Editor's Note - Incentive

Strategic Security
Editor's Note: Incentive

​Between 1955 and 1970, approximately 11,000 people were afflicted by a mysterious illness in Japan. Named subacute myelo-optic neuropathy (SMON), the disease would eventually kill around 900 people in that country, and additional outbreaks would emerge in countries from Mexico to India to Australia.

The disease was crippling. What started as simple gastric distress soon became blindness and paralysis. Some victims developed a fuzzy green coating on their tongues. Medical professionals treated the disease with two different antibiotics, but the disease progressed unabated. Researchers worldwide sought a cure throughout the 1960s but each likely culprit—contaminated water, a virus, pesticides—was examined and eliminated.

This story, reported by Jeanne Lenzer in "When the Cure is the Cause: The Case of the Green Hairy Tongue" in Undark magazine, a publication devoted to science journalism, stymied researchers until 1970. That year "a pharmacologist made a forehead-slapping discovery," she writes. "The two presumably different antibiotics, it turned out, were simply different brand names for clioquinol, a drug used to treat amoebic dysentery."

The mystery went unsolved for so long because the disease looked and behaved like an epidemic. When someone came down with a stomach bug, family members took clioquinol as a preventative measure. "In short, what people thought was a cure for SMON was in fact its cause," writes Lenzer.

In the business world, a version of this "cure as cause" is called a perverse incentive—an incentive that results in unintended consequences that are contrary to the goals of the incentive. About a year ago, Wells Fargo became a prime example of this phenomenon. A program to increase profits instead caused an expensive and embarrassing scandal. The company pushed employees to make more money by signing existing customers up for new services. Instead, Wells Fargo employees created almost 2 million deposit accounts and credit card applications—all without customer knowledge.

However, as Senior Editor Mark Tarallo points out in his article "Paved with Good Intentions," starting on page 50, most corporate incentives do not become perverse. This means that managers can learn from the Wells Fargo situation and avoid the factors that created the problem. In that case, unrealistic goals for front line employees coupled with substantial financial rewards for their bosses led to an intense pressure to sell, and to cheat if those sales did not materialize. The final factor was a lack of program oversight that could have stopped the bad behavior before it did real damage.

The ending to the SMON story is also a warning to companies. According to Lenzer, legal documents show that clioquinol's manufacturer Ciba-Geigy "was aware of the drug's harmful effects for years." In 1979, a Tokyo court ruled that it was responsible for the outbreak and ordered it to pay damages to the victims.