Textbook- CH 10

• Regulation


  The ways in which business is controlled and influenced
• Types of regulation


  • Government regulation
  • Self-regulation
  • Private regulation
  • Market regulation
• Government regulation


  • Standards are developed, applied, and enforced by government or its agents
  • Applies to everyone
  • Provides a countervailing power to business by reflecting society's concerns
• Government regulation is criticized for being oppressive, ineffectual, confused, conflictual, costly, rigid, weakly enforced, and amenable to capture by those it is regulating
• Areas where government has major influence on business

  • Architect of economic growth
  • Major purchaser of goods and services
  • Major promoter and subsidizer of business
  • Provider of financial capital
  • Rescuer of failed business corporations
  • Owner of business enterprises
• Government's influence on business

  • Prescribing legal rules of conduct
  • Protecting the interests of business
  • Protecting the interests of various stakeholders
  • Using regulation to manage large areas of business activity
• Government directly manages, through regulation, large areas of private business activity
• Government regulation impacts every business enterprise, and every Canadian
• Deregulation


  Reduction of government influence or impact on the economy, allowing for a freer and more efficient marketplace
• Privatization


  Strengthening of the market at the expense of the state
• Self-regulation


  • Regulation imposed by the corporation or industry, not directly by the government or market forces
  • Faster, cheaper, and more efficient and effective than government regulation
  • More likely to be accepted as it is voluntarily developed and adapted
• Self-regulation is criticized because it impairs business competition and innovation due to self-serving restraint by industry participants
• Responsible Care® Ethic


  A UN-recognized sustainability initiative adopted by the Chemistry Industry Association of Canada to continuously improve health, safety, and environmental performance
• Responsible Care® Ethic and Principles for Sustainability


  We are committed to doing the right thing, and being seen to do the right thing
• Responsible Care®


  • Dedicated to the betterment of society, the environment and the economy
  • Key to our business success
  • Compel us to work for the improvement of people's lives and the environment, while striving to do no harm
  • Be accountable and responsive to the public, especially our local communities
  • Take preventative action to protect health and the environment
  • Innovate for safer products and processes that conserve resources and provide enhanced value
  • Engage with our business partners to ensure the stewardship and security of our products, services and raw materials throughout their life cycles
  • Understand and meet expectations for social responsibility
  • Work with all stakeholders for public policy and standards that enhance sustainability, act to advance legal requirements and meet or exceed their letter and spirit
  • Promote awareness of Responsible Care®, and inspire others to commit to these principles
• The REALTOR® Code includes a Standard of Conduct statement to protect the rights and interests of consumers
• The Code may establish obligations above those required by law
• Industry or trade associations

  • Facilitate regulation, and undertake initiatives to address industry issues that may lead to government regulation
  • Members can attempt to influence corporate behaviour and enforce standards
• Industry organizations


  • Advertising Standards Canada
  • Retail Council of Canada
• Self-regulatory organizations (SROs)


  Industry or professional groups delegated or designated a regulatory function including the development, use, and enforcement of standards
• SROs in the securities industry

  • Toronto Stock Exchange (TSX)
  • Investment Industry Regulatory Organization of Canada (IIROC)
  • Mutual Fund Dealers Association of Canada (MFDA)
• Private/civil regulation


  • Non-profit, independent organization that sets standards for responsible business practices
  • Involves non-governmental organizations as main stakeholders
  • Certification of products or services by third parties not linked to business or government
  • Penalties are social or market based rather than legal sanctions
• Third-party certification


  • Approval or endorsement by an independent organization after reviewing the production or provision of a good or service to ascertain compliance with specific standards
  • Includes comprehensive formulation/material reviews, testing, and facility inspections
  • Certifier's mark or label on packaging helps consumers and other buyers make informed purchasing decisions
  • Communicates unobservable product attributes to stakeholders
  • Allows stakeholders to credibly distinguish "good" and best performers
  • Assumed to provide financial reward to certified corporations relative to non-certified ones
• Market regulation


  • Less need for government-imposed laws or regulations when a rigorous and competitive market exists
  • Market disciplines include competitive rivalry, entry possibility, and availability of substitutes
  • Stakeholders like consumers can influence corporate behaviour through actions like boycotts or social media pressure
• Corporate self-discipline


  • Development, use, and enforcement of norms or standards by the corporation itself through mission and values statements, codes of conduct or ethics, ethics programs, or adherence to social and environmental reporting guidelines
  • Acceptance and practice of corporate social responsibility (CSR) is a form of self-regulation
• CSR has been criticized for failing to live up to its promise, with some corporations participating only for appearances or on a token basis
• There is no assurance that all corporations will participate in CSR, and enforcement is a problem
• Measures of CSR are being increasingly used and pressures are being applied by various stakeholders advocating socially responsible behaviour
• The outcome is a balance between private (business and civil society) and public (government) regulation
• The private sector provides for innovation, investment, and risk taking that promotes growth and employment, while government provides the institutions, rules, safety nets, education, research, and infrastructure to empower the private sector
• Earls Kitchen + Bar sourced beef certified by Humane Farm Animal Care (HFAC) but faced backlash from Canadian beef producers when it switched to an American HFAC-certified supplier due to insufficient Canadian supply
• Earls' experience illustrates complications in private regulation, including limited supply when adopting a single-supplier policy, and the existence of multiple certification bodies without a uniform system
• Social-media activity suggested that Earls should be boycotted
• Canadian producers claimed that they produced beef that met HFAC-certification standards from other certification bodies
• The B.C. SPCA's certified label was referred to as an example
• A few days after announcing the decision to purchase American beef, the company backed down and said that it would make every effort to obtain its beef from Canadian suppliers
• Eventually, Earls stated that it had made a mistake and admitted that it had failed to consult all stakeholders by neglecting farmers and ranchers
• Earls' experience


  • It illustrates some of the complications in private regulation
  • The commitment to one certification may limit supply especially when the single-supplier policy is adopted
  • Some grief could have been avoided by making sure all stakeholders were consulted
  • The existence of several certification bodies without a uniform system complicates certification for corporations and consumers
• Some beef producers advocated for an increased role for government, which would provide a uniform system
• Regulation


  A mixture of government regulation, self-regulation, private regulation, and market regulation