Book reviews – Page 11 – Compliance Building

Criticism and Praise

drunkards walk

Do criticism and praise work to affect performance?

Leonard Mlodinow briefly addressed this topic in The Drunkard’s Walk: How Randomness Rules Our Lives. He explores the studies of Daniel Kahneman who was lecturing the Israeli air force flight instructors on behavior modification. Kahneman was trying to make the point that rewarding positive behavior works, but punishing mistakes does not.

One of the students called him out. He had praised people warmly for beautifully executed maneuvers and the next time they do worse. He screamed at people for badly executed maneuvers and they improve the next time. The other flight instructors agreed. But Kahneman’s research demonstrated that rewards worked better than punishment.

So what was going on?

Regression toward the mean. In a random series of events, an extraordinary event is most likely to followed by an ordinary one. Due purely to chance, it’s hard to have two extraordinary events in a row.

The fighter pilots have a certain level of ability. An extraordinarily good performance is most likely to be followed by an ordinary performance. So the praise would seem to fail to maintain the extraordinarily good performance. Similarly, an extremely bad performance is most likely to be followed by an ordinary performance, which in this case would be better than the bad performance. So the screaming criticism would seem to cause an improvement in performance.

So it appears that the criticism does some good and the praise does no good. What is really happening is a misconception of uncertainty and probabilities. The connection between actions and results is not as direct as we might think.

In compliance, we eschew lots of data. It’s good to step back every now and then to think about the implications of the data and the underlying assumptions.

Blink and Compliance

I am a little late to the game when it comes to reading some of Malcolm Gladwell’s books. Last week, while on vacation with the family, I managed to read Blink: The Power of Thinking Without Thinking.

The book is about rapid cognition, the kind of thinking that happens in a blink of an eye. What is going on inside our heads when during rapid cognition? When are these quick judgments good and when are they not? What kinds of things can we do to make our powers of rapid cognition better?

The book left me with a bunch of little tidbits of information. Gladwell illustrates each of his points with interesting narratives. In the process he makes several insightful points about the nature of rapid human decision-making. Sometimes, over-thinking a problem results in bad decisions. Our first instincts are often correct, if we have a clear picture of what is happening and our perception.

But often that clarity is missing. One example is the difference in selecting elite musicians when the audition is conducted behind a screen, rather than in full view. In the past thirty years since screened auditions have become commonplace, the number of females in the top U.S. orchestras has increased five-fold. Even though the judges were not overtly discriminatory, their first impressions from seeing a woman, the color of her instrument and the way she played had an unconscious negative effect on the judges.

There are lessons in this book for compliance professionals.

Snap judgments are often correct when they come from clarity and experience. But they can also easily be corrupted. Be aware of the situation, the person you are dealing with and the environment around you.

Sometimes too much information can cloud your decision-making. Gladwell finds an example in how an emergency room should handle potential heart attack victims. Typically, doctors try to gather as much information as possible and then make an estimate of whether the chest pain is a heart attack. Instead, they found that three factors were key to determining if chest pain is a heart attack. By focusing on these three factors, the correct diagnosis rate rose from 75%-89% correct rate of diagnosis to 95%.

Experience is clearly the most important factor in developing a strong snap judgment and practice is key in developing that expertise.

Social Networking for the Legal Profession

I just finished reading Social Networking for the Legal Profession by Penny Edwards and Lee Bryant. They were nice enough to send me a copy.

Penny and Lee used a few quotes from me, referred to some of my writings and used some of my social networking activity as examples. That poor judgment aside, the book is otherwise a great report on how legal professionals can take advantage of online networking tools.

The book contains practical examples and strategies. They explore the use of the tools externally as part of your marketing and business development efforts. They also explore the use of them internally for operations, communication, and knowledge management 2.0. They present a good road map with lots of options for an organization to chose among.

They start with the basics and run through a survey of the social networking sites most useful to lawyers: LinkedIn, Avvo, blogs, Facebook, Twitter, Legal OnRamp, Martindale-Hubbell Connected, JD Supra and many others.

It is not all kumbaya. The report takes into account the risks and challenges you must overcome to make implementation a success. They spend significant time talking about the culture challenges. They also explore the security, privacy and compliance issues.

Penny and Lee point out the paradigm shift with these tools. Unlike previous generations of collaboration tools, these 2.0 tools target individual benefits rather than the benefits to the organization as a whole. They focus on what’s in it for the individual. The benefits to the larger organization are a by-product. There is less emphasis on standardization and centralization.

The focus on standardization and the collective benefits was what knowledge management got wrong. The big central databases of knowledge management were useful to the organization as a whole, but provided little benefit to the individual contributor. They did not want awards or financial compensation (not that more money wouldn’t hurt), but wanted a way to help organize their own stuff in a way that was useful to them.

Unlike past generations of software, most of the innovation is coming from the consumer space. Free tools on the web are far ahead of enterprise systems. IT departments are constantly being asked why its so easy to search on Google or publish on the web, but so much harder to do so inside the law firm. If you want to know how these tools can help you inside your organization, you need to try them outside your organization.

There is a great chapter on the benefits of networking tools used inside the organization and how to achieve great benefits.

The book is expensive. The Ark Group gave it a cover price of £245. It is a great book and worth the price. If you are interested, I was given the details of a discount offer, taking $115 off the price, making it $285 plus $10 shipping. The details are on the US publicity flyer for Social Networking for the Legal Profession (.pdf).

You can read more from Penny, Lee and others at Headshift on the Headshift blog.

I thought I would also share links to some of my material that Penny and Lee cite in the book:

Free and Law Firms

I just finished reading Chris Anderson’s new book: Free: The Future of a Radical Price. Given that I am a lawyer, I kept thinking about how his concepts apply to law firms.

Let me say a few things up front.

First, this is an excellent book that will make you think about how these concepts apply to your business. For my prior employer, a large law firm I saw lots of trends in the book.

Second, I am part of an example that Chris uses to defend his hypothesis: GeekDad. Chris started GeekDad as the parenting blog for Wired magazine. The blog is led by Ken Denmead as editor who gets a nominal retainer. The rest of the contributors are unpaid volunteers writing for a magazine conglomerate that makes good money selling ads on GeekDad. I am one of those volunteer contributors. (You can see my name in the list of core contributors in right-hand column.)

Third, Chris does not take the position that everything should be free. He merely points out that more things now can be, thanks to the reduced costs of computer power, storage and networking.

Fourth, I paid for the book out of my own pocket. Free, the book is not free. Free, an ~~abridged~~ audio version is free online.

The Long Tail

Free is an extension of his previous book: The Long Tail. In that book he showed how the sale of large quantity of less popular titles can collectively sell as much as the few popular titles. You can make this work when you have cheap storage. Free takes the next step of what happens when your marginal production costs get close to zero.

There are many studies that show there is a big difference between something costing very little and something costing zero. Therefore you will attract a bigger audience if you round down. With electronic distribution, the marginal cost for adding the next customer is close to zero. So Chris says round down.

How Do You Make Money?

Chris outlines 50 different ways that you can make money even when you are giving away some of your product. Chris does not advocate giving away everything, just some of the things when the marginal cost is close to zero. One of the big distinctions is whether your product is atoms or bits. Atoms are expensive to produce and distribute. Bits are not.

He divides the idea of Free into four categories: cross-subsidies (give away the razor, sell the blade); advertising-supported services (from radio and television to websites); freemium (a small subset of users pay for a premium version of something, supporting a free version for the rest); and non-monetary markets (in which participants motivated by non-financial considerations develop things like Wikipedia and GeekDad).

Freemium is the model that Chris seems most in favor of. You give away a limited version of the product, but charge for the full version, add-ons and enhancements. SocialText just adopted that model for their wiki product: Free for 50. You can use a limited version of the product with up to fifty people at no charge. That freemium model got me using it.

Information is Expensive but Wants to be Free

Chris quotes Stewart Brand:

On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.

What about law firms?

Let’s look at the most extreme examples, Orrick, Herrington and Sutcliffe‘s free business formation contracts and Wilson Sonsini’s Term Sheet Generator. There’s no cost to use the forms and no registration required to download them. Businesses can use them free. Other lawyers can use the forms as if they were their own and use them to serve their own clients. But the free product may help capture business. There are big segments of the legal market that can’t afford to hire these firms. Now, a business using these may be more likely to use the firm because some of the work has already been done. The firms could charge far less to review a completed form than if the firm were to begin the incorporation from scratch. It may offer them a competitive advantage if opposing counsel presents them with one of their own forms.

But those examples are new and few.

There is an incredibly common freemium model adopted by almost every law firm: Client Alerts.

When you had to mail these alerts there was a dollar cost associated with that distribution. To better phrase that, there was a stamp cost associated with distribution. Now distribution are costs are minimal. The costs are the same whether you email it to 500 people or 50,000 people. The same is true with viewing it on the law firm’s website.

I think it is quaint that some law firms still use the “client alert” label. I get more alerts from firms that do not represent me, than I do from the firms that do represent me.

Lawyers and their firms are giving away this valuable legal insight in the hopes that you will hire them to represent you in a matter related to the information in their publication. They use the publications to showcase their expertise, but in the process give away some of their substantive knowledge.

The book is worth reading. You should start thinking about how free may affect your business.

References:

Malcolm Gladwell’s review of Free in The New Yorker: Priced to Sell
Anderson’s respone to Gladwell: “Dear Malcolm, Why So Threatened?
GeekDad – Wired’s parenting blog
Nice but Tricky from The Economist
Free and the Future of Publishing by William Landay
Mark Cuban: When you success with Free, you are going to die by Free
Seth Godin: Malcom is Wrong

Weekend Book Review – The Nine

You would expect a book about the inner workings of the United States Supreme Court to be dry and boring. I did, which is why this book has been sitting unread in my book pile for months.

Surprise! I found this book to be very interesting and entertaining.

The Nine: Inside the Secret World of the Supreme Court was written by Jeffrey Tobin, a staff writer for The New Yorker and a senior legal analyst at CNN. Toobin guides us through the last twenty years of court history by focusing on individual justices and their roles in some of the most controversial cases.

It is not an unbiased view of the justices. Tobin paints a very flattering picture of the centrist Justice O’Connor. In Toobin’s view Rehnquist has little interest in the reasoning even of his own opinions. He paints Antonin Scalia as the brilliant but pugnacious. Stephen Breyer is portayed as an optimist with an unrealistic belief in his powers of persuasion. Justice Kennedy comes across as pompous. Thomas seems bitter and angry. Ginsburg is charming and briliant. Stevens stands as the last bastion of liberalism on the court. Souter is a hermit living in the woods of New Hampshire who has never plugged in his television.

Toobin also portrays a bumbling Clinton administration putting its appointees on the Court. In comparison, the Bush White House ran its candidates past the religious right for their approval on social issues.

I am lawyer, so I may find the working of the Supreme Court more interesting than non-lawyers. Maybe my view is tainted, but this is one of the best books I have read in many months. I think you should add The Nine to your reading list.

Book Review: The Black Swan

I just finished reading The Black Swan by Nassim Nicholas Taleb. The title of the book comes from the observations of Europeans that all swans are white. Much to their surprise, they came to Australia and found their first black swan. The book starts with this story to illustrate the “limitations to our learning from observations or experience and the fragility of our knowledge.” As Taleb points out, it very different to think there is evidence of no possible black swans, than there is no evidence of the possibility of black swans.

Taleb has received lots of press and admirers given the recent meltdown in the financial markets. The book was published in 2007. Taleb seems to have perceived the coming collapse (and probably got a rich financial reward based on his strategy).

His supreme self-confidence (arrogance) shines brightly through in his writing. He has little time for shallow thinking and those who think they understand risk or the financial markets.

Another example running through the book is the first 1,001 days of a turkey’s life. For a 1,000 days the farmer brings food to the turkey every morning. On that last day, things change dramatically. The farmer shows up with an axe instead of food. A surprise and horrible change in circumstance for the turkey. But all the historical evidence for the turkey indicated that the farmer would show up with food and not an axe. Of course, on the flip side, the farmer saw the axe day coming.

As Yogi Berra philosophized: “It’s tough to make predictions, especially about the future.”

It is the unknown unknown that is most dangerous. We spend too much time focusing on knowing what we know. We need to spend focusing some energy in realizing what we do not know and what we do not know what we do not know.

As a compliance and risk professional I was particularly intrigued by the story of the four largest losses by casinos. As you might expect, casinos run very thorough security programs, compliance programs and risk management programs. The four largest losses fell completely outside the casinos’ models. One was the white tiger’s attack on Roy, the second was a disgruntled contractor who attempted to dynamite the casino, the third was the kidnapped daughter of a casino owner, and the fourth an incompetent employee who failed to file the 1099 reports with the Internal Revenue Service.

It is also important to draw the distinction between positive contingencies and negative contingencies. The black swan can be one that brings unexpected destruction or one that brings an unexpected windfall. His philosophy is to play it safe, but hedge for a disastrous losses and spectacular windfalls. Mitigate the unexpected consequences.

I expected to get a lot of insight from the book. But it was one of the few books that changed the outlook on my profession.