Moral Hazard

Risk is an interesting concept when applied to design, and Johnson & Johnson has been doing some very risky things recently, as this KY project illustrates. Is this project a confirmation of the laws of moral hazard or a fluke? The traditional definition of moral hazard would suggest that this company, and Chris Hacker’s group in the global strategic design office, should not be willing to take these kinds of risks. The risks of failing within a major corporation are so large, that they should only be producing safe work that reduces the companies exposure. Yet the work of large corporations suggest no specific pattern. Most large corporations are accused of being risk averse, selecting safe design, but many are

I have lived in a Connecticut suburb of New York for over 20 years, and  a very high percentage of my neighbors are, or unfortunately were, in the financial services industry. So needless to say the economy has always been a topic of conversation. But I must admit, that although the concept of moral hazard may have been something my neighbors learned in business school, the phrase has been around at least since the 1600s, I did not become familiar with the term until Lehman Brothers went under last Fall.

Wikipedia defines Moral Hazard as “the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk.” This got me thinking, and I admit that when you get a designer thinking about the definitions of financial risk usually associated with governments and central banks that things might stray from the traditional definitions, but hear me out.

Can you make any correlation between the design work developed by clients that are exposed to a lot of personal risk in selecting a design, say an entrepreneur running a start-up venture, versus a marketer at a large global corporation who would appear to have much less personal exposure to risk? Or does the size of a brand within the portfolio have anything to do with the size of the risk a company is willing to take? Obviously KY is a much smaller brand than Band Aid. Another paradox of large or small is that most design managers for large corporations probably feel less personal job risk, although that is debatable in today’s economy, than the entrepreneur at a start up company.

The normal definitions of risk exposure would seem to suggest that entrepreneurs, who want to reduce their personal exposure to risk would be LESS likely to select risky design work. Design managers at large corporations, who are at less personal risk in their positions would be MORE comfortable selecting risky design work.

History, or at least the clichés of history, would suggest the opposite. Traditionally large consumer goods companies are accused of taking virtually no risk in design development. While small entrepreneurial companies are thought to be the breeding ground of new design thinking.

Any number of recent examples suggest that there may be no correlation between the size of the organization, the lack of personal risk in a design managers position, and the “riskiness” of the work they develop. Take Apple and Microsoft. Both companies started very small, by young entrepreneurs from atypical backgrounds, in a similar industry, at about the same time, yet their design heritages suggest two companies that have taken very different paths, and very different risk profiles in their design identities. Steve Jobs has been the poster child of design innovation and Bill Gates of conformity. Neither company or individual would seem to have had significantly different exposure to risk.

It would seem that perhaps the rules of moral hazard do often apply in the design world, companies exposed to big risks, and the people who work for them, often make safe design decisions. But my quick look at this would suggest that their are both timid clients and brave clients, willing to expose themselves to significant risk at both large and small companies, and even companies at very different life cycles of their growth.


Shown is an image from the Johnson & Johnson KY website.


About Richard Shear

designer, husband, teacher, blogger, father, athlete, author, historian Richard has over 25 years of brand identity and package design experience, with a wide range of clients such as Ahold, Coca-Cola, Hasbro, IBM, Johnson & Johnson, Pernod Ricard and Procter & Gamble. He began his career working with the legendary advertising art director, and AIGA Medalist, George Lois and the British design manager Clive Chajet. In his next design management position at Lippincott & Margulies, he worked with Walter Margulies learning the complex skills of global corporate identity. He then became Creative Director and Partner at Peterson & Blyth, one of the premier brand identity and package design firms of the time. He is a founding faculty member of the Masters in Branding Program at New York’s School of Visual Arts. He publishes the blog The Package Unseen, and has been a guest lecturer at colleges including FIT, Trinity College and Tyler School of Art. He is a graduate of the Tyler School of Art at Temple University. Richard is a Board member of the AIGA MetroNorth Chapter, past President of AIGA‘s Brand Design Association, President of the Package Design Council and a member of its Board of Directors. He is a member of USA Cycling and US Rowing, a nationally ranked masters bicycle racer, and a member of The Saugatuck Rowing Club, the 2010 Masters Club National Champion.
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2 Responses to Moral Hazard

  1. Elissa says:

    Interesting observation of Apple and Microsoft. It is unfortunate that most large consumer goods companies rarely take risks with design. I wonder what our world would look like if the majority of the mainstream’s design philosophy was to uplift the public’s visual language rather than cater to its lowest ranks in the name of sales.

  2. Mark T. Market says:

    Nassim Taleb spoke out in Davos about banks and the moral hazard of bailouts.

    He and Nouriel Roubini were both interviewed at CNBC recently, but soundbite journalists are incapable of handling their views sadly.

    Zimbabwe citizens know very well what kinds of horrors hyperinflation can bring, but this kind of phenomenon is considered remote from occuring elsewhere.

    Glenn Beck’s hockey stick makes me think again.

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