The costs of regulation

Murray Dobbin reminds us of a change in corporate philosophy over the past few decades:

In short, the two men (Easterbrook has also been a federal appeals court judge for two decades) argued that CEOs actually had a fiduciary duty to break the law, if it was profitable to do so. This included anti-trust laws, corruption, polluting the environment, price-fixing, breaking labour laws, and bribery. Any fines — if you got caught — were simply the cost of doing business.

Keeping that philosophy in mind, take a look at one of the provisions passed in the U.S. House Energy Bill:

A minute later, Rep. Jim Gerlach (R-Pa.) switched to yes, after receiving assurances that a provision that calls on taxpayers to cover a refinery's legal bills if it is vindicated in court would be stripped out, according to Gerlach spokesman John Gentzel.

Fortunately, the actual bill doesn't appear likely to get anywhere in the Senate, so it should never be signed into law. Even if this actual provision never sees the light of day, though, the philosophy underlying it needs to be highlighted.

Keep in mind that the current administration has been doing everything within its power to undermine regulatory institutions. Sometimes, that's been through funding cuts; other times by changing mandates to involve a focus on development to the exclusion of monitoring and regulation.

Apparently, even that isn't enough: the businesses pushing the energy bill are now insisting that the costs of presenting the business' side in a regulatory proceeding be borne by taxpayers rather than themselves. The price for regulatory violations is accepted as a mere cost of doing business, but the cost of verifying compliance (a cost which has to increase when regulating a business which isn't concerned with complying in the first place) is seen as an unfair imposition.

By way of analogy, consider the equivalent provision in a criminal law context. If anybody even dared to propose that government pay the legal costs of every defendant who managed to win a not guilty verdict, how long would it take for a "soft on crime" label to be permanently affixed to that person's forehead, bolstered by examples of the most technical possible ways to beat a charge?

Yet somehow, when it comes to corporations, that exact principle was to be applied - even though most corporations, unlike most of the criminal defendants, will generally have the means to finance their own defence.

To be clear, this isn't to say that heavy-handed regulators should have the means to impose their will on businesses regardless of the merits of a charge. On the contrary: the ideal scenario would be for businesses to genuinely value compliance with the law, and for regulators to have enough resources to both assist businesses in complying, and pursue those businesses which violate the regulations even despite having a structure in place that makes it relatively easy to comply. This may require both more resources for regulators, and in some cases a more cooperative position on their part as well.

But if a given corporation prefers a completely adversarial relationship with regulators, then the outcome of that relationship must also be an accepted cost of doing business.

(Edit: Typo.)