Effective regulation needs strong stakeholder support

All of us hear stories about regulated practices that are so bad it makes you mad. Often, these situations continue until something really bad happens-and then everyone asks, “Where’s the regulator?” The regulator’s reputation takes a big hit. Then the legislators step in and make a few more regulations.

For regulators, one escape route from this vicious circle is the use of a leadership model. The leadership model recognizes the impossibility of controlling a jurisdiction -especially if the regulated parties ignore authority or are hostile to it. On the positive side, this model operates on the principle that the potential for excellence always exists by leveraging the power in strong relationships that are focused on a common goal.

This week, one of my clients, a regulator, said, “We want to work with our stakeholders on this because we can’t do this on our own.” She recognized that with limited resources her organization could easily be overwhelmed if every matter that technically qualifies for regulatory attention actually landed on their doorstep. In this instance her clients are major public institutions who deliver front line services to the public; the regulator shares a public safety mandate with these institutions. It’s obvious these organizations and the regulator need to work together; in this situation they do.

All too often, what is truly in the public’s best interest seems to fall off the table because of flawed governance/regulatory practices or a flawed regulatory model. The evidence is all around. What’s important gets lost in a fog of rules. (Think Sarbanes Oxley.)

My client’s comment put a spotlight on a key aspect of regulation. Regulation works well when it has the broad support of all the stakeholders – including the regulated parties. Support is strongest when reputation and relationships are strong and trust is high.

Without trust and support from the regulated parties, regulators are left standing alone and accused of living in an “ivory tower.”

Minimally, regulation depends on reports from stakeholders that reveal real risks. If these reports that help identify real risks are not forthcoming, it’s time to ask why.

More effectively, though, regulation works best when the stakeholders and the people on the front line, whether they’re in the public or private sector, insist on excellence. To quote my colleague Kate Erickson, an organizational design authority, it’s not what you inspect but what you expect that really matters.

Developing excellence in an organization is a challenge and in a jurisdiction, even more so. There is much more leverage to be exerted where the regulator’s reputation is solid, strong relationships prevail and an expectation of excellence governs practice and conduct. A culture that values and fosters excellence will not tolerate shoddy practice and behaviour.

Achieving excellence requires leadership. Today’s leading business schools are promoting leadership ahead of management training. The complexity of doing business demands a different approach, these schools say. Management is focused on acquiring “command and control” of the resources required to execute your strategy. Leadership assumes that you can’t easily get that command and control and you need to take other routes to your goals – including, as my client so appropriately said, working with your stakeholders. The leadership model often works when other tactics won’t.


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