Today, we were discussing on principles and rules when one of our friends sent a video clip on WhatsApp, which was a part of an interesting episode from Business Sutra by Devdutt Pattnaik.
Who doesn’t want to be a “person of principles” as opposed to a “person of rules”? A person of rules seems to be someone who is narrow, rigid, constrained, ideological and unable to think creatively about an issue. So, of course, everyone wants to be principles-based ─ that is, creative, broad-minded, reasonable and insightful.
A principle is a general statement, with widespread support, which is intended to support truth and fairness and acts as a guide to action. Sometimes a set of rules may be proposed to guide the observance of principles, but it will always be a matter of judgment whether following these rules will actually achieve conformity to the principle. Principles cannot be replaced by mechanical rules. A principle internally motivates you to do the things that seem good and right. People develop principles by living with people with principles and seeing the real benefits of such a life.
Principles essentially have no minimum standard of practice and can rise over time. Principles work to influence a broad set of practices conforming to a level of expectation by the community at large. The implication being, that if anyone in the community believes your practices to be skirting the issue, or non-genuine, then you have a problem of confidence in your actions. This then should leverage everyone up to a high standard of practice, as minimal compliance will not really be tolerated by most onlookers. Principles also encourage organizations to start right away at moving their current practices in-line with the principles, leaving room for continuous improvement over time.
A rule is a means of establishing an unambiguous decision-making method. There can be no doubt about when and how it is to be applied. Rules represent specific instructions ─ like a computer program. Rules are sometimes arbitrary and may not always reflect the underlying principles. A rule externally compels you, through force, threat or punishment, to do the things someone else has deemed good or right. People follow or break rules.
Playing by the rules requires all members of a community to exhibit minimum standards of practice. In order to gain approval by a majority of members, the standards have to be essentially the minimally acceptable practices. This can result in less-than-excellent standards. Unfortunately, a rules-based approach also tends to encourage those to play games with the rules, to find loopholes in the rules, and to find ways around the rules.
By leaving the onus on community members to measure adherence to principles, it also leaves to members the responsibility to demand public reporting/ communication. This then eventually plays out by giving the media or special interest groups the responsibility to ‘police’ the practices of organizations and which may spoil the tenets of principles and corrupt the system, at the end.
Authority and enforcement are qualities of the rulers and regulators, not of the words in the rules. A ruler or a regulator can be equally, or more, challenging of judgment in requiring justification. They must have the capacity to understand and question the judgment on the basis of stated principles, rather than seeking refuge in rules designed to ease operation of the system.
A history of rigorous and aggressive regime leads to spiraling development of rules-based system because success on the part of the authorities increases the propensity to create more rules. In every authoritarian regime, rules take precedence and principles are often forgotten or ignored.
Rules-based system provides detailed guidance and clarification and precise answers to questions. However, it reduces or eliminates the exercise of judgment and lead to de-skilling by requiring a ‘tick-box’ mentality, at the expense of judgment and a real understanding. It also causes complexity and delay in keeping abreast of change. It’s delusory to think that rules can totally eliminate the need for judgment. Most of the audit failures arose through lack of judgment rather than non-compliance with rules.
Neither rules-based approach nor principles-based approach can prevent dishonest practice. Often, rules provide a vehicle for circumventing the intention of the approach and the process. Nevertheless, the principles-only approach may present enforcement difficulties because they provide insufficient structure as a basis for ensuring ‘compliance’.
Since our childhood, we are made conditioned to rules through the process of education and training and then we continue to look for the rule as the starting point in answering a problem. Every parent, guardian, or teacher hopes that their kids or students will comply with and follow rules, even sometimes at the cost of their judgment. The principle that it’s best to do what others need you to do in a situation covers that.
I don’t mind following rules. I obey most of the laws of which I’m aware of. The rules should support the underlying principles. Personally, I prefer a dynamic rules-based system based on the foundation of principles and not a rigid, dogmatic, static, conservative rules-based system. Our approach should be an appropriate mixture of principles and rules, which encourages the spirit of the guidance to be complied with and does not undermine the exercise of judgment.