Regulators love to see page after page of ticked boxes, believing this proves the regulatee is 'fully compliant' with the current legislation.
For a pilot or a surgeon, a checklist is pretty useful. But in more subjective matters, like the question of whether a company is well run, it gives at best half the picture. Here's a good example of why. A friend of mine is the secretary of a listed company and once a year he has to prepare a compliance statement for the accounts explaining how the company complied, or didn't, with all the various corporate governance codes. This is then approved by the auditor, with, no doubt, careful reference to those codes.
A year or two ago, the audit partner (at a Big Four firm) rejected my friend's original draft. So he did a little research and produced a more polished version. 'Perfect,' said the audit partner. 'That's funny,' replied my friend, 'because I based the language on that used in the annual report of Northern Rock, the year before its financial difficulties.'
Hmm. However convincing something sounds, there's no substitute for judgment. They may tick all the boxes, but is it really our judgement that the people running the company are honest and trustworthy?
The point applies to all the growing number of fields that are governed by codes checklists. Being able to tick the box merely proves we have taken all the obvious factors into consideration. Before its fall, RBS had the full range of independent directors, procedures, rules and standards. But it didn't stop Fred Goodwin, by sheer force of personality, rendering all those safeguards ineffective.
If tick boxes are taken as evidence that a requirement has been met which we don't want to meet, it's easy to devise ways in which the boxes can be ticked without actually meeting the requirement. Checklists support judgment but they don't replace it. Tick the boxes, then make the decision.
Alastair Dryburgh is chief contrarian at Akenhurst Consultants and author of Everything You Know About Business is Wrong (Headline, £13.99). More at www.alastairdryburgh.com