Rules vs. Spirit of Rules

I’ve recently thought a lot about our society’s relation to rules and even law. Somehow it became en vogue to err on the side of “if it’s not explicitly forbidden, it’s allowed, intention be damned”. So whenever I hear in a discussion, somebody mentioning “the intention of the rule or law” or “the spirit of the rule or law”, I listen carefully, because how they handle it, might tell more about the person and their trustworthiness than the discussed rule/law.

Don’t get me wrong, I certainly think challenging or pushing rules and even law should be the norm much more frequently, especially with the intention of updating vague wording to our times or to get rid of folklore rules (“because we always did it this way”).

Since exploring the intention of something would mean to engage oneself seriously with a topic, which is exhausting and might even challenge one’s world view and opinion, the society at large cops out the easy way. Everything needs to have a black and white rule and until it has, loopholes are fair game.

I think we’ve lost the plot when it comes to finding loop-holes for personal gain at the expense of wider society or when the smaller entity is faced with a bigger entity, even to the point where we have de-facto state-sanctioned discrimination.

🔁 For sake of brevity and readability, the rest of this observation will use the terms spirit and intention, as well as the terms rule and law interchangeably.

Celebrating Loop-hole Exploitation

In one way, I myself am guilty of this behaviour in the past when it comes to sports and more specifically motorsports, like Formula 1. Generally whenever some kind of machinery is involved, I was more in favour of the ingenuity and innovation engineers put into it to gain a competitive advantage1. Although it always felt iffy, when I learned that the engineers were fully aware during development that whatever they worked on was not in the spirit of the rule.

Still in the majority of cases the ingenuity is emphasised over the blatant and intentional middle-finger to the rule-makers as a fun example of civil disobedience.

Not that innocent

You might discount this behaviour in sports as of little importance, but remember that most sports is also business, sometimes big business and, whether they like it or not, athletes, coaches, team principles and everybody else involved in sports in some public capacity are also role models to coming generations of people. They have a responsibility.

They teach important lessons, so them putting sportsmanship as a secondary after-thought is always a slippery slope and they should be aware of that.

This discussion comes up so often especially in Formula 1, a high-profile sports no less, it almost becomes annoying to hear team principles and technical directors snake their way out verbally.

As with so many things, this behaviour also normalises or dilutes problematic behaviour that can have way more significant outcomes in other parts of life. The line between OK and not OK becomes fuzzier and fuzzier.

In love and war and business…

Let’s turn our attention businesses and how they use loop-holes to gain an advantage at the bottom line. In fact, some of the most annoying rules we have in business (and life) is because someone with less qualms about how they screw people over used a loophole in the rule of law.

The tax loopholes many international corporations are using is but one example. Technically it may not be unlawful, but siphoning off tax income of local governments is fishy at best. For a tobacco or petroleum company this might not make a dent to their already worn image, but there are plenty of consumer-oriented companies2 that jeopardise brand value this way. The only reason why they still do it, is in my opinion that finance & accounting have poor tools to value vague things like “the image”, so some don’t even bother3.

Subprime mortgage-based securities and collateralised debt obligations are another famous example of “it’s not illegal for this kind of asset, so let’s push the leverage”, even if everybody was likely aware that technically there was no difference to other, more regulated asset classes and the outcome was inevitable.

German lawyers even have a saying that there is a difference between being right and getting justice (“Es gibt einen Unterschied zwischen Recht haben und Recht bekommen”, one of the few examples where the German phrase roles of the tongue much nicer than the English translation). You can view this from both angles:

• Just because you’re right ethically, morally or any other way, doesn’t mean you will get justice in court.
• At the same time, just because the court will rule in your favour, doesn’t mean that you were right in the first place. Sometimes courts might even acknowledge this by wording the ruling in a very specific way and give a hint that the law needs tweaking.

Unfortunately, in many jurisdictions that may think of themselves as highly developed and just, these cases will fall through the cracks, because there is no automatic feedback loop kicking in. On the contrary, it almost always requires someone to spent ridiculous amounts of money, time and other resources to fight it to the highest level of jurisdiction, before a change is even considered. That’s why important, but underfunded initiatives will almost always lose to corporate lobbies for example.

Where it really hurts to see this behaviour, is the case of labour law, where you see cases of “employee might be right, but employer didn’t break any law” with scary regularity. No matter what HR might say about how important the employees are to them and they welcome open and critical feedback, in the end their job to guard the company takes precedence, which might mean they have to guard the C-suite, board and management and they will show no scruple to employ the phrase “no-one did ever break any law”. There are a few exceptions, but having worked in HR-tech for a few years, my experience is that those exceptions are few and far between, to the point I became highly sceptical of the whole HR and personnel consulting industry and their motives*.

🤬 By this time I have probably offended everybody in an HR or finance & accounting department and those industries. To be fair, it usually takes two to tango. All of them can probably enumerate plenty of examples where they were in the receiving end of such a behaviour and that’s why they deal with things a certain way. Fair enough, but again be critical with yourself and ask whether you sometimes throw out the baby with the bathwater!

Adjusting the modus operandi

Unfortunately, fixing the law and the political landscape will require a lot of energy, resources and rethinking, because black and white thinking by the letter of the law is much easier than nuanced discourse of intention. It’s so ingrained in the legal profession that you may meet legal professionals who are not even capable of nuanced, critical thinking anymore (which might even be down to the way education works in this field). IT law is a prime example of this, where the rulings are often soaked with technical IT incompetence that it is not funny anymore. Again not every legal professional is this way, which you often see in their defeated attitude, whenever something is “lawful but not correct”.

But we can all do our small part by adjusting our modus operandi:

• if somebody loses or fares less successful by obeying the intention of a rule instead of seeking loopholes, we should still celebrate them.
• Actively not celebrating loopholes, but condemning them.
• If somebody shows the attitude that it is stupid and naive to restrain oneself, as long as the letter of the law allows loopholes to be exploited, call them out for their behaviour.
• “Because others do it as well” should also be condemned as reason for borderline behaviour.
• Instead we should celebrate people who challenge the law and the status quo, if it becomes frequently abused and weaponised.
• It should become unfashionable to have not much more than a court ruling, especially in business. If that is the best or only reason, while everything else leaves a bad taste in the mouth, the loss of image and trust should still be noticeable to the point that companies more frequently shy away from it. Maybe marketing departments should have more say, before executives or other departments destroy huge chunks of company value, just because image and trust are hard to quantify and they are legally right.
• In short, whenever a freedom is abused for personal gain of a few at the expense of society or public good, we should call it out in the strongest way possible, because in the end this is what forces policy makers into creating regulation and laws that limit freedoms, often with unintended consequences.

😒 Ironically, though it shouldn’t come as a surprise, it is often the cry-babies of unrestrained capitalism without regulation who will find ways to abuse their freedoms and make regulation and forced restrain necessary in the first place, because they ignore or forget that freedoms come with responsibilities.

It could be small things, like not driving just a little bit too fast everywhere or not taking a red light more like a suggestion to stop.

Even if you don’t buy into any kind of moral obligation, consider the economic impact: history has shown that all this results at best in a lot of inefficiencies in business operations that we could have been spared, just look at GDPR. At worst it destroys millions and billions of value over night and forces law-makers to shut another loophole that makes life for the rest of us more complicated (and more expensive). Unless you’re always part of the group exploiting the loophole, which is highly unlikely, chances are you’ll be at the receiving end of the downside eventually. Don’t always wait for regulation, before adjusting corporate behaviour.

1. Just to be clear, doping is and remains cheating, no matter how you look at it, whether it’s the athlete or e.g. the horse, the latter constitutes even animal cruelty. ↩︎
2. You all know which companies have allegedly done these things, I don’t need cease and desist letters coming my way 😉 ↩︎
3. I could and probably should write a separate observation on the value-destroying ways of finance & accounting I have seen through the years, which is even enshrined in accounting good practices in some cases. ↩︎