manifestly corporate governance problems. Looking for greed is just like the drunkard looking for his keys under a lamppost. More often than not, what’s lost is not under the bright lights.
In a broader sense, if we truly want to make it easier for corporate executives to come clean about problems they discover as soon as they discover them, then we also ought to change the law so that they are not punished for spilling the beans on themselves.
Lots of companies discover problems with their products or their performance long before these problems become public. Indeed, it is a good bet that some serious problems never become public at all. A few years ago, for instance, the 3M Corporation pulled Scotchgard off the market. Scotchgard was one of its biggest earners, and yet one day it was in the stores and the next it was gone. A few years later, 3M introduced what it called a new, improved Scotchgard. The EPA and other firms in the chemical industry wondered whether 3M had discovered a health or safety risk associated with the main chemical in Scotchgard, a chemical not found in its “new and improved” product.
I don’t know whether 3M discovered a problem or just decided one day to change a successful product. Imagine that they did find a problem. What would they—no, better yet, what
Probably many companies would reveal what they know when they discover trouble if the government would immunize them against prosecution for any problems in their products that were previously unknown to them. The government won’t. Litigation is the favored solution, as opposed to rewarding responsible, public-spirited actions by corporate executives in difficult straits. The result is that corporate leaders are given the wrong incentives. Remember all the litigation surrounding the problems caused by DDT? Do you also remember that the Royal Caroline Institute won the Nobel Prize for Physiology or Medicine in 1948 for developing DDT? With litigation run rampant, we fail to provide corporations and their leaders with protection for reasonable expectations and decisions that, not by any misdeeds on their parts, may simply turn out to be wrong.
In this chapter, we’ve explored how to frame questions. The main idea is to isolate the individual components of a problem that shape its resolution. Then it’s a straightforward matter of turning those isolated individual components into issues that, depending on the circumstances, may be decided separately or that may be linked to each other. Once an issue is well defined, experts have an easier time talking about who really will try to influence the decision on each item. Then we can have the computer play the forecasting and engineering game to simulate what proposals each player is expected to make to each other player on a round-by-round basis, and we can bring into relief the incentives that players have to accept or reject proposed solutions.
With the computer program at the ready, we can sort through the problem and not only predict results, as I did with the napkins, but begin to engineer results to change outcomes, as I hinted could be done to prevent corporate fraud. Engineering outcomes is the subject of the next two chapters.
6
ENGINEERING THE FUTURE
DIPLOMATS ARE CONVINCED that a country’s name is an important variable that helps explain behavior. That’s why the Department of State is organized around country desks, just as the intelligence community is organized around geographic regions. Leaders of multinational corporations take much the same view. When they have a problem in Kazakhstan they call their guys in Kazakhstan to find out what to do. That seems eminently reasonable and right. Yet it is only partly right and terribly inadequate for solving most problems, or, as I see it, for engineering the future.
Now don’t get me wrong. Knowing about places, and how different they may be, is important, but, perhaps surprisingly, it is not as important as knowing about people, and how similar they are, wherever they are. I have not arrived at this view lightly nor, I hope, in ignorance. As a matter of fact, the training that led to my Ph.D. molded me into a South Asia specialist. I even studied Urdu for five years, both during my undergraduate and graduate studies, and did field research in India—so I certainly respect and value area expertise. But I don’t think it’s the way government or business should organize itself for problem-solving purposes.
Here, as in so many other ways, I am swimming upstream against a strong current. Mine is a controversial stance in many of the circles in which I travel, and many in those circles see views such as mine as foolish at best and dangerous at worst. Still, I do not shy away from the risk of publishing predictions about things that have not happened—and by and large, those who disagree with me do not do the same.
As valuable as area studies is, it is by itself a poor substitute for the marriage of expertise about places and the expertise of applied game theorists about how people decide. Yet we seem to think that knowing the facts is sufficient. Some even contend that it is ridiculous to rely on something as abstract as mathematics to anticipate what people will do. Speaking of ridiculous things, we surely would think it ridiculous if chemists believed that oxygen and hydrogen combine differently in China than they do in the United States, but for some reason we think it entirely sensible to believe that people make choices based on different principles in Timbuktu than in Tipperary (we might be different from mere particles, but we’re not all that different from one another). Country expertise is no substitute for understanding the principles that govern human decision making, and it should be subordinate to them, working in tandem to provide nuance as we actively seek to engineer a better future.
To explore how this view informs the predictioneering process, in this chapter we’ll turn to a group that lives and feeds on human conflict: lawyers. Lawyers share with diplomats, academics, and business leaders a conviction that country names matter, but—let’s give them
When diplomacy is successful, wars are fought with words, the combatants sitting around a table, drinking Perrier until a resolution is reached and celebrated with fine wine. Lawsuits are wars too. Just as most international disputes are settled long before they get to the battlefield, so are lawsuits played out in meeting rooms, boardrooms, lawyers’ offices, and only rarely courtrooms. Lawyers prepare arguments, investigate precedents, amass documents, and study the other side’s paper trail. In big corporate suits, millions, even tens of millions of dollars are spent on armies of attorneys. I’ve worked on lawsuits involving so many lawyers and so many law firms that it was almost impossible to keep track of them. My consulting company has frequently advised on lawsuits in which the defendant—usually our client is a defendant—holds uncountable meetings with one or two dozen lawyers
