Regulating Software Development

'Belvidere Street construction, pouring concrete', Library of Virginia

 

Another weekend, another too good to pass up Twitter conversation during my “unplugged” time. This weekend, Grady Booch hooked me by retweeting Mike Potts tweet:

Mike’s tweet was a reply to Grady’s comment on the latest news out of Uber:

It’s an understandable question. It’s a reasonable question. It’s one that came up back during the healthcare.gov fiasco and it’s one raised by Volkswagen’s recent criminal misconduct.

However, when contemplating fixing a problem, we need to be extremely mindful of the potential for creating harm as a result of the “fix”. Particularly we should be wary of creating harm out of proportion to any good we do (i.e. we don’t want to kill roaches by burning down the house). I chose the image at the top to illustrate something key to this discussion – changing laws (the software of our meta-enterprise) is only slightly harder than moving a roadway once laid down.

Now for the caveats:

  • I do my utmost to avoid politics on this site – I really doubt you’re looking to me for guidance or even just my opinion. I’m not intending this post as a political statement. I’m not asserting that government is never the answer, merely that it’s a rather blunt instrument that we need to use with care.
  • I agree with Grady and Mike that those who took part in this are a disgrace. Moreover, I believe everyone involved, top to bottom, needs to be prosecuted and, if convicted, punished to the fullest extent of the law.
  • My tl;dr position is this: if we have regulation, it should be effective and without avoidable harmful side effects.

As I noted above, it’s human nature to respond to problems with some proposal to fix the problem. It also seems to be human nature to respond in a manner that doesn’t necessarily deal with an issue from a systemic perspective. We tend to allow ourselves to concentrate on the need to “do something” and ignore the hard work of making sure what we do is effective (and doesn’t cause further problems). In other words, we put band aids on bullet wounds.

In both the case of VW and Uber, the conduct alleged is criminal. We could pass new laws making it a crime to commit a crime, but that seems to be an exercise in recursive futility. If the potential penalty in the first case was insufficient to induce compliance, should we really believe adding another layer will make it better?

An element that’s present in both cases is that the illegal conduct involves creating software to help avoid detection of the fact that the company was breaking another law. Regulatory pressures coupled with a corrupt culture can create perverse incentives to cheat. This does not in any way excuse the conduct, particularly in the case of VW. It is, however, one of the systemic factors that should be taken into account.

In my experience, the most effective compliance program is one where compliance is the path of least resistance. Self-imposed compliance cannot fail to be more effective than compliance enforced externally. Corrupt agents will still violate the rules, but ideally you want to make it so that the lazy way out is the desired behavior.

Another aspect of regulation that comes up is something along the lines of professional standard similar to those of attorneys, accountants, and doctors. Increasing the level of professionalism is laudable, but would it be an effective response to the issue of criminal misconduct? Additionally, assuming it was legally enforced, what would the cost be? Everything from administration of the program to salary increases would introduce new costs and would likely affect the pace of innovation (due to the impact on both supply and demand). Again, without justifying the conduct, what was Uber’s motivation to develop its code to defeat detection by regulators?

I can well imagine other potential issues with a regulatory regime that requires a license to code. Not only commercial innovation would suffer, but the effects on the Open Source community could be disastrous if the licensing regime was expensive.

Doing “something” is easy. Doing something effective is a bit harder. I’m all aboard for punishing the guilty (each and every one), but we should move carefully when considering actions that might be more difficult to undo.

Volkswagen and the Cost of Culture

Hand holding a wad of cash

Thanks to Volkswagen, we now have an idea of the cost of failing to maintain an ethical culture, roughly $18 billion US (emphasis added in the quoted text below by me):

Volkswagen’s financial disclosure on Friday, in a preliminary earnings report, came a day after the company agreed on the outlines of a plan to settle some legal claims in the United States, which would include giving owners of about 500,000 affected vehicles the option of selling the cars back to the company or having them repaired.

Volkswagen is still negotiating the size of the fines it will pay to the United States government for violations of clean-air laws, as well as how much additional compensation it will provide to owners. The money set aside by the company on Friday provides an indication of what Volkswagen expects the total global costs of the scandal to be, although the figure could rise further.

Since the scandal broke in September, 2015, the news has steadily worsened. Last December, Volkswagen’s chairman admitted that the cheating found was not an isolated lapse:

…the decision by employees to cheat on emissions tests was made more than a decade ago, after they realized they could not meet United States clean air standards legally.

Hans-Dieter Pötsch, the chairman of Volkswagen’s supervisory board, said the cheating took place in a climate of lax ethical standards.

“There was a tolerance for breaking the rules,” Mr. Pötsch said here on Thursday during his first lengthy news conference since the company admitted in September that 11 million cars with diesel engines were rigged to fool emissions tests.

Volkswagen’s executive leadership explanation at the time:

Mr. Müller and Mr. Pötsch conceded that the deception reflected organizational shortcomings.

For example, the people who developed the software were the same ones who approved it for use in vehicles. At other companies, it is standard practice for one team to develop components and another to check them for quality. Volkswagen said it would correct those procedures.

Mr. Müller also said he wanted to change the company’s culture so that there was better communication among employees and more willingness to discuss problems. His predecessor, Martin Winterkorn, who resigned after the scandal, was criticized for creating a climate of fear that made managers afraid to admit mistakes.

“We don’t need yes men,” Mr. Müller said, “but managers and engineers who make good arguments.”

I would argue that what’s needed more than “good arguments” is a corporate culture where it’s understood that refusing to break the law is not only allowed, but expected. Given that the size of the loss reserve has more than doubled since then, perhaps they’ve realized that now as well.

What is not needed, however, is the traditional response to high-profile issues, layering on additional ad hoc rules and regulations with an eye toward making sure this “never again happens”. For one thing, there’s no indication that anyone was not aware of the fact that this behavior was wrong. Additional compliance theater is unlikely to improve anything in that respect, and may actually cause new problems in addition to exacerbating the root problem, VW’s culture.

A recent study (reported on in The Atlantic) by Simon Gächter and Jonathan Schulz, University of Nottingham, reports that corrupt cultures breeds corruption. In this study, they:

…asked volunteers from 23 countries to play the same simple game. The duo found that participants were more likely to bend the game’s rules for personal gain if they lived in more corrupt societies. “Corruption and fraud are things going on in the social environment all the time, and it’s plausible that it shapes people’s psychology, what they can get away with,” says Gächter. “It’s okay! Everybody does it around here.”

This study also has implications for Volkswagen’s ability to fix the problem:

Causality could eventually flow in the other direction. “If people are dishonest or think it’s okay to violate rules, it would also be harder to fight corruption and install institutions that work,” says Gächter. “In the long run, these things move together. But to show that, you’d need a 20 year project measuring this on an annual basis.”

Volkswagen, however, probably does not have twenty years to fix their problem. In the US alone, VW will have to fix or buy back (at the owner’s option) over 500,000 vehicles. I suspect VW’s reputation is severely impaired with those that opt to have their vehicles repaired and I would be willing to bet that the majority of those who sell their cars back won’t be returning as customers. This loss for Volkwagen is only the beginning of their financial problems, and it could all have been avoided.

Back in November, Matt Balantine floated an interesting (and very plausible) theory:

That may well turn out to be the case, but I also have to agree with what Grady Booch tweeted when the scandal first broke:

There’s plenty of blame to go around, but ultimately I believe only a systemic fix, top to bottom, will have any chance of correcting the problem (not that I’d be willing to give VW very good odds on remaining in business long enough for that to take effect). Their value going forward may be to serve as empiric confirmation of Gächter and Schulz’s work. Their bad example may serve as a wake up call for others to pay attention to the culture they’ve fostered (and are fostering) before their employees, innocent and guilty alike, pay the price.

Locking Down the Prisoners: Control, Conflict and Compliance for Organizations

Newgate Prison Inmates

The most important thing to learn about management and governance is knowing when and how to manage or govern and more importantly, when not to.

The story is told about a very new and modern penal facility, the very epitome of security and control. Each night, precisely at 11:00 PM, the televisions were shut off and the inmates were herded into their cells for lights out. Since the inmates tended to dislike their enforced bedtime, fights would ensue during the lockdown and throughout the night when the cells needed to be opened (both for purposes of head counts and to respond to the inevitable conflicts caused by locking people in close quarters). If the problems were pervasive enough, an entire housing unit might be punished by – wait for it – being confined to their cells (perpetuating the cycle).

Management of the facility was at a loss on what to do. The conflict was causing disruption in the day-to-day activities. This disruption further exacerbated tensions. The fights led to injuries to both staff and inmates, raising costs and risk of civil litigation, as well as causing staffing problems.

The answer was simple – stop the lockdowns. When the policy was reviewed objectively, it was obvious that enforcement was yielding no benefits to offset the many costs. In fact, stopping enforcement actually increased security by reducing tensions and causing the night owls to sleep in during the day. In a real-life zen moment, it was realized that letting go of the illusion of control provided real control (or at least something closer to it).

Most organizations could benefit from a similar epiphany.

This is not to suggest that process, management, and governance are unnecessary, far from it. Instead, it’s important that the system by which things are run is…systemic. As Tom Graves likes to say, “…things work better when they work together, on purpose”. Intentional design applies to social systems, just as it applies to software systems. Ad hoc evolution, by way of disjointed decisions unencumbered with any coherence, lead to accidental structures. Entropy emerges.

This can be seen in a tweet from Charles T. Betz:

Or, as Gary Hamel tweeted:

The alternative is to do as Yves Morieux stated in his TED talk: “We need to create organizations in which it becomes individually useful for people to cooperate.” This involves a ruthless attention to cause and effect. This involves creating environments where unnecessary friction is removed and necessary friction is understood to be necessary by all involved. It’s a lot easier to get compliance when it’s easier to comply and a lot easier to get conflict when you provoke it.