Slow & Complex Decision Governance and Its Consequences

Decision governance, or governance in general, is to a large extent about rules: rules about who does what, when, how, so that some values can be realized, and in the shorter run, goals achieved. 

A common problem with governance is that rules tend to accumulate over time. They are added and adapted to handle new situations, new behaviors, and, or have a broader and deeper impact. As rules accumulate, and become more interdependent and specialized, complexity of governance increases.

The growing complexity of systems of rules and its implications have been studied, among other areas, in law and policy. What was observed in these domains applies, at a smaller scale, to a firm’s governance, including its decision governance. This matters, because as complexity increases, risk increases that governance in place proves inadequate and leads to worse outcomes.

This text is part of the series on the design of decision governance. Decision Governance refers to values, principles, practices designed to improve the quality of decisions. Find all texts on decision governance here, including “What is Decision Governance?” here.

Complexity of Governance

On the surface, legal complexity refers to a common observation that there are more laws – rules – and that this is making things harder to do right, and at the right time. In his 2012 BBC Reith lectures, Niall Ferguson said the following in relation to the developments of law in response to the mortgage backed securities crisis of 2007.

“The rule of law has many enemies. One of them is bad law. Dodd-Frank is a near perfect example of excessive complexity in legislation. The Act requires that regulators create 243 new rules, conduct 67 studies to see if the rules are necessary, and issue 22 periodic reports. It eliminates one regulator but creates two new ones. It addresses everything from gender balance on regulatory agencies to carbon trading to conflict diamonds from the Congo.” [1]

Here is an example of how complexity of a legal system is defined in academic  research [2].

“I define a legal system as complex to the extent that its rules, processes, institutions, and supporting culture possess four features: density, technicality, differentiation, and indeterminacy or uncertainty. […] Dense rules are numerous and encompassing. They occupy a large portion of the relevant policy space and seek to control a broad range of conduct, which causes them to collide and conflict with their animating policies with some frequency. […] Technical rules require special sophistication or expertise on the part of those who wish to understand and apply them. Technicality is a function of the fineness of the distinctions a rule makes, the specialized terminology it employs, and the refined substantive judgments it requires. […] A legal system is institutionally differentiated insofar as it contains a number of decision structures that draw upon different sources. of legitimacy, possess different kinds of organizational intelligence, and employ different decision processes for creating, elaborating, and applying the rules. Product safety, for example, is institutionally differentiated in that it is governed by statutory provisions, regulatory standards promulgated by several different agencies and private technical organizations, tort litigation, and common law contract principles. […] Indeterminate rules, processes, and institutions are usually open-textured, flexible, multifactored, and fluid. […] Turning on diverse mixtures of fact and policy, indeterminate rules tend to be costly to apply and their outcomes are often hard to predict. Indeterminacy’s relation to legal complexity is itself complex. Ironically, rules and institutions that are designed to reduce the law’s indeterminacy may actually increase it, due to the cumulative effect of their density, technicality, and differentiation. Indeterminacy, then, may be a consequence, as well as a defining feature, of complexity.” [2]

In political science, the complexity of policies deals with the same problem, or the accumulation and interdependency of policies designed to regulate a domain. The figure below shows, through a concrete example, the observation that complexity of policies is increasing. The figure, based on the data in [3] and reproduced here from [4], shows the variety of policies that are considered as part of the environmental policies in Italy, and shows that variety at two times, in 1976 and 2018. The differences in colour in the Figure highlight the additional policy instruments over those from 1976, or simply, more governance about the same domain.

You can view the complexity of the firm’s governance along the same dimensions as that of a legal system:

• Rule density, which is about their applicable scope, their number, and interdependency,
• Expertise required to understand, apply, and change the rules, which was discussed above in relation to how technical the rules are,
• Variety of roles and groups that have authority to interpret, arbiter, and audit the implementation of the rules,
• Indeterminacy, which refers to how predictable the outcome of applying the rules is.

Consequences of the Complexity of Governance

Why does it matter to understand and worry about the complexity of governance, in the context of decision governance in a firm? There are two main implications.

1. Decision governance in firms needs to be coherent with, and when relevant, comply with governance that applies to more than that single firm. The more complex that externally-designed governance is, be it laws, standards, policies, or otherwise, the more effort, and thus cost there will be in the firm, to determine how to and then ensure coherence and compliance.
2. The more governance there is in the firm, which is internally-designed, the more effort it will take, and again, more cost, to maintain it, update it, train staff in it, and monitor compliance with it.

Some costs of governance complexity are high and can only be paid off over a long period of time. In particular, consider the possibility of losing credibility, and think about how costly it is to rebuild it. 

The mechanism by which credibility is lost, is that if decision governance increases in complexity, it will take longer and longer to make a decision. If it matters how long it took to decide, as it often does, then the decision will be seen as worse, regardless of what other outcomes it has. The decision maker loses credibility, and will be less frequently, or not at all trusted in the future with the same decision rights.

In the context of public policy, it was argued that a democratic government’s credibility is at stake as governance complexity increases. In [4], the argument is as follows; it is interesting here, because you can reread it by substituting the democratic government for a decision maker in the firm, and the same observations apply. While some decision makers in firms might consider themselves closer to autocrats, that will not be true for those who want to work with capable, competent, talented colleagues.

“The key virtue – and problem – of modern democracies is their responsiveness to societal demands. Ignoring societal demands is not an option for democratic governments if they are interested in staying in power. While autocratic leaders can afford to bypass the popular will (at least until the threshold of rebellion is reached), democratic governments risk losing their power if they fail to live up to the expectations of the population. Responsiveness is the main source of legitimacy for democratic governments.

First, continuous policy accumulation has created increasingly complex policy mixes and a stock of rules and programs that is increasingly difficult to grasp in its comprehensiveness. In other words, the substance of public policy has become more and more complex. While expert arenas of policy debate might be able to keep up with this increasing complexity of policy substance, the characteristics of arenas of public debate, such as most television formats, leave them unfit to carry this level of complexity. In this way, the process of policy accumulation threatens to crowd out policy substance from public political debates. The resulting tendency to talk politics instead of policy challenges the input legitimacy of political decisions. This is where we see the responsiveness trap click first.

Second, democratic responsiveness is often focused more on the delivery of new policy outputs than on their implementation. Once individual laws and regulations are adopted, they move off the desks of policy makers and onto the desks of lower-level frontline bureaucrats, where implementation burdens accumulate, very often without adequate financial and staff resources to handle the additional workload and complexity. As implementation burdens continue to accumulate, the prevalence of administrative backlog and selective implementation increases. As the risk of generating systematically increasing implementation deficits threatens the output legitimacy of democratic governments, the responsiveness trap clicks a second time.

Third, the output legitimacy of democratic governments relies on perceptions of policy effectiveness and therefore on our interpretation of the results of policy evaluations. In order to evaluate increasingly complex policy mixes in a way that enables us to refine these mixes based on evidence, we require knowledge not only about their effectiveness collectively but also about the effectiveness of the individual elements within policy mixes– how the effects of one element within the mix are conditioned by the effects of other elements within that same mix. This knowledge is crucial to refining domestic policy mixes and to forming educated guesses about effectiveness when an element is transferred into a foreign policy mix. […]

From this perspective, responsiveness to societal demands appears to be a double-edged sword that leaves policy makers stuck in a responsiveness trap: Being unresponsive will undermine their legitimacy, while being responsive – and thereby accumulating policies and regulations – will slowly and silently overburden the administrative, evaluative, and communicative capacities that help support the legitimacy of democratic government in the long run.“ [4]

If a decision governance design makes it impossible, or unlikely to decide within the time that the decision is needed, then that design needs to change: either it needs to acknowledge that there are costs to delaying the decision, and these costs need to be incorporated in the decision options, or it needs to be redesigned to ensure a timely decision.

References and Further Reading

1. The Reith Lectures: Niall Ferguson, The Darwinian Economy, Jun 26, 2012 https://podcasts.apple.com/ca/podcast/the-reith-lectures/id318705261?i=1000343853921
2. Schuck, Peter H. “Legal complexity: Some causes, consequences, and cures.” Duke Law Journal 42 (1992).
3. Hinterleitner, Markus, Christoph Knill, and Yves Steinebach. “The growth of policies, rules, and regulations: A review of the literature and research agenda.” Regulation & Governance 18.2 (2024): 637-654.
4. Adam, Christian, et al. Policy accumulation and the democratic responsiveness trap. Cambridge University Press, 2019.