What we know and when we allow ourselves to know it is one of the great mysteries the area of decision making psychology continues to unravel.  Denial, over confidence, and fear of loss are but a few of the things that can keep our head stuck in the sand and lead to counter-intuitive results.

In April, op-ed contributor Daniel Gilbert wrote in the New York Times about how despite the fact that Verizon had a poor year in 2005 with earnings dropping more than 5 percent its chief executive officer saw a spectacular 48 percent increase in overall compensation thanks to the recommendation of an independent consultant, who coincidentally receives much of their revenue from Verizon.  When asked about the apparent conflict of interest, the consultants said they had strict policies that prohibited conflicts and that the policies were necessary to preserve their independence and objectivity.

Really?  Sounds like the Emperor’s New Clothes to me.

But it got me thinking about why compliance training sometimes misses the mark, why it doesn’t have the staying power we’d like it to have.  If we don’t have the proper incentives in place to back-up the policies we can easily fool ourselves into believing there’s nothing wrong.  That’s exactly what happened with the fancy accounting that ultimately tripped up business icons like Enron and Worldcom.

Unfortunately, if we don’t create our own reality checks, the government will do it for us and we end up with Sarbanes-Oxley type legislation.  Doesn’t it pay to avoid business blind spots?

The fear of spiraling legal costs often contributes to businesses – especially small and mid-sized businesses, waiting until a problem mushrooms before calling a lawyer.  Waiting, of course, means that problems escalate into bigger, more expensive problem.

One technique large companies use to help rein in high costs is the Request for Proposal (RFQ).  It helps avoid surprises by pinning down costs ahead of time.  Long used when purchasing other goods and services, law firms often bristle when asked for an RFQ.  Yet much to their chagrin, a recent ABA Journal article notes that RFQs won’t go away anytime soon.

There’s good reason for that.  Part of the process of bridging the gap between law and business requires lawyers to appreciate that budgets do matter to clients.  Clients appreciate when lawyers manage the process of giving legal advice.

Lawyers who assume a client assignment is the equivalent of a blank check will soon find themselves with a very dissatisfied client.  Those who engage in process management controls, however, who focus on delivering advice cost effectively, and who work with clients to establish priorities by attaching dollar amounts to those priorities will earn their client’s business.

On the flip side, clients operating at a higher degree of legal literacy will be in a better position to appreciate the legal aspects of their business decisions, will be able to flag legal problems while they are small and manageable, and will be able to zero in on strategic business issues faster.  It all saves time and money.  For more money saving tips see The Business Guide to Legal Literacy: What Every Manager Should Know About the Law.