Organisation/Industry Scandals: It’s the Regulators, Dummy!

It was the ‘fake honey’ story that finally got me. How could any organisation even conceive of ‘fake honey’, let alone produce it in their products?  Each day as I read the news, the headlines are familiar. Another organisation, another industry fails to be ethical, fails to follow the rules. Each day we are shocked…by what is the same issue much of the time: it’s the lack of regulators or lack of regulators enforcing the rules. Here’s how to fix many of the organisation/industry scandals that arise from the lack of regulators.
Some Examples
Let’s take some examples:
– The Catholic church and other religious and welfare institutions have been abusing those they are supposed to be looking after
– Banks abusing customers over home loans, business loans, insurance, superannuation, foreign exchange trading and more
– Companies leaving recycling tips un-recycled, pouring pollutants into landfill, rivers and creeks
– Gambling organisations encouraging customers to use money they can’t afford to spend
– Immigration departments refusing to follow UN codes and laws for handling refugees, or immigrants
– Police self-regulation that seems to favour the police being accused
– High tech organisations abusing user privacy, selling information to others
– Social media organisations allowing trolling, racism and sexism despite claiming to have controls
– ‘Gig’ economy companies and franchise-based organisations paying below minimum wages
Shall I go on (real estate, politicians, water management, fishing, education)? It is truly hard to find an industry where the rules are being followed by most of the organisations most of the time.

It’s the Regulators, Dummy!

Each time I’ve thought, ‘How could these organisations do this?’ (Having promoted good organisation practice my whole academic and consulting life, these scandals make it increasingly difficult for ordinary people to believe that ‘good organisations’ exist, trashing much of my business teaching, writing and beliefs.) In each case above, regulations already exist to promote good behaviour. Regulators exist to enforce good behaviour. But the regulations are not being followed…why is that??
Then I realised that the problem is not the organisations, or even the industry. It’s the regulators (or lack of regulators), dummy!
There are several possible reasons:
– The government doesn’t want the regulators to do their job (lack of government funding)
– The industry doesn’t want the regulators to do their job (peer pressure on regulators)
– Enforcing regulations is costly and time-consuming (government budgeting)
– Self-regulation exists, leaving regulation in the hands of the industry (Industry behaviour)
– Regulations are unclear (government and lawyer wording and interpretation)
Lack of Regulators is Due to Governments and ‘Market Forces’

As a government philosophy of ‘market forces’ has expanded, the implicit assumption has been that most organisations will ‘behave’ and that competition will lead to more efficient behaviour, requiring less need for bureaucratic regulation.
It’s clear that market forces do lead to cheaper products, but these cheaper products often occur by cutting corners on processes…and part of cutting corners turns out to be not following regulations.

You can go through all the cases above and all the cases not even mentioned here and you will find this common theme: the regulators are not doing the job they need to be doing, or the regulations are not strong enough to stop unethical behaviour. In all industries. In many organisations. But this is generally due to the regulators not having the funding, or the political support, or the skills required, not because the regulators want to be weak and powerless.

What to Do about Weak Regulators?
If we recognise that it is weak regulators that are causing industry and organisation performance scandals, we are at least at the right place! No good developing new laws if they are not going to be enforced!
So let’s focus discussion on how to regulate the industry, not just on what the laws/regulations should be. Regulating is boring. Just ask auditors. But auditors are essential for organisation accounts to be credible. So, enforcement of regulations is critical to good organisational and industry practice.
Next time you hear about proposals for ‘new regulations’, ask first, ‘What are the regulators doing about enforcing the existing regulations?’ My bet is that, in most cases, we need more regulators, not more regulations. Let’s enforce what we already have. Then, let’s fix those regulations that need strengthening.

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