A Safety Management System can work just fine if it is confined to its key purpose of safety reporting. It is true that the average TC inspector has zero ideas on how an SMS is supposed to operate; but, what do you expect when the qualifications for an inspector permit a flight instructor with two years experience to become POI of a multi-billion dollar, international airline.
The problem as I see it is too many operators combine their SMS with every other management reporting tool and the system is diluted and degraded to the point where there is too much data. Now, I know there are people out there asking how you can have too much data, but they're likely the ones with an MBA who took the "people are resources" line from ECON 211 a little too literally.
For example, I am supposed to use my operators version of SMS to report on everything, including dress and deportment issues. That's not a safety issue, yet I am supposed to report that Suzie arrived to work with her hair touching her collar or that Jonny arrived at the gate 3 minutes late and had not informed crew scheduling. I can't imagine going back to when I had to waffle through all these BS reports, trying to find the one-in-two hundred report that would reduce the operators TLI's.
Honestly though, how could TC or any of us not expect SMS to become punitive over time? There are, after all, only so many reports of a pilot reporting "I screwed up" before it comes time for a "come to Jesus" meeting in the CPs office.
Plus, you can't put a procedure to protect against stupidity, despite what the exceptional employees of 330 Sparks Street seem to think.