When ignorance is power

In a tweet last night Stella Creasy, referring to Adrian Beecroft's claim that he didn't know about Wonga's fraud until recently, said:

Surprised to hear Beecroft claim as major shareholder in Wonga didn't know about fraud issues. Not great advert for his expertise is it?

Au contraire. It's a great advert for his expertise.

For one thing, bosses, let alone shareholders, simply cannot know everything. However much expertise you have, you cannot know what thousands of people are doing from hour-to-hour. Knowledge is bounded.

And even if such knowledge were attainable, it's not clear it would be desirable to obtain it, as doing so would entail massive micromanagement which would demotivate employees and stifle their initiative. If - say, hypothetically - a newspaper editor were to persistently ask staff how they got their stories she would soon find them walking out the door to papers where they were allowed to get on with their work.

But there's something else. It's that for bosses, ignorance can be an asset. John Gapper writes that "no public company can knowingly permit lawbreaking and journalistic recklessness." That word "knowingly" is doing some work. It's quite possible that, for some (many) businesses, law-breaking has a positive expected value: the expected benefits of fraud or phone-hacking exceed the expected costs. A profit-maximizing company should therefore undertake them. One way for it to do so is for managers to turn a blind eye so they can maintain plausible deniability, and ensure that if the wrongdoing is exposed that there's no smoking gun to connect them to the crime.

What's more, as Thomas Schelling pointed out back in 1956, ignorance can be power in bargaining situations. The boss who can maintain plausible ignorance about crime in his company is less likely to be blackmailed, for example. Linsey McGoey has claimed that ignorance was a source of power for bankers, because it both permitted them to make profits from taking on tail risk in mortgage derivatives and then gave them power to extract state hand-outs: "if you don't bail us out, who knows - the whole financial system might collapse."

In this sense, the old saying "knowledge is power" is wrong. Sometimes, it is ignorance that is power.

In saying all this I don't mean to criticize Ms Creasy personally, as she is generally a good thing. Instead, I fear that what we have here is an example of a casual comment betraying a wider mindset. In presuming that managerial knowledge is unbounded, and in ignoring the use of ignorance as means to cling onto power and wealth, she is revealing a classical weakness in social democrat ideology generally - a naivete about the nature of managerial power.

Comments

[Socialism In One Bedroom]

There is a difference between a one off act of criminality by someone in the company and systematic repeated criminality within the company.

The job description should come with a certain responsibility, after all this is how they usually justify their enormous salaries.

So if systematic criminality is going on within your company, then you should be held responsible along with the culprits. Whether you actually knew about it or not should not be the issue.

And the culpability should follow the organisations internal hierarchy. So if systematic criminality is going on in Division A Section B then the Section B manager and the Division A director along with those above them should all be culpable.

Then they wouldn't simply plead ignorance when the company was indulging in mass criminality, they would probably ensure that controls were put in place to ensure it didn't happen and if they didn't then the risk would be on their heads.

This is why recent jury verdicts in regard to phone hacking have been so depressing.

[FromArseToElbow]

I think it's open to question whether a newspaper editor can be considered a generic "boss". In theory (I'm basing this squarely on The Front Page), the role requires a skillset based on discrimination and judgement, rather than just MBA-bollix. That would suggest that being nosey about sources and accuracy might be considered admirable.

Of course, the reality may be that NI editors are not editors in the traditional sense, but merely executives of a rapacious global corporation for whom office politics (which in their case overlaps with politics) is paramount. This would explain Rusbridger's disdain for Brooks, with its faint whiff of class contempt.

The personalities are a distraction. What we really need are corporate prosecutions against News UK (nee NI) and Wonga.

[dsquared]

Not buying that. Beecroft a) repeatedly made public claims about Wonga's ethical practices, particularly with respect to collections, so he should have checked whether what he was saying was true, and b) agreed quite a while ago with the OFT to review those practices as a result of a previous set of cases, and so should have done so.

[Socialism In One Bedroom]

Same with Brooks, who became quite the moral crusader. I mean who doesn't have total disdain for Brooks?

Personalities are everything, behind every organisation are a bunch of bastard personalities. You can't lock up Wonga.

[FromArseToElbow]

@SIOB: no, but you can wind up the business and debar the directors from running any other companies. Murdoch didn't spend £60m on Brooks's defence because of sentiment but because he needed a firebreak.

[Socialism In one Bedroom]

"but you can wind up the business and debar the directors from running any other companies."

But you can still 'lock em up' as the Sun might say.

[rogerh]

So how do you tell the difference between someone relying on 'Knowledge is bounded' compared with someone relying on 'Constructed Plausible Ignorance' when the s&*t hits the fan?

For it is a normal part of corporate system design that some sort of cut out or gap exists between the footsoldiers and the controlling minds. Trouble comes when the footsoldiers refuse to go along with heavy hints or pressures from above and blow the whistle. Two other possibilities exist - footsoldiers do follow heavy hints and pressures and something goes wrong, a well designed cut out will leave them to take the rap. Alternatively it does happen that footsoldiers operate on their own initiative and somehow not be managed away from wrongdoing, they take the rap.

The lack of a paper trail or similar or a means of preventing access to any paper trail and any evidence of a defence-in-depth corporate strategy suggest a Constructed Plausible Ignorance kind of design, openness and clarity might suggest a Knowledge is bounded approach. A joyful time for lawyers either way.

[jungle]

It seems to me that this article is talking about two phenomenae which are not really particularly linked.

True, bosses can't know absolutely everything and a boss which tried could create a nightmare of bureaucracy. I suspect a lot of the stifling bureaucracy in the public services (especially teaching) stems from the efforts of ministers to fulfil unrealistic demands for infallibility.

But falsely claiming not to know things, or deliberately not knowing things, isn't the same.

I used to work for a company which I'd say had a deliberate strategy of lawbreaking - it was strongly incentivised among frontline staff by means of commission and otherwise unmeetable targets. But no-one higher up, obviously, would ever spell it out; and should that lawbreaking ever be noticed in the press, I'm sure the strict policies against it would be pointed out and the unfortunate employee(s) involved would be immediately defenestrated.

But the point I want to make is that this wasn't a commercial advantage of a general approach of the bosses knowing little about day-to-day activities (the "bounded knowledge" thing). In every other regard employees were monitored unceasingly in extreme and quite probably unnecessary detail; what the bosses had a lack of knowledge about was really quite specific...

[Alex]

Thought you may find this interesting Chris:

http://www.technologyreview.com/view/528436/data-mining-200-years-of-patent-office-records-to-reveal-the-nature-of-invention/