.  At this level presumably everything is driven by rules and matrices and the requirement for judgement is very limited.

This brought me back full circle to my Apprenticeship.  When I trained the profession of Chartered Accountancy was centred round the simple statement “True and Fair”.  The number of rules were minimal and so long as the Practitioner stayed within the rules of legislation, be it the Companies Acts or the Taxes Acts then the over-riding principal became the professional’s judgement.

We now seem to live in a world that is hide bound by rules and the requirement for professional judgement is being emasculated at all levels.  This is being driven principally by Government but also is being emulated by quangos and professional bodies generally are ceding their areas of responsibility with a tide of rules and regulations in order to keep Government and Quango led regulators out of their professions.

The disaster of ENRON happened in a framework of rules, where in retrospect had more judgement “and a great deal more true and fair” been applied then, perhaps this huge fraud would have been at the every least contained.

Another reason why rules are replacing judgement is in an effort at de-skilling.

I remember going on a tour of Universal Studios in Los Angeles.  Half way through the tour we stopped for a comfort break and to allow participants to take on liquid.

There were five orderly lines queuing up for refreshments.  One of the lines wasn’t moving.  The reason for this was that the automatic till that calculated the total price to be charged could not function.  In other words the server’s mental dexterity did not extend to writing things down and adding up.

This is a good example of de-skilling and it is something that is becoming painfully more obvious to anyone who visits a retailer or any element of service industry.

Quality of service is dependent upon the quality of the server.  Logic suggests that if the drive is constantly towards the bottom line and this is to be delivered by the diminution in service then the net result will be a levelling down for everyone.

Sadly if accepted, this then can spread into all walks of professional life with very serious consequences for us all.

My Institute, the Institute of Chartered Accountants of Scotland have already started a campaign to promote the idea of judgement over rules.  I am convinced that if this is accepted, it will go a significant way to protecting the public at large and work for the benefit of society in general.

Jim Campbell
Publication: The Scottish Banker
Date: January 2008