It is alarming, not just the Bernie Madoff scandal, but the “whole ball of wax”, the banking collapse, the economy . . . all of it.  As I read about the Bernie Madoff scandal in the Wall Street Journal this morning, my eye caught one important fact.  Madoff hired (allegedly) employees that didn’t understand the securities industry and directed them to “generate false and fraudulent documents.”  The command and control thinker has functional specialism (born from scientific management theory) as its mantra where tasks are split to where no one really knows what they are making or servicing.  The tasks are so diluted that only the executives or managers could know.  

My bank management consulting experience over the past decade saw the separation of duties into front, middle and back office and many times I was told this was for regulatory purposes.  It is a management paradox to me that the very thing that they are trying to prevent (by separation of duties) . . . fraud, may promote it.  It would take a lot for a group of systems thinkers (that understand the system end-to-end) to be morally corrupt for someone not to blow the whistle. 

An added benefit with systems thinking is you would be serving the customer as the center of activity.  This leads to business improvement, corporate cost reductions and better service. Boards of Directors would be wise to take this approach in any industry.

My fear is that we will take the inspection approach with banking, penalizing those banks that did no wrong (most of them).  This will add to costs as inspection and regulation are forms of waste.  Inspection is too late and regulation is too expensive, but these are things we can expect in the coming days.  Better work design through systems thinking would be a better approach.