Complex rules for businesses are easier to break

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Greater complexity in business regulation increases the chances that businesses will violate those rules, but doesn’t necessarily make those violations harder to fix, according to new research.

In every type of business, there are rules and regulations guiding a variety of practices and processes to ensure the business operates safely, fairly, ethically, and so on. Virtually all research into why businesses fail to follow these rules has focused on the organizations themselves.

The new study is one of the first to approach the problem from the other direction.

“What we wanted to know was whether there was something about the rules themselves that makes an organization more or less likely to violate them,” says Rangaraj Ramanujam, professor of management at the Owen Graduate School of Management at Vanderbilt University.

The researchers theorized that the complexity could make rules harder to follow. They defined complexity in two ways—by the number of components a rule had, or the number of connections it had to other rules. They then hypothesized that rules with both features—many components and many connections—would be especially vulnerable. Furthermore, they proposed that not only would complexity make a rule harder to follow, it would also make violations harder to fix.

Using an unusually detailed data set that tracked 1,011 restaurant inspections of 289 restaurants in Santa Monica, California, the researchers were able to observe more than 80,000 instances of rule compliance and noncompliance, including repeated violations, over the course of three years.

“You don’t just add the individual effects of components and connections together. It actually makes things even worse.”

Perhaps unsurprisingly, they found that complicated rules were violated more often, and the combination of the two types exacerbated the problem further.

“The interaction is super-additive,” says coauthor Bruce Cooil, a professor of management. “You don’t just add the individual effects of components and connections together. It actually makes things even worse.”

They then looked at the impact of complexity on remediation. The first thing they found was that a rule that had broken before was more likely to be broken again.

But the pattern was different. To their surprise, the researchers found that the number of components actually raised the likelihood of remediation, even though it made a rule easier to violate to begin with. That wasn’t the case when complexity was due to connections—as expected, the number of connections lowered the odds of remediation.

Even more surprisingly, they found that while having both forms of complexity made a rule much harder to follow, they were not that much harder to remediate. Essentially, the combination had an unexpected braking effect. Those violations were still harder to fix than average, but they weren’t as hard to fix as the researchers expected.

The researchers say that their findings suggest that encouraging compliance may require a more holistic look at how organizations engage with the rules they’re given.

“The takeaway here is that the way rules are designed matters, too, and they should be a subject of study in their own right,” says Ramanujam.

The paper appears in the Journal of Management. Additional coauthors are came from Vanderbilt and the University of Virginia.

Source: Vanderbilt University