Regulations: Sowing What We Reap
I have just returned from a three-week research and study trip to Europe. I have had the opportunity to get a first hand glimpse of the amazing transportation infrastructure, healthcare systems, educational systems, and economic engines of Switzerland, Germany, Denmark, and Great Britain. These systems, infrastructures, and engines are based on different premises than those found in the US. And they work well. They deliver benefits to the people based on a different set of assumptions than those we operate on in the US. One of the assumptions that I was very impressed with is the general commitment to the collective well being of all of the people that is manifest in the intentional design of these systems, infrastructures, and engines. That is different from what we have in the US. Our premises focus much more on the rights of individuals rather than on the good for the collective body of the people.
In the setting of this article I offer this as an observation, not as a value judgment or as a recommendation for future action. If I choose to make value judgments or recommendations I will write that under a separate title.
The Impact of Regulation in the US
Is the US Over-Regulated? After recently returning to the US, I was in a meeting where a group of business people were discussing trends in the US business environment. Several people were strongly expressing dismay at the regulatory climate that we have in the US. They were contending that this is a serious impediment to our ability to innovate and be entrepreneurial.
As I listened to their expressions I could see the point they were making. Regulations place extra steps in our action plans when we are trying to get things done. But I felt uneasy about the strength of their assertions. And as the discussion continued I began to feel that their assertions were based upon an ideology that had elements of a political point of view rather than on evidence based, critical thinking. As I pondered upon the discussion over night I began to wonder why we have regulations in our business environment like the ones they were pointing to and railing against. I grew disturbed as I realized that each set of government regulations that they cited had been created in response to frauds, greed, short-sightedness, and self-serving actions by business people. So though I agreed that they had a point about those extra steps imposed by regulation, I found I objected to their strenuous objections.
The genesis of regulation they used as examples was that business people just like them had cut corners and run roughshod over the collective interests of our society. Those regulations were created and implemented by legislative and regulatory action in response to the corrupt actions of business people and business organizations. In short, we as business people created the need to enact those regulations because our actions as business people had become so egregious that even in a society where organizations are considered people and the rights of individuals are paramount, the sins of the business community had to be acted against. We as business people brought it upon ourselves.
For Example: In the early 2000s the frauds of Enron, WorldCom, Adelpia, and others brought about the stringent reporting requirements and accountability standards of the Sarbanes-Oxley Law. In the late 2000s the sins of the mortgage companies, banks, insurance companies, rating agencies, industrial corporations, and government regulators combined to create “The Great Recession.” One reference that probes into the details of the roots of this recession is found in the book And Then the Roof Caved In: How Wall Street’s Greed and Stupidity Brought Capitalism to Its Knees (2009) by David Faber.
The title makes it pretty clear where his evidence-based analysis lays the blame for the recession. In it he articulates the scenario that lead to the global recession and identifies what actions by whom impacted all of our lives. One of the strongest legislative responses by any government to an economic disaster came in the form of the Dodd-Frank Legislation. But it came in response to the sins of the business people, business organizations, and pro-business, under funded regulators.
A current dust-up is going on in both the onshore and off shore oil exploration and production worlds. Fracking on shore and the Macondo / Deepwater Horizon incident off shore have resulted in stronger citizen push back and a growing body of legislation and regulation. The root cause of these push backs and regulatory trends is that the oil exploration and production companies have put execution ahead of potential problem analysis and the prevention, mitigation, and contingency action against those potential problems. To put it in organizational design terms they have put action based, complex systems into play and ignored the consequences of their actions in highly interdependent, high consequence, hazardous work and business environments. They are reaping what they have sown.
Another incident that hits home here in Texas is the West, Texas ammonium nitrate fertilizer storage plant explosion on 17 April 2013. It was a completely foreseeable, preventable incident with significant casualties and property damage. Any regulation that is enacted on the heels of this disaster will be directly attributable to foolish actions on the part of organizations, industry groups, and regulators that should have known better. Given that the 19 April 1995 Oklahoma City, Oklahoma domestic terrorism attack on the Murrah Federal Building was done with an ammonium nitrate bomb it does not take a rocket scientist or a brain surgeon to conclude that you have to handle ammonium nitrate carefully and account for its sale and use. I suppose you can call that regulation. But you could also call that sound, logical thinking and even wisdom. You could also call it learning from your mistakes to provide a collective benefit to society.
Blame or Congratulations? So who is to blame or congratulate for the regulations that we face? In these cases we as business people brought it upon ourselves. A bit of foresight and intentional organization design to prevent, mitigate, and respond responsibly and constructively to these circumstances would go a long way towards keeping us out of trouble and make it unnecessary to impose regulation. You hand regulators power when you “screw the pooch.”
General Motors and the National Highway Traffic Safety Administration (NHTSA) are getting a new lesson in these principles as the ignition switch scandal unfolds.
Unfortunately self-regulation by business and industry has a poor track record. The lessons are there for us to learn. If you want a different outcome you need to behave differently. I suggest we stop moaning and whining about regulations and set our houses in order.