Bigger Does Not Equal Better

There's an interesting article in today's NY Times about Senator Christopher Dodd (D., Conn.) wanting to create a new financial services super-regulator. It would be established by combining four existing regulatory agencies while, simultaneously, reducing the authority and reach of the Federal Reserve.

Interestingly, there is a similar argument being put forward in Britain by the Conservative Party.  Their Shadow Chancellor of the Exchequer, George Osborne MP, wants to combine all financial regulatory responsibilities under the auspices of the Bank of England.  In the process, two other agencies would be incorporated into what would become one exceedingly large one.

The problem in both countries, from what is described, is not one of size, power or remit of the individual agencies.  The problem is coordination, clarity of responsibility and authority - as well as systems of accountability - among and between the existing entities.  That's what needs to be addressed - and it won't happen as a result of combining groups that don't mesh.

To get my drift on this, think M&A gone bad and you'll know where I'm going.  Better yet, if you're in the States, think Department of Homeland Security and you'll know exactly what I mean.

Too many organizations - public and private sector - are convinced that bigger equals better.  Not always - and especially not in a case like this.

Sometimes it is in the organization's (for which, in this case, read country's) best interest to allow each entity that owns part of a larger system to be specialist in exactly what it does.  That way, it can go narrow and deep in its activities to ensure that those within its remit are being well and clearly looked at and after.

The responsibility then lies with the corporate parent (for which, in this case, read Congress or Parliament) to ensure that those responsibilities are laid out clearly, lines of accountability are drawn and no competition for "favored" status exists or can be offered those being regulated  (a particular problem in financial services regulation).  Most importantly, the agencies should develop and execute proactive plans for coordinated, ongoing information sharing and joint action.

It's that last one that is the deal-breaker - because it is the lack of that planning that has caused politicians on both sides of the Pond (as well as their citizenry) to be so dissatisfied with the status quo.

Putting together the financial services agencies in either country isn't going to net the politicians what they say they want.  Nor will it give the public what it needs.  In the words of W. Edwards Deming, "The intent is noble.  The method is madness."

My recommendation to any executive who is considering going this "bigger is better" route is to go back to the drawing board and look at your intent - then look at your organization as it is and how you want it to grow.  Then you'll be able to decide how to get there - just as big as you want - without creating chaos and lost opportunity in the process.