This material originally appeared in Spirit: Transformation and Development in Organizations, which was published by Abbott Publishing in 1987.
The following case studies come from my client experience. I chose them as reasonable examples of working with Spirit. In as much as a number of years have passed since this work was done and it has not been possible to follow up on what has happened since, I can make no claim as to present state. However, at the time of writing, I asked the principals involved to read the documents, and they indicated that my representation was in accord with their recollection.
The Appeals Division is part of the Internal Revenue Service, the great and powerful IRS. Although Appeals is perhaps the smallest of major IRS units, its function is unique and critical both to the health of the parent organization and to the integrity of the American tax system. It is the purpose of Appeals to provide fair and impartial review and settlement of contested tax cases without subjecting either party (the taxpayer or the government) to the hazard and expense of formal litigation. In recent years, the division had been subject to major changes due to the radically altered world in which the IRS exists. The present issue was the transformation of what once was a small, elite group of technicians into an efficient, quality-conscious, and much larger organization.
My work with Appeals is complete, but sufficient time has not elapsed in order to speak of anything approaching long terms results (or the lack of same), Nevertheless, the case will demonstrate the development of an intervention and the thought underlying that process.
In its present form, Appeals is a relatively modern creation, but the appeals function goes back to the 1920s as an offshoot of the tax court. By 1939, this function had been split off and located with what became known as the Technical Staff. The Technical Staff was a very small, select group of IRS personnel who were called upon to render technical opinions regarding the interpretation and application of the laws and regulations. This put them directly in the “gray area” between where the words of law stopped and complex situations arose. In those days the case load was quite small, presumably due to the relative simplicity of the law and the temper of the American taxpayer, who seemed largely agreeable to abide by the rules as they were stated.
Following World War II, the tempo of the times changed radically as America moved out of the wartime period into the enormous economic and social development of the late ’40s and early ’50s. Under these conditions, it was no longer possible for the Technical Staff to handle the business, and so in 1951 it was expanded and given a new name, the Appellate Division. The staff members were known as Appellate Conferees.
By present-day standards, the Appellate Division was still quite small, having no more than 200 members. It was based in Washington, and for a time, all those who would appeal a case had to journey to the capital city, although eventually a circuit-riding procedure was instituted which took the Appellate Conferees out into the hinterland.
The most significant fact about the Appellate Division was that it was indisputably the elite corps of the IRS. The Appellate Conferees were chosen because of their experience and knowledge, and it was commonly recognized that one could not even be considered for “membership” before at least 15 years of service in the IRS. The use of the word “membership” may appear strange, but in fact the Appellate Division was a closely held club in which only the elite were to be found.
Positively, the Appellate Division represented an enormous resource to the IRS, and to the American taxpayer. The collective wisdom and experience of the Appellate Conferees was truly impressive. A recent Deputy Chief Counsel said that when he joined the Service as a young lawyer fresh out of school, he held the conferees in awe, for “they were the teachers.” The basis of their respect came not only from the years of experience, but also from the fact that their daily fare was the truly difficult cases, filled with ambiguity. By definition, few cases came to Appeals unless nobody knew the answer, due to unclear, conflicting, or nonexistent laws or regulations.
To insure that only such difficult cases arrived on the doorstep of Appeals, there was a two-step review procedure, which was designed to separate out the malcontents and misunderstandings, which the Appellate Conferees called the simpler, or sometimes the “garbage cases.” If it got to the Appellate Division, it was heavy business indeed, and would be considered with the utmost care, with virtually no thought given to the time or resources expended. Thus the taxpayer was assured that once in Appeals, they were going to deal with extraordinarily competent and experienced personnel who would brook no interference until the case had been heard and settled to the conferees’ satisfaction. The review would be fair, impartial and independent, for the Appellate conferees answered to nobody but their colleagues and their own conscience. If it was felt that a prior decision was without merit, it was reversed. Once a decision had been made, it was then justified with elaborate supporting statements, which appeared more as an academic treatise than bureaucratic statement.
The independence and authority of the Appellate Conferees was imposing and generally well deserved, given the quality of those who exercised it, but there were also liabilities. Not the least of which was a genuine distancing and separation from the rest of the Service. The Appellate Conferees were virtually a law unto themselves. This meant that few, except for the initiated, had any clear idea of what the Conferees actually did. That in itself would have been no particular problem, except that more often than not, a decision from the Appellate Division meant the reversal of a prior decision, and that could only mean somebody else was wrong and therefore potentially subject to censure.
To fully understand this situation, it is useful to know where the Appeals function sits in the IRS world. Essentially, there are four major elements organized as a chain. At the front end are the Service Centers, which receive the tax returns as they come in and enter them into the system. Next comes Examination, and the function here is to audit the returns with the expectation of raising the actual tax. Exam, as it is called, is the bane of many taxpayers, for when the phone rings, or the letter arrives bearing the message that the IRS wants to talk, that is Exam. Given the purpose of Examination, it is not surprising that the revenue agents who work there find their greatest professional rewards from “setting up the tax” — that is discovering the mistakes (or worse) of a taxpayer and going for an “adjustment” (read “more tax”). More often than not, the process will end here, for either the taxpayer will agree and pay up, or possibly convince the examining agent that the tax paid was justified. However, if agreement does not take place, the taxpayer has the right to go on to Appeals. The last step, is litigation in the tax court.
It may occur that Appeals will agree with Exam, but in more cases than not, there will be some difference. The basis of this difference may reside in the fact that Appeals was “right” and Exam was “wrong,” but it is equally possible that it will occur because of a difference in intent and point of view of the two components. Whereas Exam is intent upon getting the greatest tax dollar, it is the purpose of Appeals to conduct a fair and impartial review with an eye to a settlement, which takes into account the “hazards of litigation.” In other words, the Appellate Conferee must not only reconsider all the facts and figures in the light of the appropriate statutes, but also make a judgment as to what would happen if the case were taken to court. Supposing that it seemed there were a 50-50 possibility of winning, it is not unlikely that the settlement offer would be in the 50-50 range. It is important to note that this settlement is a negotiated settlement, which means in effect that both parties must give a little bit, and that the final position cannot, by definition, be fully supported by any extant law or regulation, usually because such law or regulation does not exist.
Seen from the point of view of Exam, settlements reached in Appeals not only reverse all their hard work, but also (and this is perhaps the truly maddening part) seem to do so in disregard to the “rule book.” In short, there is a built in structural conflict between Exam and Appeals which is essential for the effective function of the total system, but the basis of misunderstanding and, occasionally, animosity between the elements. Thus in Exam, Appeals is jokingly referred to as the “gift shop” or “Santa Claus,” for they give it all away. Sometimes that joke is pretty thin.
In a word, the Appellate Division was not only separate, aloof and elite, but it also appeared to operate “outside of the rules.” Such an aberrant phenomenon does not rest easy in any large bureaucracy, and it is predictable that sooner or later the system will attempt to bring the “rogue organization” into line. For 20 years (1951 through the early ’70s) the Appellate Division maintained its useful but uneasy position, however, as the ’70s moved along, some major new forces appeared in the environment and the situation changed quite radically.
These new forces were essentially four. First of all, the tax law itself had grown increasingly complex, which meant, if nothing else, there were infinitely more opportunities for misunderstanding and disagreement. Secondly, the tax rate had consistently gone up so that J. Q. Public, individually or corporately, found their dues to Uncle Sam consuming a major portion of their income. Thirdly, the inclination to protest became almost a reflex action. Whether this last factor arose from the protests of the ’60s and ’70s or from the enormous increase of available lawyers seeking work is probably unanswerable, but the net effect was quite clear. Folks just weren’t going to sit still if they even suspected that their rights had been violated. Last, there were just more people filing more returns. If you add in some amount of fraud and abuse, you have a situation by the end of the ’70s, for which the tax system was never designed, and which yielded a crisis of increasing proportions.
The system response was fairly predictable and quite inadequate, people kept doing what they had always done. Exam continued to “set up the tax,” and the Appellate conferees considered the cases that came before them with the same care and judicious pace they had always used. The effect was an enormous backlog. Cases piled up on the doorstep of Appeals until there was scarcely room to work, and when the taxpayers became frustrated with the slow pace, they headed for the tax court, which quickly became overloaded. The system had reached “tilt”, and decisive action was required.
Over a relatively short period of time at the end of the 1970s, several things occurred which dramatically changed the nature and composition of Appeals. The so-called two levels of appeal were consolidated into one, and no longer were the Appellate Conferees insulated from the relatively less complex cases. Furthermore, those individuals who had handled the simpler cases under the old system were physically moved into the appeals structure, and they, along with the older Appellate Conferees were now called Appeals Officers. Outside of dramatically increasing the size of Appeals, which had grown slowly from the original select 200, this consolidation introduced a whole new body of individuals who possessed far less experience and stature. The old elite club was ended, and almost anybody could be an Appeals Officer.
Next, Appeals was shifted from a relatively autonomous position within the IRS structure to become a division of Counsel, the litigating arm of the Service. The fact that this move might have the effect of diminishing the public perception of independent review by making it seem that Appeals had now become the equivalent of a pretrial hearing was apparently outweighed by a gain in administrative effectiveness. The move, however, had deeper symbolic implications, for it essentially reversed the previous status order. Whereas the Appellate Conferees had once been the “teachers” of the lawyers, particularly the newer ones, they were now placed in a diminished position. As one senior member of Counsel put it, “We used to be in their bag, now they are in our bag.”
Then the managers arrived. In an effort to bring order out of the impending chaos, it was determined that the whole operation had to be brought under much tighter management reign. Historically, management had never been a major concern of the Appellate Conferees who operated in their domain rather like an academic department. While it is true that a senior member had the responsibility for assigning the work, and reviewing the disposition of cases as represented by the impressive supporting statements which justified the proposed settlements, little concern was given to how fast the cases were moved or how many were brought to settlement in any given period. The primary emphasis rested upon the quality of the work regardless of how long it may have taken. In short, “modern management” as a special skill was marginally present and little regarded.
Given the enormous backlog, to say nothing of the radical increase in the size of Appeals with the arrival of those individuals who had previously conducted the first level of review, managers, almost any kind of managers, were critical. Since that skill was not to be found among the old Appellate Conferees, it had to come from elsewhere, and in fact the new managers for the Appeals Division were recruited from all over the Service, and especially from Exam.
By definition, these new managers had not been part of the old club, and therefore had little idea of precisely what it was that Appeals did. Indeed, one might suspect that they carried with them some of their previous dubious opinions of Appeals as the “gift shop” run by Santa Claus. However, the new managers did understand moving cases, and in relatively short order, instituted a number of procedures to control inventory (the number of cases “in house”), increase the agreement rate and lower the time spent on individual cases. But not without considerable cost and friction.
From the point of view of the older Appeals Officers, it seemed that the barbarians had arrived. Indeed, their whole world had been turned upside down. Whereas they had once been the undisputed elite corps, they now found themselves close to the bottom of the totem pole, resident in a foreign land (Counsel) and under the supervision of individuals who lacked (as the conferees saw it) even a marginal understanding of what the whole process was about, and perhaps more important, what quality meant. Perhaps most galling was the fact that the managers, who now occupied the senior positions in the several offices, held the authority and responsibility for reviewing and approving all settlements. While this clearly made sense as an administrative procedure, it meant that individuals who had never settled a case in their lives were now passing judgment on the work of those who had made a professional career of doing just that.
The situation from the managers’ point of view was doubtless no less confusing and perplexing. Their mission, as they understood it, was to “move cases,” and the means available included time accounting and other statistical controls, in addition to new, more efficient office procedures and technology. Although these approaches seemed quite rational and essential, they were greeted by many of the older Appeals Officers with something less than enthusiasm. As seen by the managers, the major problem was not so much the work as the workers, at least some of them, who became known as “The Curmudgeons.”
One incident, which might be called the “Dictaphone Wars” gives some of the flavor. In one region, the managers had determined that in order to increase efficiency, the use of Dictaphones would be a great advantage. The Dictaphones were ordered and placed with the Appeals Officers, who were told that from hence forward that dictating and not longhand was the expected procedure. Compliance was slow but visible, except in the case of the old curmudgeons.
In one instance, a very senior, and very competent Appeals Officer positively refused to go along. He agreed to have the Dictaphone in his office, but insisted that it be kept in the farthest corner. As for using it, that was out of the question. Finally, management decreed that no supporting statements would be typed unless they were dictated, but still no movement. In the last stages the Appeals Officer apparently gave in, but as it turned out, he was writing his statements out longhand, and then dictating them into the machine.
It is an extraordinary tribute to the professionalism, dedication and competence of the managers and the Appeals Officers that the whole thing did not just blow up. In fact, over the next several years following the reorganization, measurable progress has been made in terms of controlling inventory and speeding the process. But not without some real losses. The old Appellate Division, for all its faults, was a remarkable institution, which in its time contributed greatly to the integrity of the tax system. But it must also be recognized that the world for which the Appellate Division was made no longer exists. The Appeals Division stood at the Open Space — there was no going back, only forward towards a new way of being.
INTERVENTION AND THE FUTURE
My association with the Appeals Division began in 1983 when the director, Howard Martin, asked me to address his national managers meeting on the subject of Organization Culture in Transformation. Apparently my thoughts struck a responsive chord because after some additional conversation, we entered into an agreement to “. . .develop an innovative approach to improve individual and organizational performance in times of extensive change, utilizing the concept of organizational transformation with particular emphasis to be placed on Appeals’ organizational culture.”
That piece of language actually appears in the formal US Government Request for a proposal. I quote it in part to indicate where we were to start, but also to demonstrate that, public perception to the contrary, there are some federal administrators who are willing and able to take risks in order to improve the effectiveness of their organizations. The fact that this is a formal public document emanating from the Internal Revenue Service is perhaps even more remarkable.
The situation in Appeals, as I began my work, represented a marked improvement from what I came to understand to be the immediately prior history described above. In the first place, it had been rapidly expanded to handle the increased workload, and now possessed some 2400 employees operating coast to coast. But more important, some of the trauma associated with the changeover from the Appellate Division to Appeals Division had begun to fade if only with the passage of time. Some of the older Appellate Conferees had retired, but not nearly as many as one might have anticipated. Those who remained seemed to be making a reasonable adjustment to the new conditions. At the same time, the new managers had become increasingly knowledgeable about the appeals function and what it was they were supposed to manage.
Nevertheless, there were still some rough edges, to say the least, and Howard Martin felt that the organization had by no means reached its full potential. Part of the problem was that the workload, at least in some parts of the country, was absolutely fierce, occasioned in large measure by the appearance of the tax shelter cases. At one point, there were in excess of 400,000 disputed cases waiting in Examination. Without going into the technicalities, it may be said that number, added to the “normal” workload, would simply bury Appeals. Or worse, if Appeals were bypassed, and all those cases were to head for the tax court, the system would close down. But workload aside, it appeared to the director that the available resources of human spirit and energy were not being utilized most efficiently. In a word, there was turmoil in the system which resulted in a net energy loss.
My task was threefold. First, to take a look at the organizational culture as represented by the operative mythos, in order to provide the Director with a strategic view of the organizational spirit — how it flowed, and where it appeared to be constrained. Second, to develop strategy and tactics for improving the situation. And last, to serve in a consultative capacity during implementation. The methodology employed was essentially that described in the preceding chapter. All told, I conducted 122 interviews in all seven regions, all major offices and a selected number of smaller offices. The interviews spanned the organization from senior personnel down the latest hires and lowest levels. I also interviewed a smaller number of individuals from the world surrounding the Appeals Division, including senior IRS officials and “practitioners” (CPAs and lawyers who ordinarily do business with Appeals).
Before going further, I wish to make clear that although some of the material which I will describe may appear negative and problematical, I discovered Appeals to be an incredible organization, with the vast majority of those I came in contact with taking genuine pride in the work that they do, and feeling it essential that not only must the work get done, but be done well. To be sure, certain criticisms were offered on all sides, but almost without exception, those criticisms were presented in a positive fashion. All of which meant to me that despite the trauma of the past and the difficulties of the present, the basic spirit of Appeals is impressively strong.
THE SPIRIT OF APPEALS
Russell Ackoff has said, “To understand a system, you must first see it in the context of the next larger system.” I have found this to be very good advice, and so the first cut effort is to see Appeals within the world it inhabits, as imaged by the stories told about it. Viewed in this light, Appeals’ world is hardly appealing. Graphically, this world might be represented by a series of layers as follows:
INFERNAL REVENUE SERVICE
The first layer is the world of the general public, which for the past several years has seemingly come to believe that many or perhaps most of the problems of their existence may be traced to the heavy hand of government and more specifically to the “swollen bureaucracy.” The fact that two successive administrations (Carter and Reagan) have run on a platform which excoriated the bureaucracy, has served to underline, and perhaps enhance the perception that lift any rock, and there you will find the “Bad Bureaucrat.” This is not to suggest that federal service, like any other large organization, is without fault, but the issue is not the truth of the situation, but rather the perception, which creates its own kind of truth.
Within the federal service, there can be little question that the least favored element is the Internal Revenue Service. I can’t support this with a large number survey, but then again, I am not sure that I need to. The reasons why the IRS ends up in this position are not hard to fathom. Nobody likes to pay taxes, and everybody has to. So if you are negatively disposed toward the federal service, the most obvious target confronts all citizens every April 15. Not surprisingly the IRS comes to stand for the “Infernal Revenue Service.”
Within the IRS (the next layer down), the story about Appeals is “Santa Claus” (discussed earlier). Told as a joke, or with real seriousness, the idea is that Appeals is giving away the store.
This picture may be somewhat of an overstatement, but I do not believe it is far from the truth. To the extent that Appeals has a legitimate and essential task to perform, it should be clear that regardless of any problems internal to the organization, the surrounding environment represents a significant difficulty.
THE STORY OF APPEALS — FIRST TAKE
Following an initial series of interviews (with the 12 “important” people chosen by the director), I presented the story as I had come to understand it to a small focus group consisting of the director and his immediate staff. The purpose of the presentation was to get a preliminary reaction and also to check out the rudiments of an overall strategy that was beginning to emerge in my mind. All of this had to be done prior to going out to the field, because as I indicated previously, once in the field, the intervention is already started, and it is essential that all key players (in this case the director and his staff) clearly understand what is going on.
The primal story of Appeals is “Black Hats and Blue Ribbons.” It seems that in the early days, the Appeals Officers (then known as the Appellate Conferees) considered themselves so separate that they would not have their work typed with the usual black ribbon, but rather chose blue so that nobody could possibly mistake their work for the work of another. In addition, they tended to dress alike in dark suits, and when they went out for lunch, they went together. The senior man would lead the way, with the others following along in rank order. On the head of each was to be found a black hat. The restaurant of choice was the same each day, and no mere mortal in the service would be expected to join them.
The second story I called “Trauma Days.” Basically, it related all the pain and confusion which occurred with the end of two levels of appeal, the shift over to Counsel, and the arrival of the “managers.” But in the way of organizations, these details tended to drop out, and the whole constellation of events was simply referred to as “those days.” If pushed, the officers would give the details, but it was quite clear, particularly when talking to older Appeals Officers, that the memory was so unpleasant that they would prefer not to be reminded. Contained in the “Trauma Days” stories was a sense of fateful wistfulness. The element of fate appeared because all would acknowledge that the ways of the old Appellate conferees were no longer adequate for the needs of the IRS as it faced a quite different world. It was inevitable that things were going to change. But the acknowledgement of the necessity for change was made with wistfulness, for the old days, for all of their irrelevance, spoke of rigor and quality which now seemed to have become lost in the rush to move cases.
The next story I called the “Battle of Aces.” ACES, is an acronym for Appellate Conferee Executive Study. This study was initiated in the early ’70’s by the then Director Klotz. It represented a self-study by the Appellate Conferees through which they were supposed to carefully consider their changed environment and develop ways to work more efficiently, while still maintaining the quality they held so essential. In retrospect, the recommendations generated appear quite legitimate and normal. For example, the report recommended that Appeals Officers be treated as professionals, and be given both the freedom and responsibility of that status. However, when the report was finally finished, and sent “up” to the level of the commissioner, it was rejected.
The rejection of ACES occurred for a variety of reasons, not the least of which was that just as the study was concluding, the Employees Union (NAIRE) was forming and actively recruiting. It seems that the union adopted many of the ACES’s recommendations as part of their negotiating position, with the net effect that what began as a cooperative study became an adversarial position. In any event, ACES was killed. Regardless of the actual reason for its demise, that demise was perceived by managers and Appellate Conferees alike as the end of the old way of doing business, and the appearance of the new order. Things were going to go a different way — and that way was the “way of management.”
Even though the ACES report had been dispensed with over 10 years ago, it continued to represent a perceived threat on the part senior management to the point that when this present intervention was begun, one senior official commented, “Oh, we are not going to do ACES all over again!” The power of that emotion was frankly surprising to me particularly on the part of the managers, for they, after all had apparently won the battle. My sense is that in addition to whatever logical justification there may have been for the move from the “old way of doing business” to the new “management oriented approach,” the overplus of emotion (as I saw it) derived from the fact that Appeals as it had existed, represented an aberrant phenomenon in the life of the IRS. The joke was no joke: Appeals was separate, aloof, elite, the Santa Claus, and didn’t play by the rules. When the opportunity came to bring this element in line, it was done with a vengeance.
In any event, it seemed the battle of ACES continued to be fought even though the war had long since ended. On the one hand, there were the Appeals Officers, who sincerely believed that they had a special mission to carry out and possessed special qualifications to perform that task. On the other hand, there were the managers, who were apparently less concerned with quality and professional competence than with agreement rates, the statistics of cases moved. Of course in individual cases, particular managers or individual Appeals Officers could “see the other side,” but that was the story, the myth, and it seemed to shape much of the present conscious of the organization.
In fact, the Battle of ACES was not a single myth, but two myths in conflict, and as such represented a prime case of what I have called mythic dissonance. On one side there were the old Appellate Conferees, the subject and authors of ACES, representing, as they saw it, the high standards of quality, rigor and excellence, all of which were perceived to be threatened by a blind thrust towards quantity. On the other side of what appeared as a real donnybrook, were the managers who understood themselves as the saviors of Appeals, riding in at the moment of destruction to preserve the appeals function from the arcane and antiquated practices of the old “curmudgeons.” The sad truth of the matter is that both were right, both were wrong, and neither could function without the other. In addition, a great deal of energy was being dissipated in the conflict that might better have been utilized in the processing of appeals.
The last story is “Circle the Wagons.” According to this story, Appeals is caught between the forces of Counsel and Exam, with Counsel seeking to integrate Appeals into their structure and process, while Exam excoriates Appeals for giving away cases (Santa Claus) and not moving them fast enough.
If all of these stories are understood as the elements of the Mythos of Appeals, constituting the culture and determining the shape and function of Spirit, it is not surprising that life was perceived as somewhat less than smooth.
When I first laid out the stories as I found them, I was rather surprised that Appeals functioned as well as it did. Indeed, the fact that Appeals functioned at all I attributed to a basic, continuing, but weakening belief that the appeals function was essential, that the Appeals Officers were still the elite, and therefore, regardless of the immediate difficulties, the job was going to get done. In a word, the story of “Black Hats and Blue Ribbons,” for all of the hard knocks received, was still present, and in many ways dominant.
When it came to developing a strategy (albeit preliminary), it seemed to me that the critical move must be to release the Spirit represented by “Black Hats,” and allow it to appear in new form. There was no question that the old ways were no longer appropriate, but it was absolutely clear that, for the Appeals function to be effectively carried out, the sense of excellence and eliteness must be present in more effective form. If the objective was an effective, high-performing Appeals, the place to start was with old “Black Hat and Blue Ribbon” story, and use that as the centerpiece. To the extent that story could be aligned with, and supported by, the managers’ story, a positive outcome might be expected. This would mean unlocking the managers’ story from its presently unproductive and conflicted relationship with the “Heros of Aces,” and reversing the present relationship in which it appeared that the managers were dominating the Appeals Officers, to a new situation where the Appeals Officers were “out front,” with the managers creating the appropriate supporting environment. The key lay in building the story of the Appeals Officer as a responsible, competent professional without attacking or diminishing the story of the managers.
In presenting this material to the focus group, I made it very clear that the strategy suggested was only preliminary, and would require a great deal more investigation before being acted upon. At the same time, however, it was important for all to understand roughly what my thoughts were if only because in the next phase of the intervention, as I moved out through the organization, my presence alone, and the way that I shaped my questions would inevitably affect the outcome. At the time of presentation, it appeared that general agreement existed both in terms of the validity of the story as told and the essential outlines of the proposed strategy.
Given this agreement, I began the next phase which involved visiting all seven regions, most major offices, and a number of the smaller units. Over the course of a four month period, I had the opportunity to interview a representative sample of all Appeals personnel from senior managers and Appeals Officers down to the lowest levels of secretarial and support staff. In addition to asking my standard two questions, (What is this place, and what should it be?) in order to gain further insights to the operative mythos by way of expanding and/or validating my previous findings, I also had the opportunity to test out the logic and feasibility of the proposed strategy. This was done by “playing back” to the interviewee, towards the end of the interview, the Story as I was coming to understand it. On one level I was concerned to see the reaction to what I had to say, but at the same time, I was aware that just by virtue of retelling this story in a significant number of times and places, it begins to assume a reality in and of itself. To the extent that the story aligns with and reflects real, but previously unspoken aspirations, it not only assumes reality in the sense of currency, but also power as a container or vehicle for the organizational spirit expressed in a new way.
One way of looking at what I was doing would be to see the emerging story, as I was telling and retelling it, as a musical instrument which was being tuned and shaped by trial and error. In essence what I was looking for was a form or version of the Story which resonated with the collective self-understanding and simultaneously gave expression to a new way of being (new covenant) for the organization as a whole. Thus, an important part of my journey through “Appeals land” was to act as a surrogate for the director in the process of collective storytelling. It is for that reason that the director and I had to be absolutely clear as to what I was doing and what the potential outcome might be. While it might look as if I was only listening to stories and telling a few of my own, in fact this activity, if done with sensitivity and skill, would represent a most critical part of the whole undertaking. There is no such thing as “just a story.”
THE STORY OF APPEALS — FINAL TAKE
Shortly after I started on my journey through the “land of Appeals” several things occurred which affected what I was doing, and the way I was seeing things. The first was a request from Howard Martin that I look specifically for hero stories concerning the “managers.” He perceived correctly that while my exclusive emphasis on the Appeals Officers themselves as they might represent a new version of “Black Hats and Blue Ribbons” was quite understandable in terms of the tradition of the Appeals Division, that emphasis could end up being very destructive if it were not balanced with a more powerful and positive version of the “Managers’ Story.” Hence he asked me specifically, “What are the hero stories for the managers?” or, as I came to understand it, How would you tell the managers’ story in a positive way.
The second thing which occurred was Howard Martin’s decision to do a little storytelling on his own. The particular story line which he chose was the independence of Appeals. This was a central part of the old “Black Hats and Blue Ribbons” tale which emphasized the uniqueness of the Division and its function. In a very skillful and low-keyed way, Mr. Martin began to use several opportunities that came his way in speeches before meetings of the “practitioners” (CPAs), magazine interviews, and in senior IRS staff meetings, to embed the idea that Appeals could only perform its essential function to the extent that it truly operated as an impartial, independent body, no matter what the administrative arrangements might be (i.e. the connection with Counsel). As a way of positioning and contexting Appeals, I felt his strategy to be superb. It was quite clear to me that on a practical level (actually getting agreements with the taxpayer) the perception of independence was essential in order to encourage the taxpayer to negotiate, and also to provide the Appeals Officers with a sufficient sense of their own professional self-worth so that they might be effective negotiators. Despite my sense of the “rightness” of Howard Martin’s approach, I also felt that there was something missing which I couldn’t quite put my finger on.
During the next four months, as I crisscrossed the country interviewing the Appeals’ staff, I saw the major findings of my preliminary interviews largely confirmed, but there were a variety of additional details which served to complicate and confuse the picture. For example, when I talked to secretaries and records clerks, two major stories appeared which stood in stark contrast and conflict. The first story, which I might call “The Garden Spot of IRS” depicted Appeals as THE place to work. The second one, which I called “Nobody Loves Us,” described the life of the secretary or clerk as being at the forgotten end of the totem pole where only the drudge work was performed. It seemed that nobody cared what they did, just so long as they ground out the cases. The surprising part about these stories was not that they existed, for in all likelihood similar tales will exist in any organization, but rather that both tales would, more often than not, be told by the same person. To the extent that these two stories described the parameters within which the self-understanding of the people involved might be worked out, the resulting image could only be ambiguous and conflicted, as indeed it seemed to be in actual day to day working situations.
The secretaries and clerks were not the only examples of such ambiguity and conflict, indeed I found a whole series of conflicted pairs at all levels of the operation. For example, among the Appeals Officers, one story — “We Handle the Tough Ones,” described how only the very complicated and difficult cases came to Appeals, those cases for which there was no clear cut answer. At the same time, the same officers would tell a story which I called “Buried in Garbage,” which related how they had become buried with trivia, simple cases which presented no real challenge except for the sheer numbers involved.
Further examples of this ambiguity included “Appeals Independent,” which ran against “The Orphan of the IRS.” The first story echoed a theme from the “Black Hats and Blue Ribbons,” and was in fact the very theme that Howard Martin was trying to bring into focal attention. However, the second story described how Appeals was simply left to its own devices and largely misunderstood.
Another pair was “The Elite” and “Some Aren’t.” The “Elite” was in part another flashback to the days of Black Hats, but it was more than that, for it also represented a present feeling that the Appeals Officer was an outstanding example of the best of the Internal Revenue Service. At the same time, the contrasting story (“Some aren’t”) reflected the belief that the quality of officers had radically slipped since the old days.
The last conflicted pair was “Independent Professional” and “No Settlement Authority.” The story line of “Independent Professional” described how the individual Officers would “go up” by themselves against a phalanx of corporate CPAs and tax attorneys in order to convince them of the wisdom of settlement. The opposing story highlighted the painful fact that although the officers were seen to be sufficiently competent to enter the fray, in the final analysis they were treated like neophytes who had to have their work checked out by higher authority. Put another way, the officers were given the responsibility for reaching settlement without the authority to conclude the deal.
Each of these stories by themselves was not necessarily disruptive, although if only the purely “negative ones” had existed, the overall self-image described would have been pretty bleak. However, the more positive stories seemed to balance that, so that the general spirit was more “up” than “down.” Of course, there is always some degree of ambiguity in organizational life, and it might appear that the conflicting stories only reflected that “normal” situation. But it appeared to me that something more was going on, and that in fact the cognitive dissonance produced by the conflicting images was having a very adverse effect. In some ways it would almost have been better had the Appeals Officers and the other staff been able to see themselves as universally bad. At least that would be a consistent picture, and one could come to terms with that in whatever way seemed useful. However, just as some sort of equilibrium seemed to get established, the “opposite” story would surface and the working environment would once more be perturbed.
As I examined the emerging image of the spirit of Appeals as represented by the stories told, it became apparent to me that the strategy I had previously proposed in terms of heightening the image of professionalism on the part of the Appeals Officers was heading in the right direction, but that it was insufficient for the task, primarily because it did not deal with the “other side of the house,” the managers. Howard Martin’s question, “What are the hero stories of the managers?” remained to be answered. More to the point, it became apparent that smoothing and focusing the energy flow within the Appeals organization could only be accomplished from a position of advantage that essentially included BOTH the managers AND the Appeals Officers.
I knew that one could not eliminate negative myth by denying it. In short the shadow side, conflicting stories would remain disruptive forces until or unless some new, powerful and more positive story might be introduced which might “outframe” them (place them in a larger context) and effectively neutralize their negativity by focusing the intention of the organization on some higher, yet nevertheless attainable goal.
At this point, I asked myself, “What is the business?” What is it they are really trying to do?” And of equal importance, do they understand what that business is, and is that understanding reflected in some powerful way in the stories told? The theory was; given some positive and powerful sense (Vision) of the business, Spirit might be vectored according to that Vision, thereby jumping over, if not neutralizing the negative, disruptive aspects of the present mythic structure.
The key to the business or, more exactly, a new way of describing the business which might “outframe” the existing stories and give them a more positive impact, began to appear as I sought to answer Howard Martin’s question: “What are the managers’ hero stories?” In the first place, when I asked my interview question, “What is this place,” the almost universal initial response was to quote for me a portion of the mission statement as contained in the manual, to the effect that Appeals was in business to, “achieve fair and impartial settlements considering the hazards of litigation.” In the case of the managers interviewed, this initial statement was most usually followed by some stories about how many cases were moved, and what the rate of agreement really was. It became clear to me that the true management heroes were those who effectively achieved high rates of agreement with a low level of what were known as “overage cases” — cases which had hung around for a long time. The “score card” for the managers was readily available in the statistics routinely gathered from each office that measured these elements.
The difficulty with this way of defining heroes lay simply in the fact that the Appeals Officers could look at precisely the same data and see not heroes, but insensitive individuals who cared more for the numbers than for the quality of output.
If ever there was a clear indication of culture in conflict and turmoil within an organization, this was it, for the “hero story” of one significant component was in fact the “devil story” of another major part. Furthermore, given the fact that the business had been defined as it was (achieving high levels of agreement), there would seem to be no way to alter the situation, for the managers were clearly doing what the business demanded, and further, were collecting statistics that could prove that they were doing a good job. Doubtless, no manager would say that they were opposed to quality work, but the truth of the matter was that there was no readily available way to measure quality, and as a consequence it appeared (certainly to the Appeals Officers) that the quality of the agreement was given only lip service. Push come to shove, the critical statistics related to high levels of agreement and low numbers of overage cases.
Given the fact that most contemporary organizations, and certainly the Appeals managers, have extreme difficulty in taking seriously (for any lengthy period of time) anything that cannot be measured and reduced to numbers; the statistics are the story. It became clear to me that a new story — giving equal time to “quality” and a number of other things held dear to the Appeals Officers could not be told until or unless the business was defined in a different and broader way and some new numbers were gathered to represent that new understanding of the business. A clue to the development of the new story was given through some chance comments made by several Appeals Officers who noted that while Appeals officially held the agency’s responsibility for negotiating agreements with taxpayers, in fact cases were settled through agreement by other elements of the IRS, specifically Exam and Counsel.
In the case of Exam, such negotiated agreements were done quite unofficially, but the truth of the matter was that a revenue agent could often bring a case to closure (get the taxpayer to pay up) by using his judgment not to apply the law and regulations in the strictest possible way. Counsel on the other hand had explicit authority to negotiate a settlement, even on the courthouse steps if the terms seemed fair or advantageous. The alternative was to proceed to trial, which would consume a great deal of time, effort, to say nothing of money. Since both Exam and Counsel seemed to be doing the business of Appeals, it might be reasonable to expect that some smart senior level administrator would see the possibility of real savings. Simply close Appeals down, transfer both the function and the personnel to Exam and Counsel, and eliminate the overhead. Surely, if the only business of Appeals were to achieve a high level of agreement rates, that might be more efficiently accomplished by consolidating the effort, and at the same time getting rid of an aberrant, troublesome component of the system. Excellent idea, unless there were some other useful function that Appeals were performing that was presently unacknowledged.
The “other” thing that Appeals might be doing was suggested by the mission statement for the whole Internal Revenue service, which went as follows:
The Mission of the Internal Revenue Service is to encourage and achieve the highest possible degree of voluntary [emphasis mine] compliance with the tax laws and regulations and to maintain the highest degree of public confidence in the integrity and efficiency of the Service. (IRS Manual, Sec. 8134.2)
With a little reflection, it became obvious that “voluntary compliance” was an essential, if for no other reason than that no matter what the general taxpayer might think, there is no force available to the IRS which might, by any stretch of the imagination, broadly coerce payment. The simple truth of the matter is that if taxpayers in large numbers (perhaps as little as 10-15%) were to refuse to cooperate, the system as it currently exists would cease to function. It turns out that the American taxpayer, unlike his or her brothers and sisters around the world, generally complies with Uncle Sam’s annual fund drive. Key to this willing compliance is a general consensus that the system is fair, and confidence that it will remain so. If for any reason that confidence is shattered, things just won’t work. This suggests that no matter what else the IRS may do or not do, maintaining public confidence is critical.
What does this have to do with Appeals? Everything, because it seemed to me that of all the elements of the IRS, Appeals held the key slot when it came to taxpayer confidence. The reasoning here may be a little obscure, but it boils down to the following: If you leave out strange tax laws with large loopholes (which certainly do not contribute to taxpayer confidence, but which are also the exclusive domain of Congress, and therefore beyond the control of the IRS), the major threats to taxpayer confidence lie in two areas, misunderstanding of, and lack of clarity in the law and regulations. If the taxpayer does not understand the law, which is more than possible given its complexity, there is little likelihood that he or she will have confidence in the administration of that law. But lack of understanding is only part of the problem, because in point of fact, the law and regulations are often ambiguous and sometimes intentionally so. This may seem strange, but if the law were sufficiently detailed so as to be clear on every possible point, there wouldn’t be room in all the libraries of the world to hold it. Viewed from the point of view of voluntary compliance and taxpayer confidence, it is incumbent upon the IRS to insure that taxpayers understand the law, even if they do not agree with it. And even more important, that in those situations where the law is intentionally or happenstantially vague, some mechanism be made available to “work out the differences.” The tax court is the final arbiter when it comes to working out implications of the law which are not apparent in the direct statement. But if all areas of dispute had to be submitted to the tax court, nobody would win except possibly the lawyers.
In any event, when you look at the overall structure of the IRS, and the place of Appeals in that structure, it may be argued that Appeals is in the critical place to maintain confidence. While it is true that all parts of the IRS should have this concern, it is also true that Appeals has a special role. Thus, for example, Examination doubtless should be fair in the conduct of its audit, but the truth is that there is built into the Exam-taxpayer dynamic a basic adversarial relationship, which certainly might be controlled, but probably can’t be avoided. In Counsel, the adversarial relationship is quite overt, for when a taxpayer deals with Counsel the concern is litigation.
In between is to be found Appeals, and by definition, any taxpayer who comes to Appeals is unhappy, which means there is but a short distance to loss of confidence. If, however, while in contact with Appeals, taxpayers is brought to understand the law or regulations or made to feel that their cases have had a fair and impartial hearing with an appropriate resolution, confidence in the “integrity of the service” will be maintained. This is not to suggest that all taxpayers will “like” the outcome, for truth to tell, nobody ever likes paying taxes. But for sure they can respect the outcome and be made to feel that it was fair.
There is an additional aspect to the importance of the Appeals’ clientele, for it turns out that most taxpayers who appear in appeals (certainly in the more complex cases) are represented by a CPA and/or lawyer. So even though Appeals may see less that 1% of all taxpayers, those that they do see come represented by some of the finest professional talent in the country. While a particular taxpayer will usually only appear in Appeals once, the practitioner will appear again and again. What the practitioner thinks about the quality of treatment is critical, for if they perceive a lack of fairness or a lack of competence, they will be sorely tempted to take full advantage of what they can only see as weakness. Of equal importance, they will communicate their feelings (particularly negative feelings) to their colleagues and customers. Thus, one senior practitioner who looses confidence in the system is very likely to spread this disaffection in a rather large circle.
So what is the business of Appeals — the possible New Story? Succinctly put, it is “to maintain taxpayer confidence through impartial consideration of the facts of the case, in the light of the hazards of litigation, leading to a fair agreement.” Obviously this sounds rather like what Appeals said before, but there is that significant difference, the addition of taxpayer confidence. And why couldn’t other elements of the IRS do just as well? The answer is that both the other major elements (Exam and Counsel) are by intent and in practice, adversarial in nature. To do their job, they need to be, but given an unhappy taxpayer with a legitimate grievance with the system, neither Counsel nor Exam are very likely to improve the situation. So it now may be said to that smart senior administrator: You may get rid of Appeals only with high risk, for even though you may continue to get agreements out of court — what you will miss is that extra special treatment which allows for the maintenance of taxpayer confidence. If this really is the New Story for Appeals, there are some implications for Appeals itself and the way it thinks and talks about itself. I noted previously that the statistics gathered by the Appeals managers related only to the number of agreements reached and the speed with which they were arrived at. The good manager is one who does both with dispatch. But it should be noted that it is quite possible to achieve many agreements at high speed, and totally miss the whole element of taxpayer confidence. To do that one need only to “give away the store.” The taxpayer will quickly agree and doubtless be happy with the result, although that same taxpayer will have an eroded sense of confidence in the system. Indeed, he will know for a fact that the system is essentially unfair, needing only to be pushed in order to cave in.
How to tell this “new story” in terms appropriate to the culture? To do that we clearly need a new number and the number proposed is “The Taxpayer Confidence Index.” Essentially, this would mean surveying all taxpayers, post agreement, as to their feelings about the system and their treatment. The key questions would relate to whether or not the taxpayers felt they had a fair hearing, were treated with respect and in a professional manner. The results could be expressed on a scale, 0-5 or 0-10, with the high number being the most positive. From there on out, one would simply tally the score by taxpayer, Appeals Officer, and office. The taxpayer confidence number would then stand, along with the agreement rate, as a measure of effectiveness by which managers and Appeals Officers might be evaluated.
Without going any further with the details and mechanics of this particular proposal, I wish to back up in order to summarize the nature of this strategy and the desired impact. You will remember that Appeals, at the point where I became associated with the organization, had essentially passed through a major series of traumatic events which had shaken the old organization of Appellate Conferees to the roots, and forced it into a very new direction. The mechanism for this switch was the advent of the managers who were able to gain control of a situation of massive confusion and vast overload, but not without a large cost. With the introduction of management control, the Appeals Officers were reduced in stature and prestige, at least in their own eyes. So as one problem was solved, another was created. It is true that the work flow of the organization with the advent of the managers was rationalized and speeded. But it is also true that those who were responsible for the production of that work felt, to some major degree, compromised and devalued.
Effectively, what had happened was that the process of transformation had been initiated, and apparently stalled half way. It was quite clear to all (managers and Appeals Officers) that there was no possibility of returning to the golden days of “Black Hats and Blue Ribbons,” nor did anybody really want to. But by the same token, the situation as it had evolved was not fully productive either. Indeed both managers and Appeals Officers were spending some considerable amount of energy on conflict which might better have been turned to the job at hand. The problem was that the major story line of Appeals was quite adequate for the managers, given their self-understanding, but the same could not be said for the Appeals Officers. With that same major story (getting agreements as fast as you can) the Appeals Officers often felt as cogs in a machine that cared little about their professional status.
Assisting the organization across the Open Space required among other things, creating a story of sufficient magnitude that all parties (managers and Appeals officers) might find the room and space for the collective spirit to grow. And that story related to taxpayer confidence. To the extent that this new story might be embedded in the collective consciousness of Appeals (and of equal importance, in the larger IRS world), not only would the managers have an understandable place in the sun, but so would the Appeals Officers. For taxpayer confidence clearly cannot be maintained when those who are directly responsible for the interface operate with any less than the highest professional standards. For Appeals Officers this would provide both reason and impetus to maintain and upgrade their own standards of excellence. For the managers, the New Story implies, indeed requires, a rather different way of managing. No longer is it simply a question of pushing the largest number of cases through in the shortest possible time, but now it becomes absolutely essential to play a supportive, nurturing role relative to the Appeals Officers which creates a positive working environment in which the work is not only done, but done with distinction. The managers must learn to manage by indirection, and not by telling in fine detail just what to do.
The actual tactics in this case may appear so simple as to be hardly of consequence. In essence, there were three points. First, Howard Martin continued to spread the idea (story) of the independence of Appeals, thus providing the necessary space for some freedom of movement and development. Second, in order to provide the rationale and justification for that independence, the whole concept of taxpayer confidence and Appeals’ central role in relationship to that, was articulated at all possible points. And third, as a concrete means of telling (ritualizing) the New Story, the creation of a Taxpayer Confidence Index was introduced as a central objective for the coming fiscal year with the understanding that once created, it would then be used as a critical part of the evaluation of specific offices.
Given this “meta strategy” which revolves around the creation and embedding of a New Story, a new vision of what the business is, a number of other more concrete activities may be entered upon within the newly created context. These might include management training programs to impart the idea of “management by indirection,” task forces to upgrade and strengthen the self perception of the secretaries and clerks, making them more effectively part of the team, the creation of the Institute of Certified Appeals Officers, and a number of others. It should be noted, however, that none of these more “practical” innovations could be really effective in and of themselves. They all become meaningful and powerful only within the larger context as concrete expressions of the New Story. Thus, these innovations make the Story real, but at the same time, they become possible only in the context of that story.
As I indicated at the beginning, the time elapsed from the point of intervention until now is not sufficient to permit long term assessment. However, Howard Martin’s (the director) perception of what has happened and the likely results follows:
“Though many of your specific ideas have not been implemented, the principal one has been implemented. You assisted us to identify the actual role of Appeals in the Internal Revenue Service. We learned from this that we could establish our identity by telling our story as we believed it should be, i.e., an independent professional body to thoroughly and impartially consider tax disputes. After we started defining our role as an independent quasi-judicial body, the Tax Division of the AICPA (American Institute of Certified Public Accountants) and the Tax Section of the ABA (American Bar Association) also adopted this, as well as many officials within the IRS. All of this storytelling has defined our role now and in the future, and a much healthier organization has resulted. With your assistance, we were able to take the initiative and design our future rather than reacting to others. . .Finally, the approach was so very effective that the organization seems to be demanding change, at least not resisting it, and is open to improvements.”