A company's compliance record hinges on choosing between two philosophies. If it believes that compliance is the "cost of doing business," it invariably fails (Cost containment). However, if it accepts that compliance is the "license to produce its products," it succeeds (Profit maximization). In my 40 years of compliance work, I have only seen companies move from the former philosophy to the latter after traumatic civil and criminal events that threaten the survivability of the company or a peer company (e.g., a near miss). Yet, even this scenario doesn't guarantee success.
When Government proves through act and deed that the penalty for noncompliance is the "cost of doing business," it merely postpones the inevitable and maximizes the injury to the public and the economy.
When you scrimmage in football, injuries occur if both sides are not playing 100 percent. The same is true in the enforcement of Government regulations except the injuries are not to the participants but instead collateral damage to other companies, citizens, and the economy: Be it Massey Coal, BP, an assortment of banks or now some egg companies. In each of these instances, there is a historical pattern of poor compliance coupled with poor enforcement that in the end had horrible consequences to the spectators, but not the players.
The criminal justice system doesn't make any sense if the sentence is not a deterrent to future acts. In the context of Gilbert and Sullivan's Lord High Executioner, you can't "make the penalty fit the crime," unless you correctly identify the harm.
Let's face a simple fact: There has been a long and steady deterioration of our regulatory agencies and their enforcement will power. Where do you want to look? The courts have rejected the DOJ settlements in at least three recent bank cases as being too small. Before the BP offshore oil spill, BP paid the largest fine for violation of OSHA rules ($56 million) yet only about one-half BP's $91 million advertising budget for the offshore spill. Is the biggest fine really big, or just the cost of doing business?
A recent article in CNN.Money on FDA has a sadly funny line:
This is my kind of sheriff! "Sir, you were going 100 mph in a school zone, please don't do it again. Thank you and have a nice day."
FDA Commissioner Margaret Hamburg wrote to Sen. Chuck Grassley, R-Iowa, in March to say that the agency intends to consider "the appropriate use of misdemeanor prosecutions, a valuable enforcement tool, to hold responsible corporate officials accountable.(emphasis added)"
If we have any hope of protecting the public and the economy, we need to start upgrading our enforcement and the associated penalties for violations. A good starting point is transparency and consolidation: Government agencies and the public need to have the entire "rap" sheet available on a company. We don't want felons operating gun stores. Why do we want serial violators operating mines, selling drugs or eggs, or running offshore platforms?
In many of the cases, there is a clear pattern of regulatory violations not associated with the Agency that is making the headlines. BP had OSHA violations before the offshore platform was licensed by a different Agency. The two egg companies getting the most press had a long list of OSHA violations before FDA came into the picture. Yet, consolidation doesn't do enough if the attorneys responsible for prosecution neither have the correct penalty guidelines nor business acumen to negotiate meaningful penalties.
All this may seem harsh. Some will claim that this all the fault of Republicans. It is not. The courts rejected settlements from a Democratic DOJ. Some may call it business bashing. It is not. Industries that comply with the law are loathe to complain, but every egg distributor has felt the economic impact from a couple of Iowa farms.
We are living in a time of the Black Swan. If we don't enforce our laws without political value judgments, then the inevitable ramification of benign neglect will have traumatic consequences. The number of bad players out there is very small. However, the old adage "one rotten apple spoils the barrel" is still true even if it is "one rotten egg."
I have published a companion article to this blog entitled: Cost of Doing Business vs. License to Produce