Corporate Self-Policing Helpful If Backed By Regulation
While corporate self-policing holds some interesting possibilities, it is not the panacea for shrinking regulatory budgets that many have portrayed, according to a new working paper published by Harvard Business School. The findings of the paper “support a regulatory policy that recognizes the ongoing importance of government regulation and regulators to the success of public-private regulatory partnerships.”
Confession may unburden the soul, but it appears to do little to unburden the budget.
The paper’s authors, Jodi L. Short a Ph.D. Candidate in Sociology at the University of California, Berkeley and Michael W. Toffel, an Assistant Professor at HBS, conducted a large-scale analysis in the context of the US Environmental Protection Agency’s Audit Policy. They investigated what factors lead organizations to self-disclose violations that went undiscovered by regulators, and asked whether these self-disclosing organizations were obtaining any unofficial regulatory benefits above and beyond formal penalty mitigation. They also evaluated whether self-policing promotes the regulatory objective of improving compliance records.
Their key findings:
- Government regulatory scrutiny is a leading factor that drives firms in public-private partnership where firms self-police their own regulatory compliance and self-disclose violations.
- Self-policing and self-disclosing provide mutual benefits for regulators and firms, although ongoing investment in government enforcement remains a critical success factor.
Taken together, the authors say, the findings suggest an important role for self-policing within the context of a broader, deterrence-based regulatory strategy. “Our finding that self-disclosers improve their compliance records provides promising evidence that self-policing affects firm behavior, and that confessions can serve as reliable indicators of these effects.”
The full paper is available here at no charge.
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