Harvard Business School, Working Paper 08-098
Can government regulators rely on companies to police themselves and report legal or regulatory violations to the agencies tasked with overseeing them? In the U.S., a number of regulators, including the Occupational Safety and Health Administration and the Environmental Protection Agency (EPA), already offer amnesty, limited liability, and confidentiality to companies that agree to monitor and report any violations they uncover while doing business. The authors evaluated the EPA’s Audit Policy — a policing program in which companies agree to monitor their environmental compliance — to see whether self-policing reduces environmental impact and if regulators are more lenient with companies that self-police. They found that although such programs can be a useful regulatory tool, they are not universally effective. Companies with a good track record for compliance improved their standing with regulators and benefited from reduced scrutiny and “inspection holidays.” Companies with a history of safety or environmental violations, however, showed no statistically significant improvement in their compliance records, and needed the same level of scrutiny as before.
Self-policing measures can aid performance in firms that have good compliance records, but aren’t likely to improve the standing of companies with a history of regulatory issues.