How pseudowork can ensure accountability in the financial sector
Or what the financial crisis of 2008 can teach us about the merits of bureaucracy.
By Joachim Skanderby Johansen
In 2018, the Danish anthropologist Dennis Nørmark and philosopher Anders Fogh Jensen published Pseudowork in which they argue that a significant amount of work doesn’t produce any valuable output. In Nørmark’s second book on the subject, Tilbage til Arbejdet (Back to Work), he gives further advice on how to identify pseudowork and continues to advocate for its elimination.
In this post, I will argue that work in financial institutions to ensure that powerful decision-makers can be held individually responsible fits the bill of pseudowork from Nørmark’s and Fogh’s characterisation. Despite this, ensuring we can hold senior management or board members responsible for their decisions is desirable – as illustrated by the outrage after the financial crisis in 2008 when this did not happen. This brings us to an apparent trade off: if we wish to eliminate pseudowork, we risk making it impossible to hold individuals accountable in case their decisions cause societal crises – and should we not be willing to suffer a little bureaucracy to ensure justice?
Pseudowork – not everything that looks like work is work
Let’s first look a little deeper into how pseudowork is characterised by Nørmark and Fogh. While pseudowork looks like work, and many engaged in it feel busy and even stressed, this type of activity does not produce any outcome of substantial value and may actually distract from value-generating activities. In Nørmark’s own words:
“We define pseudowork as work that does not leave any lasting or useful mark in the world; work that no one would miss if it disappeared and which is unlikely to be outsourced to a robot or abroad, because it is not actually needed.”1
Examples of pseudowork include grand plans that never bring about any real change, meetings that don’t bring about any action, manuals that no one reads or corporate mission statements made of hot air. Nørmark and Fogh argue that pseudowork takes up a crippling amount of resources in organisations – both directly, by paying people to do meaningless tasks, and indirectly because pseudowork has a tendency to “crowd out” value generating work. For example, doctors might get drawn into spending time on documentation and registration that does not produce value but takes time away from their patients.
As part of his rallying cry to fight pseudowork, Nørmark describes types of work that organisations should look out for, including:
Work not requested by the core business: These may be projects initiated by the support functions, management or by the board that are not based on the explicit needs of the core business. Nørmark suspects that such projects are often initiated for management or the board to seem like they are doing something.
Backstage work: This is usually work done by support functions without direct contact with the customers or citizens. The result of the work is often less “visible” and it can be hard to assess whether a particular task has been completed. This work is especially likely to be or to create pseudowork. Examples of backstage work include HR, Compliance or IT.
Work to measure and report: Collecting data and writing reports to the management of an organisation, stakeholders or society at large is especially likely to be pseudowork.
Nørkmark and Fogh spends a great deal of words explaining the origins of pseudowork. A full account of this is too lengthy here but one of the causes that Nørmark mentions is laws and regulations, here from his second book:
“Some pseudowork is determined by laws and regulations, which most of us are powerless against, but even these rules are open to interpretation and can be over-implemented.”2
As regulations can drive pseudowork, it is worth digging a little deeper into an example of such a regulation and discuss the degree to which it creates pseudowork. We will do this in the next section on the consequences of the “individualisation of accountability” in financial regulation.
Individual accountability – lessons from the financial crisis of 2008
Go back to the years following the financial crisis of 2008. One of the major outcries in this period, both among the public as well as the political and administrative elite, was the near-total lack of ability to hold executives or board members of the financial institutions that had played a role in causing the crisis accountable for their actions. This was ostensibly not due to a lack of will from supervisory authorities or law enforcement, but simply because there was no regulation in place to hold them accountable. In the words of Benjamin M. Lawsky, the watchdog of the banks in his role as Superintendent of Financial Services for the State of New York in the aftermath of the financial crisis:
“Let me start with Wall Street accountability. In the wake of the financial crisis, many Americans have been deeply disappointed by efforts to hold individual, senior executives on Wall Street accountable for misconduct. That is not simply the opinion of far-left commentators. It is a decidedly mainstream view… Now, real deterrence, in our opinion, means a focus not just on corporate accountability, but on individual accountability.”
Following the spirit of Lawsky’s speech, financial regulation in many countries has been moving towards a so-called individual responsibility regime, perhaps most thoroughly so in the UK through the Senior Managers and Certification Regime. The logic of the individual responsibility regime is simple: we wish to both be able to hold actual people, rather than abstract corporations, accountable for reckless behaviour and we wish to incentivise the leaders of organisations to ensure proper risk management when this risk can lead to social calamity – no more hiding behind collective decisions or vagueness of responsibilities. We also see the logic of this regime reflected in the Danish regulation. Here, financial institutions must appoint “key persons” who are responsible for risk management, compliance, credit, internal audit and money laundering.
Now that we understand the rationale for these regulatory trends, let’s look into the type of organisations that such individual responsibility creates – with the prior description of pseudowork in mind.
How individual accountability creates bureaucracy
Imagine that you have been appointed as the person responsible for a risk area in your organisation. It’s now a central concern of yours to show that you are taking steps to fulfil this responsibility to supervisory authorities and other stakeholders. What kind of structures would you set up around you? As a minimum, you would probably ensure that you receive reporting on your risk exposure and the performance of your risk controls, that you have formal decision-making structures that inform and document your decision-making and that your responsibilities and delegations are clearly documented.
However, as the reader might have sensed from the above, setting up such an accountability structure looks a lot like pseudowork - recall some of the characteristic of pseudowork listed before:
Work not requested by the core business: Reporting requests, meetings with carefully crafted minutes and elaborate documentation of responsibilities are not likely to be requested by the core business and may be seen as getting in the way of “real work.”
Backstage work: The work to set up an accountability structure would almost always be backstage work, conducted by support functions.
Work to measure and report: The responsible person will likely rely on reporting to assess if their controls work and to assess their risk exposure.3
In addition to fitting many of the characteristics of pseudowork, the work to build accountability structures will likely fit the definition of pseudowork quoted from Nørmark above – specifically, it might not leave any lasting mark upon the world and might not be missed if it disappeared:
Imagine a meeting where the person responsible for some area participates. Imagine also that this is an utterly unproductive meeting where no actions or other steps that might “leave a mark in the world” are taken (a very unlikely situation in my experience, but that’s besides the point). After the meeting, minutes of what was discussed are carefully prepared by one of the staff supporting the responsible person and approved by the same responsible person before they are stored in some folder to collect dust. So, a prime of example of pseudowork that we should seek to eliminate, right? Not necessarily. If these minutes reveal that the responsible person had knowledge of some risk but didn’t take appropriate action, they might be dusted off and used by the relevant authorities to hold this individual accountable.
This brings us to the heart of the matter: we will never know whether a particular piece of work will end up being used to hold someone accountable or just continue to collect dust. Therefore, at any given time we will have to conduct something that looks like, and might end up being, pseudowork if we want to have the possibility to hold someone accountable in the future. We can’t know whether taking minutes in a meeting will be a waste of time or important to ensure accountability - only leaving a lasting mark if something goes very awry.
The trade-off between pseudowork and accountability
We are faced with a trade-off, then: Since building accountability structures will always involve some degree of pseudowork, reducing pseudowork can result in reducing the ability to hold powerful individuals in organisations accountable in the case of major failures that can impact society. As we have seen above, this type of pseudowork is the result of a deliberate effort to avoid what was seen as a failure of justice after the 2008 financial crisis.
However, this does not mean that we should tolerate any “size” of accountability structure. I mentioned before that keeping minutes, even without carrying out any actions, can help hold individuals accountable. Does that mean that minutes should be taken in every single meeting an accountable person is present? Certainly not - at some point, a line will need to be drawn if the accountability structure becomes too burdensome for the organisation and may in fact hinder the very work done to mitigate the risk that the individual is responsible for.
So the question becomes: where should we place the needle when making this trade trade-off? To answer this, we should answer three questions:
1) Does our current accountability structure actually enable us to hold individuals responsible?
The most obvious question to ask is to what degree supervisory authorities or law enforcement have been able to hold senior management or board members accountable after the implementation of regulations stipulating individual accountability. If the actual output in terms of holding individuals responsible is low, we get little bang for our buck in terms of the accountability structure we set up. We should then either seek regulation that ensures real accountability or remove regulation that leads to costly accountability structures that don’t lead to accountability.
2) Have our current accountability structures led to more effective risk management?
A large part of why we should want to hold powerful individuals accountable is that this should ensure better risk management: with the attention of the senior management turned to a certain risk, brought about by the threat of being held individually accountable for failure, we should hope to see a decrease in large scandals. Once again, if this cannot be justified empirically, we should discuss if the negative effects of such regulation outweigh the positive. Nørmark’s point that reporting, documentation and other bureaucratic work tend to grow beyond the point where it provides any real value should alert us that the accountability structure could potentially hinder, rather than improve, risk management.
3) What is the cost of our accountability structures?
Even if accountability structures enable us to hold individuals responsible and improve risk management, the fact that such work can crowd out the bread and business of organisations shows us that accountability structures can lead to inefficiencies. Therefore, we should assess the costs and consequences of our accountability structure to deem if they are the kind of “pseudowork” that might actually be worth paying for.
Depending on the answers to these three questions, we might choose to endorse more or less of pseudowork to ensure accountability and prevent social crises. However, just as we should consider the cost of pseudowork, we should also look at what it helps ensure – and consider whether accountability in the financial sector is not worth the price of some reporting, documentation and bureaucracy.
Joachim Skanderby Johansen is a regular writer at Unreasonable Doubt. He writes on the ethics and practicalities of responsibility and uncertainty. He occasionally defends dead liberal ideas. Joachim currently works with risk governance in the financial sector. He has a master’s degree from the London School of Economics and Copenhagen Business School.
Nørmark, D., “Tilbage til Arbejdet”, 2020, Gyldendal, p. 19, own translation from Danish
Nørmark, D., “Tilbage til Arbejdet”, 2020, Gyldendal, p. 131, own translation from Danish
In addition, many risks cannot be measured directly but need to be assessed via some proxy variable – exactly the type of measurements that Nørmark is wary of in Back to Work. Leave the financial crisis for a moment and consider money laundering risk. Measuring money laundering in a particular bank is not possible (and if it were, there wouldn’t be a problem). Therefore, one needs to measure some risk factors that potentially indicate money laundering instead.