He who pays the piper calls the tune: The Importance of Structure: Jigneshbhai and Swami

Dec 24, 2011

“A friend of mine recently left his job for a funny reason” Jigneshbhai told us when we met last weekend for our coffee.

“Funny or serious – as long as he has left his job, good for him” Swami reacted, reflecting his state of happiness with his job perhaps.

“Anyway, what was the funny reason?” he asked inquisitively.

“Well, the funny reason was his boss told him he is not doing his job well after he was doing it well” Jigneshbhai said.

Again Swami was not impressed. “That happens all the time” he said. “So basically he got a bad appraisal?”

“Well – it was funny, let me clarify.” And Jigneshbhai went on to explain.

“His job was to set up a system that determines the effectiveness of their marketing spends. Nothing wrong with that intent. But he was reporting to the marketing department itself.”

“So when he found that some programs were not performing, some marketing head somewhere would lose his budget.”

“Once they realized that, he constantly found himself to be at the receiving end of objections on formats, data sources and discussions on ‘whether we are measuring the right things’!”

“Finally while no one agreed on what he found, everyone agreed that what he found wasn’t of any value!”

Well, that may be a bit far-fetched, but the point is – structure is important.

A few observations over the past few days suggest that several problems are structural. And designing structures for people to follow is a big problem. Specially if there is lack of alignment on what that structure is supposed to achieve, who it reports to, and who pays for it. And so people who design structures must be extra careful, that they are not prey to the universal truth that he who pays the piper calls the tune.

Because no one generally wants to challenge the source of their dough. And if there is a conflict, well – generally, the source of the dough will win.

Like Jigneshbhai said “I have never understood how auditors – financial, process or any auditor for that matter – can be fully independent, when their fees are paid by the same management whose functions, they are auditing?”

Like he has often wondered how a financial adviser who is used to getting his fees from the fund house whose products he sells, or a stockbroker whose revenues depend on how much you transact, can ever provide independent advice that is solely in the investor’s interest?

“Even independence needs to be paid for” Jigneshbhai insisted.

“So unless someone is paying a piper to be independent, the tune he gets will not be independent. So be it policing agencies or regulators like SEBI or IRDA. Their tunes also depend on who is paying the piper and for what tune. And that definition has to be structural.”

“Profound indeed” Swami and I thought.

Like recently a set of cricket commentators were said to toe the administrators’ views in their supposedly unbiased commentary. Well, how can anyone be unbiased if the structure of their contracts does not support it?

Like how can one expect newspapers or media who are dependent on advertising revenue say anything against the people who pay for the advertising?

“Well, these are not unsolvable problems if you have the right structures in place” Jigneshbhai finally said. “But they are structural problems, and anyone caught in those structures will face the pressures of conflict. And it is not easy to design such structures.”

Like how can the Lokpal structure whose job it is to investigate corruption in government, report to and be paid by someone whom he is supposed to be investigating?

Well, it is a problem of structure. And structure is driven by intent. No easy solutions, but if there is no intent, the right structure will not evolve. And if there is no structure that allows scope for an independent voice, well, then there is no point in even expecting much.

And the old wealthy man who was listening to our conversation had the last word, when he said, “Because finally he who pays the piper calls the tune.”