(2024-05-12) Nehrlich The Unaccountability Machine By Dan Davies

Eric Nehrlich: The Unaccountability Machine, by Dan Davies. I read an online excerpt of this book and was immediately intrigued by the idea of an “accountability sink”, which is a mechanism by which “The communication between the decision-maker and the decided-upon has been broken – they have created a handy sink into which negative feedback can be poured without any danger of it affecting anything.”

The book starts by explaining the history of “management cybernetics”, the application of systems theory and cybernetics to management.

Davies outlines the five subsystems that Beer deemed necessary for a healthy organization according to Beer, and then uses that framework to identify where modern corporations have lost their accountability.

System 1, aka operations: The part of the system that does things, the people who are making changes in the real world

System 2, aka regulatory: The part of the system that enforces rules for sharing and scheduling resources

System 3, aka optimization or integration. This is what we typically think of as management or administration

System 4, aka intelligence or policy. “System 3 manages things happening ‘here-and-now’, System 4 is responsible for ‘there-and-then'”.

System 5, aka philosophy or identity.

While I hadn’t been previously familiar with this framework, I like how it maps nicely to a couple of my favorite management books:

The Advantage, by Patrick Lencioni outlines six questions, which boil down to these systems

In Built to Last, Jim Collins offers the principle that stable organizations must “Preserve the core, but stimulate progress”

Unsurprisingly, I think these ideas also map well onto my book. Most people are trapped by “parts” of themselves that were designed for a set of conditions and are continuing to operate as unconscious commitments that keep them from changing

my book is designed to activate the reader’s System 5, creating a new identity and vision for the self, which then empowers System 4 to make some changes to prepare for a different future

I also liked the management cybernetics idea that “Information only counts if it’s being delivered in a form in which it can be translated into action, and this means that it needs to arrive quickly enough.” (cf Error Type)

One of my pet peeves is people filling themselves up with information that is not relevant to how they act in their lives; they aren’t using it to make decisions.

Counterintuitively, “accountability sinks” are actually a feature of the system, not a bug. There is far too much information and context in the world for the managers in Systems 3, 4 and 5 to absorb, so the system needs to compress the information transmitted by optimizing for “relevant” factors

Accountability sinks are set up as a protocol for how to respond to certain situations without having to consult “management”. But problems arise when the protocol response no longer makes sense, unless there’s a way to transmit that information back to “management” to update the protocol

*How the information is compressed is a decision that biases the whole system:

“Every decision about what to measure is implicitly a decision about what not to measure, effectively deciding what aspects of environmental variety are going to be ignored or attenuated*

when I was Chief of Staff at Google, people used to try to convince me with data because they thought that I was a numbers guy. What they didn’t realize is that because I was a numbers guy, I knew how to make the numbers say anything I wanted by choosing which numbers to include and making certain assumptions, so I didn’t actually trust “the numbers”.

Davies then uses the management cybernetics framework to explore how modern corporations lost their System 5, and even System 4, capacities, which he traces to the rise of modern shareholder capitalism

Davies observes that “the market” then becomes the ultimate accountability sink. The managers don’t have to take responsibility for their decisions, because it’s what “the market” wanted. Investors in the stock don’t have to take responsibility, because it’s the managers making decisions about the company. There is nobody left to be responsible, as System 5 has been completely abandoned to “the market”, which, in practice, means System 4 is disempowered, and System 3 optimizes without constraints to the current system

This tendency was amplified by the rise of private equity and leveraged buyouts, which worked to create shareholder profits by buying companies that were poorly operated, loading them up with debt, and thus forcing them to optimize for immediate cashflow to pay the interest on the debt. This is an example of System 3 over-optimization, which led to a catastrophic lack of resilience when conditions changed

This is the result one would expect for a system missing Systems 4 and 5 to anticipate changes. But that lack of forward thinking isn’t a problem in a stable environment, such as the one experienced during what economists call the Great Moderation from the mid-1980s to 2007.

Davies suggests that stable systems “don’t work by defining an objective function and seeking to maximise it.” Instead, they seek to survive by using part of their capacity to innovate and explore other possibilities, rather than solely maximizing for their current environment

*Davies closes the book by suggesting that

“what’s really intolerable about unaccountability is the broken feedback link, and that if we can solve the problem of communicating with the system – pay more attention to the ‘red-handle alert’ mechanisms that indicate an unbearable outcome – people might not be so furious about the death of personal responsibility*

I found this book to be a fascinating introduction to management cybernetics while also telling a compelling narrative about how our economy got to be so broken without having to assume evil intentions or ill will