Enterprising Regulation? Workshop8 November 2013, Kingston Business School

Summary

A wide range of participants attended a joint workshop hosted by the Centre for Small Business Research Centre (SBRC) and the ERC on “Enterprising Regulation?” The event took place on 8 November at Kingston Business School. The workshop was attended by regulatory bodies, academics and business owners and policy officers.

Prof Rob Blackburn, Director of the Small Business Research Centre (SBRC), welcomed delegates and set out the agenda for the day.

Prof Mark Hart, Deputy Director of the Enterprise Research Centre (ERC) set the scene with a short presentation asking the question ‘What is the real ‘red tape’ challenge?’ He set the agenda for the discussions by outlining the need to understand the precise ways small business owners and their management teams deal with the regulatory environment and how this might inform the rather simplistic popular discourse on the need to reduce red tape based on the assumption that all regulation was perceived as a burden.

This was followed by a presentation from Dr John Kitching (SBRC, Kingston Business School) entitled ‘Burden or Benefit? The contradictory influences of regulation on small businesses’. He opened by reminding the audience that there was a large difference between what business owners said about regulation and what type actually did about it. The presentation focussed on the contradictory effects of regulation on small business – there was no single ‘small business effect’. Examples included:

• Enabling action – e.g. property rights & contract; regulation stabilises market agents’ expectations.

• Motivating action – minimal compliance or compliance plus• Constraining action – substantive, administrative, psychological costs & burdens.

Managing these contradictory effects is the normal condition of doing business in the UK and all regulatory interventions impact on small firms in multiple, contradictory ways.

Simon Down (IIMP, Anglia Ruskin University) presented a paper entitled ‘Strategic Adaptation of Growing Firms to Regulation: a longitudinal analysis of the informality-formality span’ and highlighted the following points:

The role of other voluntary Codes of Practice other than the formal regulatory environment - e.g. procurement quasi-regulatory controls.

Physiological / emotional impact of enforcing regulation e.g. Employment Law, tribunals, redundancies etc. – increasingly out-sourced to ‘take away the pain’.

Sector specific issues – NHS, Pharmacology, security Educational role of advisory bodies has widely disappeared. Uneven enforcement, difference in levels of experience, approach, enforcement.

Regulators can do more in the space between the regulation per se and the response by the small business owner.

Level of anxiety around regulation felt by business owners this fear of non-compliance often leads to businesses employing expensive consultancies to support them.

Regulation Driving Business Growth – Case Studies (Ruth Ross MD of Building Trust In Safety and Mark Ferron, MD Castle Associates).

This session commenced with two owners of growth-oriented small businesses introducing their businesses and setting out some of the challenges they face. Much of the discussion focussed on the anxiety owner managements feel around regulation. Mark identified that many SMEs don’t deal with issues as they arise or do no not how the necessary skills to deal with some of the issues which places a burden on the business. He indicated that he had seen an increase in outsourcing especially in HR.

They both recognised that regulation was not just a burden but also offered opportunities for growth. However there is often a cost / resource implications which are difficult to measure.

Designing Better Regulation – Perspectives from BRDOErica Sheward, Policy Manager at the Better Regulation Delivery Office

Erica explained what the BRDO was - an independent unit in the UK Government Department for Business, Innovation and Skills which is responsible for delivering the Government’s commitment to cut red tape, improve public protection and boost UK economy through better regulatory delivery.

Key messages in Erica’s presentation were:• ‘Good’ regulation can support growth, as much as ‘poor’ regulation hinders it• How regulation is delivered (enforcement) matters• Key aspects of delivery include

– Right level regulation-local/regional/national– Hearing business as the ‘customer’ of regulation.

Move towards ‘Risk Based’ Regulation• Strategic Risk – recognising emphasis from policy and statute• Prioritisation – across markets and hazards• Operational Risk Assessment – selecting optimum intervention strategies• Risk-Based Targeting – maximising the value of inspection• Sanctioning by Risk – ensuring a proportionate response.

Frank Peck (Centre for Regional Economic Development (CRED) University of Cumbria Business School) presented a paper entitled ‘Business Perception of Regulatory Burden’. He began by outlining some recurring themes from the debate about the impact of regulation on small businesses:

Increasing complexity of regulatory landscape – multi-layered; state to non-state sources Debate on the costs of regulatory compliance Strategic significance of regulatory knowledge – compliance innovators Debate concerning the nature of the “regulatory burden” – not the same as “cost” But no substantive body of literature specifically on communication of regulation

Frank’s review of the evidence, which was published as a BIS report in 2012, from surveys of businesses in the UK conducted up to 2011 pointed to a perceived increase in the cost or burden associated with compliance with regulation. Evidence also supports the conclusion that small businesses experience greater regulatory burden. Other findings include:

Perception of regulatory burden has increased in the period associated with economic downturn and squeezed profit margins.

Compliance with employment law and health and safety law generate the greatest amount of time cost or “burden”.

Channels of communication are increasing in diversity. Growth in consultancy and out-sourcing by large and medium-sized firms. Most trusted sources for SMEs those involving face-to-face contact, regulatory visits,

friends, accountants, agency officials. Is this changing? – social networks, on-line “trusted” communication?

SMEs tend to be reactive, whereas: larger firms more proactive.

Regulatory burden cannot simply be equated to measurable costs. It embraces other aspects such as anxiety generated by the threat of litigation, uncertainty, the pace of change and sense of inequity. The perception of the burden is influenced by the growing complexity of the regulatory landscape, with businesses finding it difficult to distinguish between regulation that originates from national government, international sources, industry self-regulation and business policies.

Communication about regulation is a complex social process where consumers of the message (businesses) can become co-creators. There does not appear to be widespread misreporting of regulatory requirements, but most media noise does relate to negative aspects of regulatory or deregulatory proposals.

The final presentation was by Ian Vickers (CEEDR, Middlesex University Business School) who presented a paper entitled ‘Enterprise Performance and ‘Decent Work’: the case of occupational safety and health (OSH)’. The questions posed during the presentation were:

Is there a link between enterprise performance and good OSH provision in SMEs? Under what circumstances is the ‘business case’ for owner-managers to invest in OSH

strongest? What are the implications for policy and practice?

Small firms had what Ian described as ‘structures of vulnerability’:• Resource-constrained - less able/willing to invest in OSH measures • Informal approaches to management • Short-term planning and decision-making – esp. in highly cost-competitive conditions• Often bottom of supply chain – disempowered/intense competition• Low profile - little fear of lost business from adverse publicity / regulatory attention • Worker insecurity + lack of formal representative participation + growth of

outsourcing/precarious work and informal sector

In summary, the paper concluded that:• OSH-BB link was shaped by competitive conditions in diverse regulatory/institutional

contexts. • Need for OSH interventions that are sensitive to the characteristics of enterprises and

circumstances faced.• OSH-BB message needs to be developed alongside (rather than substituting for) effective

enforcement and sanctions to deter bad practice + support and encouragement for good practice.

Copies of the slides of all the presentations can be found on the ERC website. John Kitching and Mark Hart will be preparing an ERC White Paper on the subject of “The Impact of Regulation on Small Business Growth” in the first quarter of 2014.