Overcoming Business Red Tape

Business leaders rarely speak with a single voice, but if there is one subject you can guarantee they will agree on, it is the burden they face from regulatory compliance or “red tape”.

If an objection is not being raised about a particular new piece of legislation, the cry will be that the total volume of regulation is too great for businesses to cope with. But if a compliant business is usually synonymous with a well-run business, surely the question is not how to lower the regulatory burden, but how to get ahead of the game, benefit from regulation and turn it into a source of competitive advantage. So can regulation be a green light to innovation and greater profitability rather than just red tape?

This article explores how business can take a positive approach to regulation and, with strong business processes and support from the Sinclair Knight Merz (SKM) adaptive compliance management tool, TrackRecord, switch on that green light.

There will always be impractical, burdensome or unnecessary regulation, but the vast majority of compliance measures deliver a benefit: whether it is ensuring safety, setting a benchmark for product quality, putting a price on environmental impacts, protecting the consumer from bad business practices or providing a fairer deal for stakeholders, investors and wider society.

If the volume of compliance a business faces is significant, and even for smaller organisations that can be the case, the real task is not to be overwhelmed, but to develop processes and tools for identifying and delivering on the practical requirements within the required time scales time and time again. Focusing management effort on what is critical and developing simple systems to handle the rest will make the difference. The best businesses will challenge and measure their partners and its managers to drive business improvement, innovation and value from regulation, not treat it as an excuse or distraction from business performance.

So what are the steps a business should take to benefit from compliance? In short, it needs to:

1. Identify the regulations that cover the activities in question, both domestically and internationally, and whether they are statutory or open to a degree of risk assessment and justification or simply best practice. 
2. Understand the expectations of the regulator and the penalties for non-compliance for each measure. These can run from warning notices through simple fines to legal judgements and, in some health and safety cases now, personal liability claims on individual directors. 
3. Conduct an audit of the relevant regulations. Consider positive questions such as: what outcomes are the regulations trying to deliver? How does your response or actions benefit your various stakeholders? What stance are your competitors or industry peers taking? Could a proactive response generate innovation and new business thinking to one or more of your business processes or product segments? Can you leverage a competitive advantage or improve your business’ standing with stakeholders by adopting a leadership position on a particular regulation? Do you want to be seen as “best in class”, “one of the pack” or “just doing the minimum to comply”? 
4. Highlight those regulations from the audit that can make a critical difference to your business – both positively and negatively. Categorise and rank them by business importance, potentially including the variation in regulation on a region to region or project to project basis. 
5. Identify business partners, including your supply chain, who can help you manage your regulatory burden. Although you may not be able to offload liability, regulatory compliance can often be “outsourced” so businesses can focus on core processes. 
6. Provide business managers with the tools, Key Performance Indicators (KPIs) and guidance on managing regulations so they can weave compliance into their role, processes and deliverables, not treat it as an add-on. Often addressing culture change is required, enduring that support, resources and training are provided as part of the mix. 
7. Develop high level KPIs – a compliance dashboard – and reporting tools that allow senior managers to track trends on critical compliance issues. Identify and reward the leaders in the organisation and measure the impacts of good compliance on the bottom line. 
8. Build an audit trail of compliance evidence. Simply being compliant is of no use if it cannot be demonstrated easily to regulators.

In short, you should be looking to be as demanding from your return on investment in compliance as you would with any other part of your business. You want to integrate it into core business processes and escape the “tick box” mentality of some managers who think compliance should attract as little time and resource as possible, so they can get on with the “real job”.

As an example of a proactive approach to managing compliance, SKM has worked with a leading UK food retailer across its nationwide network of stores to drive business benefits from compliance. Food retailers face a significant body of regulations from food hygiene to property management, not to mention the health and safety challenge of managing millions of supplier deliveries and customer visits every week. Together, SKM and the retailer have developed systems and processes based around SKM’s adaptive compliance management tool, TrackRecord to provide facilities managers in both the store on-site and at corporate HQ with the ability to manage the full range of compliance demands and identify the insights that can really benefit the business.

Compliance management for the retailer now helps prioritise investment, drives bottom line saving and enhances its reputation with customers. At the same time, compliance levels across the store network have risen significantly, administrative burdens have fallen, reporting delivers the information required by relevant stakeholders and there is a much stronger audit trail of evidence to satisfy regulators.

In other sectors and with other clients, the burden of compliance varies and critical regulations will be different. What is important to a retailer working to a UK/EU legislation framework will not be the same for an energy company in the USA, a mining infrastructure project in Western Australia or a contractor building a road in Singapore. The core issues remain the same however. You not only want to understand the regulatory framework and make sure you comply, but also derive real benefits and competitive advantage from that effort. You want to embed in your organisation a mind-set that says regulation is a green light to improved innovation and profitability, not a tangled morass of “red tape”. So the first step for any organisation is to commit to positive engagement with regulatory compliance and drive for green – not stop at red!

Did you know the term “red tape” dates back to the 16th century when Henry VIII of England besieged the Pope with around 80 petitions regarding the annulment of his marriage to Catherine of Aragon – each one bound and sealed with the obligatory red cloth tape. Even today, most UK legal documents are bound with pink or red tape. In the USA, the phrase originated from the practice of binding Civil War veteran records in red twill tape.