Do Companies have Freedom of Data?

by Krishna on April 23, 2011

A little shocking to see the corporate skeptic Scott Adams write this unrealistic view of corporations just to make a point about China (or maybe this is all tongue-in-cheek):

In a corporation, you’re generally free to disagree with higher ups if you do it with data, and in a professional manner. Usually you need to go through proper channels, but dissent is generally allowed, and sometimes actively encouraged. If you’re a jerk about your disagreement with your superiors, or you don’t have persuasive data to back up position, you could get fired. But that’s a stupidity issue, not a freedom issue.

China’s leadership is packed with engineers and lawyers by training. I imagine that like any corporation, they appreciate the value of information when presented in a professional manner, and through proper channels. Unlike elected politicians, managers in a meritocracy are free to change position as new or better data emerges. The advantage of having only one political party is that everyone is on the same team. And if effectiveness is the goal, which apparently it is in China, I assume that new data is generally welcome.

“Proper channel” is an euphemism for “your immediate superior”. Your immediate superior will only let information flow upwards if it doesn’t hurt him. That means, any data that reflects well on the superior goes forward. Any analysis that makes him (and his team) look wise goes forward. Any unwanted data that shows a prior decision to have been mistaken will be shelved. Even if you do it in the best possible way, you will have turned into a persona non grata. There are always exceptions, but few bosses are willing to be fired by voluntarily turning in evidence against themselves. Bosses may be eager to send information that has nothing to do with them, or reflects badly on some competing outfit.

But why then is information better disseminated in a free market as opposed to a communist dictatorship? It is simple – the market simply uses prices as the fundamental piece of information. A company is either making or losing money. Or gaining or losing market share. Barring fraud, you cannot hide such information.

So market results determine outcomes in a company. If a company is not responsive to the market, they will go out of business. But if there are responsive, they will make changes to the personnel or products. That may or may not succeed, but a responsive company will keep trying until it succeeds or dies.  To give one example, companies have higher safety records than in the past not only due to regulation, but they themselves realize that the cost of danger in the workplace leads to higher wages and losses due to litigation. The Ford Pinto case demonstrated that companies considered cost-benefit analysis when it came to safety, even if they came to a disturbing conclusion.*

Competition, not shared goals, are the key to necessary changes. When companies see that their actions do not make for better profits, they will change them. That information is unbiased and comes from outside the company. It also comes to the people who are responsible for profits, i.e., at the top. And then it flows downwards, affecting everything inside the company. Think about how quickly layoffs happen when a company misses a quarterly estimate. On the other hand, information that flows upwards through a company is filtered, distorted and watered down so that drastic changes never take effect.

P.S. Ford drank their own Kool-Aid by assuming that the cost of a person’s life was equal to the expected cost of paying off lawsuits, and ignoring all the ethical dimensions. But even from a strictly financial point, they made a serious error by not considering the losses from a public relations disaster of the design flaw becoming public and being linked to several deaths. While death versus serious injury in lawsuit costs may not be dramatically different, they can be significantly different in perception for consumers taking risks. Death by fire seems to be worser than dying instantly in a car crash.

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