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New Bottom Line Volume 3.5 – Re-Engineering Regulations: (Who's the Customer? What's the Product?)

March 22, 1994

Recently this column explored the widely held myth that environmental regulation is bad for business. But while regulations that hold companies to high levels of environmental quality can be good for both the companies and society, the fact remains that our regulatory systems are generally dysfunctional. Regulations are often difficult to understand and onerous to comply with. Agencies may be unpredictable, or at best slow, in their response, without internal incentives for their own productivity or quality.

But eviscerating environmental policies and quality standards is not the answer. As Steven Cohen of Berkeley Roundtable on the International Economy put it, “It’s not a question of regulations or no regulations, but of dumb or smart regulations.”

Is it possible to “de-dumb” regulations? A growing number of jurisdictions are experimenting with doing just that. In Santa Rosa, California, for example, auto repair shops are subject to environmental regulation by eight different agencies, each with its own inspectors, regulatory protocols, checklists, forms, etc. The shops must respond to all the agencies, with the considerable drain on time and resources that small businesses are all too familiar with. And the taxpayers have multiple inspectors covering the same ground–meaning that environmental protection came at a higher cost.

Into this state of affairs, environmental consultant John Garn proposed a “compliance incentive program” (CIP) — a surprisingly sensible three-part redesign of the process. One: regulators and regulatees together rationalize the program, reducing redundancy by coordinating shop visits, doing them jointly where possible, sharing results between agencies. Two: regulatory agencies become coaches as well as cops, encouraging facilities to implement Best Management Practices (BMPs) for their industry (eg, by providing fact sheets explaining which BMPs will satisfy each ordinance requirement). Three: instead of just the negative incentive of a fine for non-compliance, the inspectors now offer awards, window stickers and positive publicity for compliance. The focus has shifted from “we expect you to be good, so we won’t acknowledge you if you are,” to one that provides a modest but effective incentive for “being good.”

Other jurisdictions are poised to try the CIP program. And similar approaches are catching on around the country. The Great Printers Project (GPP) in the Great Lakes region is “striving to streamline the whole regulatory process,” according to John Imes, environmental manager for Quad/Graphics, “with two goals — to make waste minimization first choice of printers and in a way that creates economic opportunities.”

The project, initiated by the Environmental Defense Fund, with the Council of Great Lakes Governors and the Printing Industry of America trade association, is aimed at a very real problem — and opportunity. How do you regulate industry that has significant environmental impact, but is made up largely of small shops– 80% with 10 people or less. “It’s not a good use of public resources to take the same old ‘command and control’ regulatory approach,” according to Imes. “And these small shops can’t afford the environmental expertise needed to comply. So why not sit down with the industry and map out how companies can meet their environmental responsibilities in ways the average business person can understand– and that support great printing that’s environmentally sound & energy efficient?”

The GPP’s recommendations this summer will include the creation of one-stop shopping for essential information, multi-media permitting, and recommended initiatives for printers, print buyers, suppliers and distributors, regulators, and both government and private assistance programs.

Several principles are common to these and other regulatory reform initiatives:
– Maintain high environmental quality standards.
– Emphasize performance-based rather than prescriptive regulations (specifying the standard a company should meet, rather than how they should meet it).
– Streamline processes for shorter turnaround and more predictability.
– Introduce a ‘customer service’ mentality, including clear performance objectives and internal incentives for the regulatory agencies themselves.

– Preserve critical windows for public participation in both regulatory formulation and, when necessary, intervention.

If the motivation is there — in your industry or community — you can take the lead for re-engineering regulations:
– Convene the key stakeholders–regulatory agencies and regulated businesses (and their employees at all levels), as welll as customers of those businesses and environmental advocates–to identify shared values and build consensus around goals for the regulatory process.
– Jointly build a visual ‘map’ of the regulatory system, making every step and every process visible to all concerned.
– Re-engineer the map in light of the shared goals. Are any steps unnecessary? Do any in fact hinder the goals? Where and how can productivity and quality of service be improved?
– Ensure that regulators know who their “customer” is, what their “product” and what performance goals are expected of them. Support them with incentive systems, or Total Quality Management trainings.

– Implement the re-design, measure the results–and be prepared for surprises. (If a few insurance companies have reportedly reduced policy processing time from weeks to hours, what would be a “reasonable” outcome for a permitting agency?)

We face important choices in coming years. We need both a healthy environment and a healthy economy. International environmental standards are getting clearer–and tougher. Speed and quality remain critical variables, wherever companies do business. All of these demand regulatory systems that support environmental quality and business success, not serve one at the expense of the other, and regulations that are as well designed as the very best products.

(c) 1994 Gil Friend. All rights reserved.

New Bottom Line is published periodically by Natural Logic, offering decision support software and strategic consulting that help companies and communities prosper by embedding the laws of nature at the heart of enterprise.

Gil Friend, systems ecologist and business strategist, is President and CEO of Natural Logic, Inc.

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