News this morning that the parliamentary bill by Rodney Hide calling for a more responsible viewpoint when enacting legislation has been dumped. Hide’s bill sought to minimise the unintended consequences of regulation, and remove some of the red tape hampering our economic transformation.
We live in a super-regulated society and significant parts of that regulation create negative side-effects for our businesses. To mark the passing of Hide’s bill, I thought I’d republish an article I wrote a year or so ago on this very subject.
I attended a meeting recently at which former cabinet minister Ruth Richardson talked about what she calls “regulatory creep”. She uses the term to explain the rapidly increasing quantity of legislation and regulation under which business is asked (well if truth be known forced) to operate.
Richardson, since leaving Parliament, has undertaken a number of board and consultancy positions both within New Zealand and Internationally. She has had first hand experience of the effects of regulation bought into effect in the wake of the Enron and World.com scandals and the resulting loss of focus for businesses generally and boards in particular. This loss of focus can be directly attributed to a move from performance to compliance – that is management and boards move from spending the bulk of their time ensuring corporate performance, to spending their time ensuring compliance with relevant regulations.
My attendance at the Richardson lecture was timely coming, as it did, in the same week that I took part, in my role as an owner of a manufacturing company, in a routine training session with an occupational safety and health consultant.
The company in question takes health and safety seriously but pragmatically. It rightly has the opinion that employees have initiative and that in most instances, workplace safety and health is a matter of common sense rather than procedural compliance.
Some time ago, in an effort to formalise their commitments, the company embarked on an OSH compliance program and engaged a consultant to facilitate this process. A multitude of work books were produced, one of which begun with a company commitment to health and safety in the workplace. This commitment was signed by the directors and filed along with the other OSH resources.
At the routine training session we were told that in fact the employee commitments were not valid due to the fact that they were not displayed for the employees to see. Now it has to be said that this is something bought up by a consultant and may not be a reflection of the legislation or regulation itself, but the mere fact that this was an issue begs some big questions.
Why is it in this country that small and medium businesses are unable to utilise common sense and pragmatism, but rather are forced to spend precious time and money on consultants to ensure compliance with regulations? Now I am not suggesting we return to the dark ages were employee safety was given scant regard, rather that we take a long look to see if the regulation being put into place has unintended consequences.
It is true to say that workplace accidents have reduced in the time since OSH legislation was enacted; however it is also true that the workplace environment has changed markedly in the same time. Management has become more aware of employee issues and unemployment levels are at all time lows. Any board worth its salt is aware that happy and healthy employees are productive ones and that workplace accidents make for bad business. It could be suggested that the reduction in workplace accidents would have occurred anyway, and is more a function of the free market at work than any legislative effect.
What isn’t articulated are the unintended consequences of regulation. While successive governments are quick to tell us the added value that their regulation has provided, they are less likely to articulate the deleterious effects of that same regulation. The case in point, OSH regulations, have had a huge negative impact on businesses ability to perform, causing as it does significant costs both in terms of time and money to a business.
So what is the answer? Richardson mooted an interesting concept – to mirror her Fiscal Responsibility Act of 1994, perhaps it is time to draft a Regulatory Responsibility Act to ensure that the ever increasing mountain of regulation cast onto New Zealand businesses is tempered with a common sense “above all do no harm” approach. It is a basic tenet of our legal system that bad decisions create more harm than the mischief they are intended to remedy – unless regulators transfer this tenet to their own policy development, our economy’s ability to grow will be seriously affected.