Caught in the Middle
Dutton, Gail, Management Review
Conflicting and capricious regulations pose a big problem for businesses, often leaving them in no-win situations.
Too often, government regulations pose dilemmas that leave companies between the proverbial rock and a hard place. They may be fined by one agency if they take action to fix a problem - and fined by another if they don't - because the regulations of the two authorities run counter to one another.
"Conflicting regulations are a big problem, and they're growing," says John Mahon, a professor of business at Boston University. "There are no firm numbers, but the conflicts affect any industry with environmentally sensitive products or services and any firm with international activity."
Just to start, consider all the rules contained in the U.S. Federal Code of Regulations, which logs in at 130,000 pages. These regulations are subject to interpretation by a horde of regulatory agencies, political appointees and field inspectors. What is acceptable today under the current administration may be unacceptable next year under new officials. What passes muster with a field inspector in one locale may fail in another.
The cost of complying with conflicting regulations can be so steep that small and midsize firms are driven out of particular markets, reducing the level of competition. The hidden costs of compliance - including time diverted from other work and the staff needed to fill out paperwork - - total $668 billion a year, according to Regulatory Costs in Profile, a 1996 report from the Center for the Study of American Business at Washington University, St. Louis.
"From a competitive standpoint, many larger firms won't talk about it. They may have an interesting solution that confers them with an advantage if their competitors haven't also found a legal solution" Mahon says.
Compliance conflicts take various forms, but they generally involve the regulations of two agencies. In some cases, the agencies operate at the federal, state or local level in the same area of law, such as environmental protection. In others, they have different concerns, such as the U.S. Department of Transportation (DOT) and the Environmental Protection Agency (EPA). Even worse, a number of agencies may have jurisdiction over a particular issue, effectively halting companies' remediation actions.
At the federal level, the problems usually result from jurisdictional conflicts, says Jack Gibb, manager of regulatory compliance at BASF, Mount Olive, N.J., a multinational chemical company. For example, materials shipped from BASF generally have different labels that meet the reporting requirements of the EPA, DOT and Occupational Safety and Health Administration (OSHA), even though they contain essentially the same information. If the materials enter Canada, they bear another iteration of that information in a form acceptable to the Canadian Workplace Hazardous Material Identification System.
Even when regulations themselves do not conflict, their requirements may be open to interpretation. "Longtime bureaucrats sometimes interpret items differently in different regions of a state. We try to clarify their reasoning," says Greg Reaves, director of public affairs at Merck & Co., Whitehouse Station, N.J. Changes in government also tend to create conflicts in regulations, he says, because a new administration may interpret them differently.
Additionally, each state may have a different regulatory focus. For example, Virginia focuses on regulating its waterways because the state relies heavily on them for fishing, manufacturing and as a raw material. Pennsylvania's focus is on air quality. "We try to build flexible, strategic manufacturing plants," Reaves says, that work as templates in other states.
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