Tag Archives: stakeholder

How to Use Risk Maturity Models

Over the last 10 years of the “risk leader” portion of my career, as the head of enterprise risk management at USAA (2001-10), as well as during my subsequent work as an ERM consultant, I was challenged by several questions that affect risk management results and, by extension, ultimate success. All fell under the header of “risk management maturity,” and focusing on it can provide huge benefits to you and to your organization.

To start, we need to get two things straight. First, how are you defining “risk,” and have you driven a consensus among key stakeholders about that definition? Second, which risks are you going to manage, and where on the loss curve do they fall?

These questions may sound simple, but the reality is that many risk leaders have responsibilities for only a portion of the risks that organizations face — often, only the insurable risks. If that’s the case, you have your answer to both questions nailed.

See Also: How to Develop Risk Maturity

If, on the other hand, you are a risk leader with broader accountability for more or all risks (via enterprise risk management, or ERM) that could affect an organization (both negatively and positively), then the first question — “how does your firm define risk?” — requires clear definition. The most commonly accepted definition of risk is “uncertainty.” I like this simple definition, and it captures the most central element of concern. However, the real challenge remains the question about the level of uncertainty (aka frequency/likelihood). To many, even more important is the level of impact or severity. My favorite chart to help illustrate this concept is one where the “tail” of the loss distribution represents where the proverbial “black swans” live.

A typical loss curve has as its peak the expected level of loss, and the black swan sits out on the tail of this curve, where the x-axis is impact of severity of loss and the y-axis is the frequency or likelihood of loss. While many hazard-focused leaders put their attention on risks at expected level or to the left along the x-axis where certainty of loss rises, the challenge is where in this region of the curve to the right should one be managing? While the possibility of loss becomes increasingly remote as you move out toward the tail of the curve, the impact of events become more destructive. Key questions that must be answered include:

  • Do we care more about likelihood or impact, or are they equal?
  • What level of investigation do we apply to risks that are remotely likely?
  • How do we apply limited resources to risks that are remotely likely?
  • Do we have a consensus among key stakeholders as to what risks we should focus on and how?
  • Do have or need a process to manage emerging risks?
  • Do we have a consensus on and clear understanding of how we define risk in our organization?

These issues are the starting point to the risk management maturity question, which, if handled well, facilitates organizational success. From these answers, you can chart your course for your firm. The answers will define the process elements of maturity. But we need to define what risk maturity is to track progress toward it and to ensure that stakeholders are aligned around the chosen components.

The various components among the numerous risk maturity models tend to overlap considerably. Here’s one generic set of attributes of maturity:

  • Risk is managed to specifically defined appetite and tolerances
  • There is management support for the defined risk culture and direct ties to the corporate culture
  • A disciplined risk process is aligned with other functional areas
  • There is a process for uncovering the unknown or poorly understood risks
  • Risk is effectively analyzed and measured both quantitatively and qualitatively
  • There is collaboration on a resilient and sustainable enterprise

The first, and I think most thoroughly developed, model comes from the Risk and Insurance Management Society (RIMS). It was developed some 10 years ago or so but remains in my opinion a simple yet comprehensive view of the seven most important factors that inform risk maturity and that, when well implemented, should drive an effective approach to managing any risk within your purview.

The components of the RIMS model include a focus on:

  • The degree to which an enterprise-wide approach is supported by executive management and is aligned with other relevant functions
  • The degree to which repeatable and scalable process is integrated in the business and culture
  • The degree of accountability for managing risk to a detailed appetite and tolerance strategy
  • The degree of discipline applied to using the elements of good root-cause analysis
  • The degree to which a robust emerging risk process is used to uncover uncertainties to achieving goals
  • The degree to which the vision and strategy are executed considering risk and risk management
  • The degree to which resiliency and sustainability are integrated between operational planning and risk process

As with all risk management strategies (no two of which that I’ve seen are exactly the same), there is no one way to accomplish maturity. Every risk leader needs to do for her organization what the organization needs and will support.

Another maturity model that is worthy of note is the Aon model. Like RIMS’ model, it enables multiple levels of maturity and methodology for charting progress toward an ideal state. Characteristics of the Aon model include:

  • Ensuring the board understands and is committed to the risk strategy
  • Establishing effective risk communications
  • Emphasizing the ties among culture, engagement and accountability
  • Having stakeholder participation in risk management activities
  • Using risk information for decision making
  • Demonstrating value

This is not to say that the RIMS model ignores these issues. There is simply a different emphasis.

Also noteworthy is Protiviti’s perspective on the board of directors’ accountability for risk oversight. A few highlights include:

  • An emphasis on the risks that matter most
  • Alignment between policies and processes
  • Effective education and use of people and their place in the organization
  • Assumptions that are supportable and understood
  • The board’s knowledge of the right questions to ask
  • Focus on understanding the relationship to capability maturity frameworks

Certainly, the good governance of organizations is critical, and the board’s role is paramount. If the board is engaged and accountable for ensuring that its risk oversight is effective, the strategy is likely to be executed successfully and, by inference, risk will have been effectively managed, as well.

See Also: How to Link Risk and Strategy

To complete the foundation for the business case for using a risk maturity model to track progress, consider these key points:

  • There is no one right approach; each organization must chart its own course aligned with its culture and priorities
  • Risk must be treated as an integral aspect of strategy
  • There must be a focus on additive value, as with all corporate processes
  • Risk maturity has produced documented valuation premium for studied users

With the effective use of risk maturity models, you should be able to better chart your risk evolution journey, and how a good maturity strategy related to corporate strategy and priorities is the ultimate nexus for success. Risk and risk management should drive performance results and what remains to be done to achieve longer-term aspirations. This approach to managing your risk strategy should allow you to:

  • Translate the component of risk maturity into a successful ERM journey
  • Refer to ERM results and impacts achieved by others to buttress your efforts
  • Understand key tactics to exploit and pitfalls to avoid as you perfect your risk management strategy.

Using a risk maturity model will, if nothing else, provide the guard-rails and discipline that may otherwise be missing from your current attempts to make a difference in the success of your enterprise.

An Open Letter on the Oklahoma Option

I’m the founder and CEO of WorkersCompensationOptions.com (WCO), a company dedicated to workers’ compensation (WC) and its legal alternatives. This letter is intended to quell the concerns of employees in our client companies—employees who may have been distressed by the recent (mostly negative) publicity from ProPublica and NPR regarding options to WC in Texas and Oklahoma.

In case you only saw one installment from the Insult to Injury series, I’ll provide a quick summary. In 2014, the project’s authors started to assimilate massive amounts of data from their research concerning each state’s (and the federal government’s) WC system. In March 2015, the authors began releasing articles with an indisputable premise: Collectively, these systems need improvement.

That commendable beginning eventually gave way, however, to a hypothesis that is supported neither by reality nor by the overwhelming quantity of data the authors provide. Their conclusion (that employers are in cahoots with insurers to pressure attorneys, anonymous doctors and legislators into discarding the lives of an unfortunate few for the sake of bolstering corporate profits) completely misses the mark in pinpointing why so many WC systems are broken beyond repair. In fact, attorneys and doctors put at least as much pressure on WC systems as insurers, and any attempt to depict the medical and legal communities as innocent bystanders in the WC feud is simply too naive to be taken seriously.[1] I do not doubt the authors’ sincerity in addressing a serious societal problem, but I also do not believe they are equipped to understand the problem they sought—however earnestly—to demystify for their readers. Worse yet, I fear they have positioned themselves in the WC space in a manner that is only likely to retard the implementation of practical solutions.

This letter is prompted by the article on Oct. 14, 2015, which painted an inaccurate—even an irresponsible—picture of both Texas nonsubscription (TXNS) and the Oklahoma option (OKO). As that article’s title (“Inside Corporate America’s Campaign to Ditch Workers’ Comp”) is lengthy, I’ll shorten it to CDWC going forward.

Texas Nonsubscribing Employees: What Can We Learn?

Texas is exceptional in the WC world because it has, for more than a century, offered employers a viable alternative to WC. Of approximately 380,000 employers in Texas, roughly two-thirds subscribe to a traditional WC system; the other third are nonsubscribers who develop their own models. That’s about 120,000 different systems, and there is plenty to be learned. We’ve seen various organically grown components develop from these disparate systems, many of which superficially resemble WC. Despite those similarities, however, industry experts understand how counterproductive it is to make unilateral comparisons between TXNS and WC.

The authors of CDWC didn’t get that memo.

Of all the various lessons learned from diverse TXNS models, one runs counter to conventional WC dogma: Employers can protect themselves while delivering superior care for employees at a fraction of the cost of WC. Eliminating the inflated costs associated with abusive practices that run rampant in WC is a critical component of that particular lesson.

Because the CDWC authors insist on judging TXNS through the lens of WC, TXNS looks to them like a system that would appeal to skinflint employers who simply do not care whether their employees get hurt. However, because employees of nonsubscribing companies can sue their employers for tort, the decision to opt out of WC is likely to be penny-wise and pound-foolish for employers who do not take measures to ensure the safety of employees. The CDWC authors’ failure to unpack the importance of tort negligence means many readers will come away from the article without understanding that a typical $50,000 payout in WC could easily be either $0 or $5 million in TXNS—depending on who is at fault for the accident. Even more disappointing is CDWC’s attempt, in a one-sentence paragraph, to gloss over one of WC’s most dangerous shortcomings: the extent to which the no-fault arrangement between employers and employees has removed incentives for safety in the workplace throughout the country.

If you are an employee of one of our Texas nonsubscribers, rest assured that your employer has every reason to minimize workplace accidents and to take very good care of you if an occupational injury occurs.

In a nutshell, your interests are aligned with your employer’s—another critical lesson we’ve learned from TXNS.

Oklahoma Option Employees: A Whack-a-Mole WC System Led You Here

ProPublica and NPR harp on a consistent theme throughout the Insult to Injury series: WC is broken. We at WCO agree, and Oklahoma may provide the single best example of how and why a state’s WC system becomes unsustainable.

The WC ecosystem is made up of five major communities: insurance, medical, legal, employer and employee. Abuse within the system by any of these communities leads to adjustments to the boundaries of the system. Throughout the Insult to Injury series, the authors go out of their way to sidestep the discussion of systemic abuse. They even attempt to dismiss fraud by citing a study that minimizes its role. Abuse and fraud in WC are, in some ways, analogous to speeding on the highway: Almost all drivers abuse the speed limit, but very few are issued citations. Similarly, the cases of clear-cut fraud in WC only reflect a small portion of the amount of abuse going on. But even if we allow the authors to exclude all instances of clear-cut fraud from the WC conversation, we are still left with rampant abuse driven by insidious systemic incentives.

For decades, abuses and inefficiencies within the WC system have led to each of the five communities touting the need for major reforms—at the others’ expense. Real reform threatens each community, which leads to stalemates in negotiations. Major upheaval has been avoided via the compromise of pushing and pulling the system’s boundaries, resulting in a decades-long game of whack-a-mole being played across the nation. If one voice cries, “Data shows an alarming trend in opioid abuse,” that mole gets swatted by requiring more medical credentials for prescribing pain killers. When another shrieks, “Overutilization is surging,” that mole is whacked through costly and time-consuming independent medical examinations. When someone else observes, “Our disability payouts are higher than neighboring jurisdictions,” that mole prompts us to lower disability payouts. Immediately, a fourth voice shouts, “Pharmaceutical abuses make up 8.4% of total costs,” and that mole persuades us to introduce drug formularies. But there isn’t even a moment of silence before another voice remarks, “Our analysis shows dismemberment payouts in this jurisdiction are lower than those of our neighboring jurisdiction.” That mole gets whacked by proposing legislation to increase dismemberment payouts—legislation that is dead on arrival.[2] At some point, we have to realize the moles are multiplying faster than we can whack them. (If my commentary doesn’t apply to other jurisdictions, I’m happy to restrict it to Oklahoma and Texas because writers can best serve their readers by acknowledging the limitations of their own expertise.)

Even if we concede that the changes detailed in the paragraph above aren’t necessarily bad (which I’m not conceding; I’m just trying to be polite and move the argument along), they demonstrate a persistent pattern of outcomes, inclusive of abuse, inherent in any hierarchical bureaucratic system. Regulators are busy reacting to entrenched abuses while market participants find new and exciting ways to game the system. This futile game of whack-a-mole is endless.

The Sooner State had a front row seat to witness what TXNS accomplished—both the good and the bad.[3] With that first-hand knowledge, the Oklahoma legislature has finally provided the state—and the country—with an opportunity to see whether real change can restore function to a malfunctioning system. While WC stakeholders assure us they are only a few more whacks-at-the-mole away from making WC hum, Oklahoma lawmakers have written a new chapter in the history of workplace accident legislation. The OKO is neither WC nor TXNS.

The brilliance of the OKO is that it doesn’t attempt to overhaul a broken WC system. The legislators effectively stepped away from that decades-old stalemate. Instead of an all-out overthrow, they left WC in place and created an option for employers who were willing to try something new—which is exactly how WC itself was introduced a century ago.

Because the OKO is substantially modeled on TXNS, it is easy to see why the CDWC writers conflated the two in their analysis. The errors in CDWC concerning ERISA’s applicability, employee benefits and appeals committee processes in Oklahoma are all presumably honest mistakes made by writers who, in their zeal to distinguish TXNS and the OKO from WC, failed to distinguish TXNS and the OKO from each other.

Nevertheless, it’s important for employees to understand that TXNS varies dramatically from one employer to another, and many of the rules concerning TXNS do not apply north of the Red River.

Although the CDWC authors misleadingly couple TXNS and the OKO with respect to ERISA’s applicability, ERISA plays no direct role in occupational accidents in the OKO.[4] We’ll be happy to get you a legal opinion on that, but for our purposes regarding CDWC, take my non-legal opinion as on the record. If others disagree, they should go on the record, as well. While ERISA has served employers and employees well in TXNS, its role in the OKO is only implied (if that). We are free to use it where we wish, as long as we are compliant at the state level.

Presumably tied to their ERISA misapplication, the CDWC authors assert that “benefits under opt-out plans are subject to income and payroll taxes.” Such tax advice is unusual from investigative journalists without citation, and I have asked the authors to share their source. Although the jury is still out on this tax issue, it is a point the CDWC authors must distort to substantiate their otherwise baffling claim that the workplace accident plans of OKO employers “almost universally have lower benefits.”[5] If any OKO plans really do offer benefits that aren’t at least as good as those provided by WC, they’re illegal. That’s how the legislators have written the law, and it’s what they’re dedicated to achieving for workers, regardless of obfuscations invoking TXNS, ERISA and unresolved tax implications.

The authors of CDWC also completely misrepresent appeals committees for at least a majority of OKO employers. The authors overlook a dramatic improvement to employee protection that the OKO makes to TXNS when they claim that appeals committees in Oklahoma work analogously to appeals committees in Texas: “Workers must accept whatever is offered or lose all benefits. If they wish to appeal, they can—to a committee set up by their employers.” That’s dead wrong. Executives at each of our OKO employers are fully aware that, in case of an employee appeal, the employer has nothing to do with the selection of the appeals committee panel members or the work they complete. The process is independent from the employer and extremely fair.[6] The CDWC authors would do well to read Section 211 of the law more carefully.

On the subject of benefit denials, I’ll share a single data point from our OKO book: To date, we have denied exactly one claim. This is a nascent system, so we must be very careful in drawing actuarial conclusions. Still, our company has led more employers from traditional WC into the new OKO than any other retailer, so we have a bit of credibility to offer on this subject. The point of the system isn’t to deny benefits to deserving employees but to ensure benefits are delivered more efficiently. The system is working.

The CDWC authors only provide one OKO case study, Rachel Jenkins. Strangely, they lump Jenkins in with four TXNS case studies. The Jenkins case is still being tried. We will withhold opinions—as we hope others would—until a more appropriate time.

As a reminder, while the OKO law is stronger today than ever, if it were to be deemed unconstitutional by the Oklahoma Supreme Court, we would have 90 days to get everyone back into traditional WC (per Section 213.B.4.).

Next: Vigilance and Diligence

My comments are mine and mine alone. I do not speak for any associations or lobbyists. I have no interest in debating those who inexplicably assume that any alternatives proposed to a failing system must stem from sinister motives. However, I encourage anyone (from prospective clients to employees of existing clients) with questions or concerns to call me.

Another option for learning more is to click here and watch a formal debate regarding the OKO. This footage was shot in September 2015. It features Michael Clingman arguing against the OKO while I, predictably, argue for it. One thing you can’t miss in that video is my desire to oust most attorneys from the scene. To help explain, I’ll adapt a quotation from John F. Kennedy (who was discussing taxation) to my own area of concern (the well-being of employees): “In short, it is a paradoxical truth that employee outcomes from increased WC protections are worse today, while economic results suffer, and the soundest way to create higher and better standards of living for employees is to eliminate these abused protections.” For philosopher kings, the theory of the OKO may not sound as good as the theory of WC, but when it comes to practical realities the results demand everyone’s attention.

To summarize my primary criticism of Insult to Injury, it simply hasn’t done enough. The story it tells is insufficient and smacks of partisanship and ideology, two biases that ProPublica’s journalists allegedly avoid. WC is substantially more complex than a corporation-out-to-exploit-its-workforce short story. Ignoring abuse in each of the communities in a five-sided WC debate demonstrates a lack of journalistic impartiality and a stunning deficiency of perception. Moreover, to my knowledge, ProPublica hasn’t crafted any relevant suggestions for legislation, simply leaving its readers with the vague and implicit notion that federal oversight is needed. If that is the goal of Insult to Injury—to provide one-sided, emotional yarns alongside a treasure trove of data, hoping it will all spur some federally elected officials to create real change at long last—then I suspect ProPublica will still be holding this subject up to the light of opprobrium upon the retirement of each of the series’ authors.

We do not aspire to win over the authors or even their followers. We will focus our energies each day on providing the best workplace accident programs for employers and employees alike. Our results should speak for themselves.

Finally, I am not an attorney, and nothing in this letter should be taken as legal advice.

Sincere regards,

Daryl Davis

Footnotes:

[1] With medical providers, overutilization is always a concern. Click here and watch the video from the 12-minute to the 15-minute mark for a detailed description of rampant WC abuse by surgeons who provide unnecessary and damaging back procedures. If the workers weren’t disabled prior to the surgeries, many were afterward. As for the legal community, simply view slide 73 of the NCCI’s 2013 Oklahoma Advisory Forum. WC disability payments, which is where attorneys get their cut, were 38% higher in Oklahoma than in neighboring states—not because jobs are 38% more dangerous in Oklahoma than in Kansas or Texas but because Oklahoma attorneys are 38% more effective at gaming the state’s WC system.

[2] Alabama SB 330—which was prompted by Insult to Injurynever got out of conference. From what I could gather, lengthy negotiations between several different interest groups led nowhere, with the Alabama Medical Association at the center of this particular stalemate. Not surprisingly, the two special sessions called by Alabama Gov. Bentley in 2015 were strictly focused on the state’s budgetary crisis; this bill was never discussed.

[3] The final Texas case study offered in CDWC deals with Billy Walker, who fell to his death while on the job. The upside to TXNS is his estate’s common law right to pursue a tort lawsuit against his employer. The employer could have been ordered to pay Walker’s estate a settlement in the millions, but the employer filed bankruptcy before any such judgment could be awarded, which is plainly an unacceptable outcome. This demonstrates a lack of surety—the single biggest problem in TXNS. OKO addresses this issue in various ways, most notably in Section 205 of Title 85A, which guarantees surety for injured workers.

[4] For the non-occupational components of your OKO program, ERISA does apply.

[5] Per Section 203.B. of the statute, compliant plans “shall provide for payment of the same forms of benefits included in the Administrative Workers’ Compensation Act for temporary total disability; temporary partial disability; permanent partial disability; vocational rehabilitation; permanent total disability; disfigurement; amputation or permanent total loss of use of a scheduled member; death; and medical benefits as a result of an occupational injury, on a no-fault basis, with the same statute of limitations, and with dollar, percentage and duration limits that are at least equal to or greater than the dollar, percentage and duration limits contained in Sections 45, 46 and 47 of this act.” (Emphasis mine.)

[6] Details of OKO appeals committee procedures are generally misunderstood—for now—by plaintiffs’ attorneys (and, apparently, investigative journalists). Attorneys frequently assume that, because the employer foots the bill, the employer controls the process. For a peek at how the appeals committee process really works for a majority of OKO employers, those curious should watch this video.

3 Skills Needed for Customer Insight

While working in Amsterdam, I was reminded how insight analysts and leaders can shine brightly in very different contexts.

In the Netherlands, a mixture of training and facilitation was helping an events business. What struck me was the similarity of the challenges faced by their insight teams to the challenges I see in the U.K.

The more I work with insight leaders across sectors and geographies, the more I see how much they benefit from highly transferable skills. Here are three that are relevant to very different businesses and locations:

Prioritization

I’ve yet to work with a company where this isn’t a challenge, at least to some extent. As more and more business decisions require considering the customer, it’s not surprising that demand for data, analysis and research continues to rise. Most insight teams are struggling to meet the demand of both regular reporting (“business-as-usual”) tasks and the range of questions or projects coming in from business leaders. There have been many attempts to solve this struggle, including “projectizing” all requests (which tends to come across as a bureaucratic solution to reduce demand for information) and periodic planning sessions (using Impact/Ease Matrix or similar tools). In today’s fast-changing businesses, I’ve found that local prioritization within “the bucket method” works best.

What I mean by the “bucket method” is the identification of the silos (mainly for decision-making) that are most powerful in your business. This often follows your organizational design, but not always. Is your business primarily structured by channel, product, segment or some other division of profit and loss accounts? Each silo should be allocated a “bucket” with a notionally allocated amount of insight resource, which is based on an appropriate combination of profit potential, strategic fit and proven demand (plus acted-on results) Regular meetings should be held between the insight leader and the most senior person possible within that silo. Where possible, the insight leader should meet with the relevant director.

The bucket principle relates to the idea that, when something is full, it’s full. So, in reviewing progress and any future requirements with the relevant director, you challenge him to make local prioritization calls. Going back to the bucket metaphor, adding more requires removing something else—unless the bucket wasn’t already full. Due to human nature, I haven’t seen the bucket principle work company-wide or group-wide. However, it can work very well in the local fiefdoms that exist in most businesses. In fact, it can support a feeling that the insight team is close to the business unit and is in the trenches with them to help achieve their commercial challenges.

Buy-In

When trying to diagnose why past insight work has stalled or why progress isn’t being made, stakeholders often identify an early stage in the “project.” The nine-step model used by Laughlin Consultancy has a step (prior to starting the technical work) called “buy-in.” It takes a clear plan or design for the work needed and sends it back to the sponsoring stakeholder to ensure it will meet the requirements. Often, this practice is missed by insight teams. Even mature customer insight teams may have mastered asking questions and getting to the root of the real business need behind a brief, but they then just capture that requirement in the brief. Too few interpret that need and provide a clear description of what will be delivered.

There are two aspects of returning to your sponsor to achieve buy-in that can be powerful. First is the emotional experience of the business leader (or multiple stakeholders, if needed) feeling more involved in the work to be done. As Alexander Hamilton famously said, “Men often oppose a thing merely because they have had no agency in planning it, or because it may have been planned by those whom they dislike.” It’s so important in the apparently rational world of generating insight to remember the importance of emotions and relationships within your business. Paying stakeholders the compliment of sharing the planned work with them ensures the intended deliverable will meet their needs and is something that often helps.

The other benefit of becoming skilled at this buy-in stage is learning to manage expectations and identify communication requirements. With regard to expectations, you should set realistic timescales (which, first, requires effective planning and design), along with openly sharing any risks or issues so that they don’t come as a surprise. Communication—and asking how much a sponsor wants to be kept in the loop—can make a real difference to keeping your sponsor happy. Some sponsors will be happy with radio silence until a task is complete or a decision is needed (they value not being disturbed). Others will lose confidence in your work unless they hear regular progress updates. It’s best not to confuse one with the other.

Communication

Training customer insight analysts in softer skills often results in a significant portion of the course focusing on the presentation of findings. This isn’t surprising, because, in many ways, that’s the only tangible product insight teams can point to, prior to driving decisions, actions and business results. Too frequently, I hear stories of frustrated insight teams that believe the business doesn’t listen to them, or I hear from business leaders that their insight team doesn’t produce any real insights.

Coaching, or just listening to others express such frustrations, regularly reveals that too many analytics and research presentations take the form of long, boring PowerPoints, which are more focused on showing the amount of work that’s been done than presenting clear insights. While it’s understandable that an analyst who has worked for weeks preparing data, analyzing and generating insights wants her effort rewarded, a better form of recognition is having the sponsor act on your recommendations. Often, that’s more likely to occur based on a short summary that spares readers much of the detail.

Data visualizationstorytelling and summarizing are all skills necessary to master on the road to effective communication. Most communication training will also stress the importance of being clear, concrete, considerate, courteous, etc. Many tabloids have mastered these skills. Love them or hate them, tabloid headline writers are masters of hierarchies of communication. Well-crafted, short, eye-catching headings are followed by single-sentence summaries, single-paragraph summaries and then short words, paragraphs and other line breaks to present the text in bite-sized chunks.

Transferable skills

Insight analysts and leaders who master such crafts as prioritization, buy-in and communication could probably succeed in almost any industry and in many different countries. Many directors will attest to the fact that sideways moves helped their careers. A CV demonstrating the ability to master roles in very different contexts is often an indication of readiness for a senior general management role.

workers' compensation

Hidden Motives on Workers’ Comp

As legal alternatives to workers’ compensation (WC) grow in number and popularity, employers will save money, and employees will—in aggregate—receive better care. [1] As this market grows, my income will also grow.

Such forthrightness should seem unnecessary from a proponent of the opt-out movement, like me. But a vocal (and boisterous) contingent of the opposition to alternatives avoids the necessary logical inversion by hiding behind other, less relevant motives.

As companies move away from WC, the income for opponents of alternatives will shrink, though they will never acknowledge financial well-being as a motive in opposing the opt-out. Attorneys, judges, cost-containment companies, third-party administrators, industry regulators, the NCCI and a host of other WC stakeholders [2] veil their financial motives by redirecting the argument to “what is fair and just for the employee.” They are being disingenuous.

See Also: The Pretzel Logic on Oklahoma Option

Over time, it becomes easier to expose financially motivated WC stakeholders. But a second component of the opposition is free from poorly hidden financial agendas. This ideological group—which compels me to write this essay—claims to oppose free market alternatives on altruistic grounds. The group’s members—just like their financially motivated brethren—lean quite heavily on the noble ideas that they hope are conveyed in the two-word, nebulous term “grand bargain” and that they treat as sacrosanct.[3]

The U.S. was a little late to the WC party. Pressure had been building on policy makers since the second half of the 19th century, but it was the Pittsburgh Survey by the Russell Sage Foundation that provided the greatest influence in the rapid adoption of WC laws in the U.S. between 1911 and 1920. Anecdotes (e.g., The Jungle) helped, but legislatures needed statistically compelling factual evidence to reform the legal schemes governing workplace accidents. Crystal Eastman stood and delivered. In her seminal study, Work-accidents and the Law (which was part of the Pittsburgh Survey and was published in 1910), Eastman gathered and reported on workplace accident data for a 12-month period between 1906 and 1907 in the small but industrially relevant sample of Allegheny County, PA. She rightly and importantly spent the first 200 pages of her study explaining the devastating effects of workplace accidents on individuals, families and communities.[4] After dozens of case studies concerning widows, orphans and maimed workers, she dove into the problem with aplomb.

The root of the problem was that common law systems couldn’t keep up with changes stemming from the Industrial Revolution—especially those in the U.S. It’s no coincidence many countries that eventually committed to industrialization were also, to some extent, relying on English common law. From the Pittsburgh survey, Eastman summarized the problematic common law system on page 206 as follows:

  1. It is wasteful:
  • The state expends a large amount in fruitless litigation.
  • Employers expend a large amount, as the result of work accidents, only a small part of which is actually paid in settlement of accident claims. 
  • The injured employes [sic] spend nearly half of what they get in settlements and damages to pay the cost of fighting for it.
  1. It is slow; recovery is long delayed, while the need is immediate.
  2. It fosters misunderstanding and bitterness between employer and employees.
  3. It encourages both parties to dishonest methods. 
  4. The institutions which have been resorted to as an escape from its evils, liability insurance and relief associations based upon a contract of release, are often advantageous to employers, but disadvantageous in important respects to employees. 

The irony—over a century later—is too obvious. Eastman’s first four points might as well be the outline for states like Oklahoma, South Carolina and Tennessee when contemplating legal alternatives to their inefficient, caustic, modern WC systems. Granted, there was substantially more urgency for Eastman when she created this list—deaths per 100,000 hours worked were at all-time highs. Today, that statistic is at an all-time low. As significant as our modern occupational accident problems are, they are a different breed from—even if they are similarly described to—what Eastman studied.

Eastman’s study was so powerful that many state legislatures used it to outline their original WC laws. Stakeholders were generally agreeable to this grand bargain, which, 1) prevented employees from suing employers for common law negligence, 2) required employers to pay medical and lost income benefits for employees injured on the job and 3) removed negligence from the conversation by making the entire WC scheme “no fault” in nature.

But there are some important contextual factors that contemporary WC stakeholders forget to mention regarding the grand bargain that gave us WC to begin with. First, most states made these new-fangled WC systems optional. That’s right; of the 45 states that passed WC legislation between 1911 and 1920, 36 allowed employers to choose which system they wished to participate in. The original Texas law—which still stands iconoclastically today—was perfectly ordinary when it was originally enacted in 1913 (it gave private employers the opportunity to subscribe to WC or stick with common law, albeit without three powerful common law defenses). When the grand bargain was being born, options were the norm.

See Also: Key Misunderstanding on Oklahoma Option

A second, forgotten characteristic of the grand bargain is how disputes—though rare—were handled. By design, attorney involvement was minimal. One of the primary goals of the grand bargain was to decrease the amount of litigation, not to recategorize and grow it. Eastman’s suggested mechanism (pp. 211-220) for dispute resolution was arbitration, which was embraced by a number of states.[5] However, never count attorneys out. Primal due process ideals eventually compelled them to increase their involvement (and compensation), all in the name of giving clients the day in court to which they are constitutionally entitled. This aberration—attorney involvement—is now sold to the public as part and parcel of the grand bargain.

Opponents will accuse me of misinterpreting Eastman’s time and message. All interested parties are, of course, welcome to read her study [6] and draw their own conclusions.

We invite interested parties to tour the facilities of our opt-out employers and interview employees. They can even search for hidden torture chambers filled with injured workers, but they won’t find them, because they do not exist. Our employees are happy, and our employers are delivering top-notch care to them at a fraction of the cost of WC.

But our opponents won’t accept this reality. “Facts be damned!” they cry. “The employer needs to pay full fare for WC.” That reasoning, again, is understandable from those WC stakeholders who fear they will starve if they can’t slurp from the trough of WC. Inexplicably, however, this attitude is even more pronounced among the opposition’s altruistic contingent, which maintains that employers must continue covering the inflated costs of employee welfare under WC, whether or not that financial burden improves the situation of injured employees.

Medicare presents an interesting litmus test for this ideological perspective. It is obvious to anyone paying attention that our entitlement healthcare program for seniors could—and should—deliver better outcomes at substantially lower costs. This is self-evident to Americans of all political stripes, in large part because we all pay for those costs via taxes. We would all like to see outcomes improve and our tax burden decrease.

In both Texas nonsubscription and the Oklahoma option, we eliminate the vast majority of legal overhead, which allows us to focus on medical outcomes. The same sorts of inefficiencies and abuses that occur within Medicare also infect WC, so it shouldn’t be hard to believe that the free market (given the legal opportunity to do so) can economize them.[7]

Yet, our vocal, altruistic opponents won’t allow their own criticisms of Medicare to influence their opinion about opt-out saving money and improving outcomes. It’s perfectly obvious that Medicare (a healthcare system rife with bureaucratic inefficiencies) could deliver better results at lower costs if it were redesigned. However, when we demonstrate that WC (a healthcare system equally rife with bureaucratic inefficiencies) could—and should—deliver better results at lower costs, they opponent of opt-out close their eyes and cover their ears. “It can’t be done!” they cry.

Somehow, from this perverse perspective, the solution to workplace injuries does not need to make the little guys (the employees) any better off, so long as it does a sufficient job of making the big guys (the employers) pay.

Ah, the joys of spending other people’s money.

This litmus test provided by Medicare shows our altruistic opponents have an unexpected hidden agenda: politics. Is such a desire—to have the employer pay more than necessary—relevant to the welfare of employees? No, it is not.

It is political. It is an impediment. It is stupid.[8]

The grand bargain was about rationalizing what had become out-of-control non-solutions for workplace injuries. Throughout the past century, many WC systems have become burdensome for employees and employers alike. They are now, ironically, non-solutions. The grand bargain wasn’t fundamentally about WC; it was about protecting employees and employers as sensibly and pragmatically as possible. It accomplished that objective with minimal use of attorneys, while generally allowing employers to elect (or subscribe) to a statutory scheme that took the name “workmen’s compensation.”

With slightly different jargon, that sounds eerily similar to what Oklahoma did in 2013. The Sooner State took a critical look at its non-solution for workplace injuries and created an alternative to more efficiently protect employer and employee alike. This statutory scheme has taken the popular name of “the Oklahoma option.”

What’s next for opt-out proponents? First and foremost, Oklahoma must tend to its new creation. After that, we’ll just have to wait and see what other states will do—if anything.

What’s next for our opponents? I suspect they will not advertise their fear of losing income. They will continue to tout the grand bargain as sacrosanct, without examining the historical context from which it emerged. They will try to hide behind arguments that appear noble.

We at WorkersCompensationOptions.com will remain at the cutting edge of this movement and will provide whatever legal occupational accident programs our clients wish to implement. Our results already speak for themselves—and they will continue to do so.

 

[1] If the reader is determined to think of “care” in only post-injury terms, so be it; my claim still stands. However, our idea of “care” starts with motivating employers to create the safest workplaces possible and motivating employees to avoid injuries in the first place. Because “no fault” is a cornerstone of the WC structure, our emphasis on safety is far easier to convey to our opt-out clients than to our WC clients.

[2] The panoply of stakeholders in WC (ranging from payroll auditors to WC Medicare Set Aside reporters and from private investigators to coding specialists tasked with maximizing reimbursements) is quite a spectacle. To avoid overwhelming my audience, I generally categorize this excessive cast of characters into the five communities of WC: insurance, medical, legal, employer and employee. Watch the first seven minutes of this video for an explanation of how perverse the incentives are for most of these stakeholders. Regrettably, the employer and employee have become afterthoughts in a system ostensibly designed to meet their needs.

[3] In both form and content, this article borrows heavily from the first 12 pages of John Kenneth Galbraith’s The Affluent Society. In particular, I have modeled my discussion on his examination of “the obsolescence of ideas,” where he explains the danger of leaving “sacrosanct” concepts unexamined as a matter of convenience.

[4] Sensitive readers beware; stories of aching necks are completely ignored by Eastman in favor of gruesome accounts of deaths and dismemberments.

[5] Arbitration was much less formal a century ago. Typically, a disinterested but experienced third party would simply perform a records review and make a determination. Testimony could be heard. For a glimpse of how WC disputes were resolved in the 1920s, see pages 88-194 of Bureau of Labor Statistics Bulletin 301, April 1922. The report by Carl Hookstadt details the various methods of dispute resolution for 21 states and two Canadian provinces. Voluntary resolution between employer and employee was universally sought. In its broadest sense, “arbitration”—in varying layers—successfully prevented litigation in the vast majority of cases (with the California sample offering the singular, glaring exception).

[6] I urge all industry insiders to read Eastman’s survey, as it’s fascinating, historically significant and accessible for free via the link above.

[7] While this argument is esoteric, I remind the reader we have actual results. Texas nonsubscription and the Oklahoma option are not theoretical; they are real.

[8] Reza Aslan delivered one of the greatest uses of the term “stupid” in September 2014, when interviewed on CNN. This nine-minute video is certainly worth watching in its entirety, but, for his thoughtful and appropriate deployment of a term many of us are too cowardly to invoke, watch from 6:20 to 7:00.