From The Law and Politics Book Review

Vol. 8 No. 12 (December 1998) pp. 431-433.

CORPORATE REGULATION: BEYOND 'PUNISH OR PERSUADE' by Fiona Haines. New York: Clarendon Press Oxford, 1997. xix + 269 pp. Cloth $35.00. ISBN 0-19-826572-7.

Reviewed by Kenneth J. Meier, Department of Political Science, Texas A&M University. Email: kmeier@polisci.tamu.edu.

 

The question of regulatory compliance is central to public policy. We know that some firms comply with regulations fairly quickly and without complaint while other firms resist regulation with all the political tools at their disposal. Professor Haines, a lecturer in criminology at the University of Melbourne, pursues a novel and innovative way to view compliance with occupational safety and health laws. She does in-depth case studies of 15 workplace deaths that occurred in the Australian state of Victoria in 1987. Her concern is not to fix guilt, but rather to examine how the business corporations responded after a death on the job. In many cases the response was greatly complicated by a worksite that had numerous firms, some working as subcontractors for the others and others independent of the firm sustaining the fatality.

Professor Haines’s approach is law and sociology; those used to the more common law and economics approach will find a broader concern with nonfinancial issues and the use of concepts such as organizational culture and organizational character. The law and sociology approach has its roots in the works of Karl Marx and Max Weber and does analysis both at the individual level and the organizational level. The reliance on Marx and Weber, however, is not obtrusive; it does not generate the entirely new vocabulary that most contemporary Marxists use but rather merely frames some issues such as the role of capitalist competition as important for further study. Perhaps one major difference of the law and sociology approach from others is that Haines without hesitation terms these workplace fatalities as "white collar crime."

Professor Haines probes whether the responses of these firms to deaths on the job arise at the individual level or the organizational level. Regardless of the firm involved, the individual responses are the same, an effort to cope by distancing one-self from the fatality. The uniformity of this response in contrast to the variance in responses of the organizations leads her to conclude that explanation can only occur at the aggregate level.

Essentially firms respond to a death in one of two ways. The "blinkered" response is to distance the organization from the death; attribute much of the fault to the individual worker or other organizations. Changes as a result of the death tend to be limited to such things as hiring better-trained workers or limiting the liability of the organization. The blinkered response is focused on the specific incident and on a limited adjustment to that incident. Often the response is as little as "accidents will happen."

The "virtuous" response, in contrast, is to vest the blame for the fatality in the organization and to design procedures and work rules to avoid similar situations in the future. Even virtuous organizations that are not responsible for the death (or the death involved another firm's employee) will engage in efforts to make their own workplaces safer in response to a fatality. Safety concerns are vested in line managers rather than isolated in a staff position.

Given two types of response, Haines asks what distinguishes between those that are blinkered and those that are virtuous. "The ability to choose a virtuous path requires some degree of power over the environment within which an organizations does business" (p. 132). One key variable correlated with power is the size of the firm. Large firms frequently but not always respond in virtuous ways; small firms almost consistently respond in blinkered fashion. Two factors determine these responses. First, fatalities are rare events but the law of large numbers means that larger firms are more likely to be exposed to a fatality (even if they are substantially safer). The large firm cannot as a result dismiss the fatality as an idiosyncratic event; fatalities, therefore, call for a reexamination of firm procedures. Small firms in contrast play the bet that a risky event will not occur. Some firms had used the same dangerous procedures that produced the fatality for 15 years. Second, small firms tend to be more marginal in terms of profits. Small firms are at the mercy of their environment and to survive in a competitive market must try to maximize short-term profits. This drive results in safety concerns being subordinated to profit concerns. Larger firms not in this precarious position can take a more long-run view of the firm and incorporate safety concerns in the production process. In many cases the decline in workers compensation insurance pays for the safety changes.

The responses of the two types of firms are reflected in their organizational culture. Virtuous firms try to integrate unions into their safety efforts and have a cooperative relationship with government regulators. Haines terms such organizations proactive. Blinkered firms tend to be hostile to unions and see the government regulator as a foe rather than an ally.

Haines assesses various macro trends that are likely to make it more difficult to generate virtuous organizations. The shift from "Fordist" production processes to "just in time" inventory, the increased competition from the free flow of capitalism, and the government philosophy of supporting the marketplace, all are more likely to generate blinkered responses than virtuous ones. Although she spends some time on the question of how to design a regulatory system that produces positive results, the long-term implications of these trends are not promising.

The strength of Haines’s well-documented case study approach is that she demonstrates that compliance, not the level of enforcement, is the key regulatory variable. U.S. political scientists have made a cottage industry of quantitative analysis of regulatory enforcement efforts without understanding that the relationship between enforcement and compliance may be very weak. The U.S. analysis is conducted under the principal-agent model with its reliance on economic-based motivations. It ignores the organizational factors that Haines demonstrates are the key to compliance with regulation.

At the same time, CORPORATE REGULATION would have been informed by the best of the U.S. regulatory work. John Scholz' recent work on the "duty ethic" among taxpayers or his notion of self-punishment among firms regulated by OSHA are directly relevant to Haines’s study. Although Scholz restricts his analysis to the individual level, both Haines and Scholz are investigating the same phenomenon, behavior that goes beyond what would be expected based on economic rationality alone. Similarly the work of John Brehm and Jay Hamilton on compliance with hazardous waste laws and John Brehm's work with Scott Gates on "working and shirking" offer additional evidence that Haines has discovered a behavior that is not uncommon.

Although the reliance on Marx was not obtrusive, I think other scholars would have arrived at the same conclusions in regard to firm size using standard economic arguments. Large firms have economies of scale; they can spread the costs of their investments in safety over far more workers. If anything, safety regulation is a competitive advantage for large firms. What some might see as virtue, others would see as simply rational, competitive behavior.

There are other times where Haines stops short of completing what looks like an obvious argument. She presents some compelling evidence that legal liability for a death and liability laws tend to produce blinkered responses. I was expecting a conclusion that law worked in opposition to virtue but one was not forthcoming.

As Herbert Simon once noted, you learn a lot more about an organization by pushing it to failure. Fiona Haines has essentially done that with these Australian firms, examined how they responded to what was a failure. The responses were heterogeneous, thus suggesting that any policy reforms where one size fits all are unlikely to solve the problems.

CORPORATE REGULATION would be of interest to students of regulation of all persuasions. It focuses on the limits of law, the disjuncture between policy and how policy is implemented, and the crucial difference between compliance and enforcement. "Law and law enforcement may thus need to be aware of culture as well as monitoring actual behavior" (p. 191). The book might work as a text in a graduate seminar (good comparative cases are quite valuable) and it belongs on the scholar's bookshelf.


Copyright 1995