"A More Prosperous Australia"

The AICD puts its view on regulation

The Australian Institute of CompanyDirectors (AICD) has issued a new policy paper (“Governing for a more prosperous Australia”) that puts forward to the next government of Australia the key issues for directors, including a “new approach to regulation and better consultation with business”.
It defines three “critical components of reform”:

1. Review and reform existing regulation
2. Review and reform the process of regulation
3. Improve the interaction of business and government

Its first key recommendation is that

non-regulatory solutions should be the default mode

when addressing public policy issues and that any regulation should include “offset savings” for business whilst requiring that the public service undertake a range of additional activities when drafting regulations and that the government should slash existing regulations.

The purpose is to allow directors to spend more time on “strategy and entrepreneurship”, and allow them to do their “real job” of improving company performance, while not being hindered in generating wealth. This altruistic plea from the heart has only the country in mind as red tape slows “the engines of growth and job creation” and “stifles wealth creation in the economy”.

Has the AICD focused on the real issue?

One assumption of the company directors' view is that, in the absence of interfering regulation, their companies are models of efficiency, with all of them centres of excellence in what they do. The truth, of course, is much less laudatory.  I've written of this in my Leadership blog and my company blog.

One cannot, however, disagree with the proposition that regulation saps productivity. But then its aim is not the efficiency of a firm but its behaviour. Firm-level efficiency is a matter for the directors and managers; industry-level efficiency is a matter for the key players in the industry; and national efficiency does involve governments.
By the nature of bureaucracy, any regulation will to an extent be inefficient and ineffective and so should be avoided. However, as with most business organisations, the AICD wants government to take a new approach to regulation, not its members.

Good managers (and directors) address the root cause not the symptoms

The AICD's proposal is faulty in two key regards. Firstly, it assumes that regulation occurs in a vacuum when it is in fact reactionary. Regulation arises from a view in the community that an organisation (commercial, sporting, religious or whatever) is misbehaving. Governments respond by regulating the miscreants (and their peers).

Secondly, the AICD conflates national wealth with company profitability. National wealth takes into account the cost of business externalties such as pollution, employee harm and community dislocation. Company directors and managers do all they can to externalise their costs as this is the easy way of increasing profitability. They will be handsomely rewarded if they can convince governments to take responsibility for cleaning up rivers, rehabilitating injured workers, training workers, assisting communities when their major employer packs up and goes elsewhere, and so forth.

The AICD's approach does not get to the root cause of regulation – the misbehaviour of their companies. They demand reduced regulation but operate at the limits of existing regulation – an “if its legal, we can do it” attitude – and then decry the predictable response of the public and government. Think of the tobacco companies, asbestos companies and the shale gas mining companies.

The "once and for all" way to end regulation

The way for directors to avoid regulation is to consider all the effects of their decisions; to understand that a corporation is an entity whose existence is licensed by the community in which it operates; and to understand that shareholders are but one of a number of stakeholders with an investment in the productive and ethical operation of the corporation.

If directors wish to avoid regulation they should, like any social entity, behave.