When a company breaks the law, the Environmental Protection Agency (EPA) would really rather it just say so. And many of them actually do. Under the EPA’s Audit Policy, violators who voluntarily report themselves can get certain penalties reduced or waived if they commit to ongoing self-regulation. The companies set up internal compliance procedures and promise never to do it again.

“These firms have agreed to do something above and beyond what’s required by law,” says Jodi Short, an associate law professor at Georgetown University. But is that promise any more than window dressing? Short found that when firms commit to policing themselves, they do in fact have better compliance outcomes—under certain conditions. “There are things regulators can do to promote the meaningful implementation of self-regulatory commitments,” she says. In particular, watching them is more effective than warning them.

Looking at hundreds of industrial facilities subject to the Clean Air Act across the United States between 1993 and 2003, Short showed that surveillance of self-auditing firms increases compliance, whereas overt threats decrease it: Those companies that started self-regulating only when the EPA said it would punish them did not improve compliance outcomes. Coercion reframes self-regulation from a question of corporate honesty to a cat-and-mouse game, says Short, and “you can’t sustain voluntary regulation without a certain amount of non-calculative motivation—motivation to just do the right thing.”

The practice of imposing compliance auditing as a part of enforcement action settlements has become widespread across a range of fields, Short says. But her research shows it doesn’t help—a finding that field experience confirms. “For a self-audit to be effective, you really need to have major senior management buy-in,” says James Salzman, the former European environmental manager for S.C. Johnson, now a professor of law and environmental policy at Duke University. “And senior management buy-in is more likely if it comes organically than if it comes at gunpoint.”

This is not to say that sanctions aren’t important. “There’s a lot of data to suggest that big sticks lead to better compliance,” Salzman says. But it is regulators’ watchful eyes more than their shaking fists that make firms follow through on self-policing promises.

Short’s findings suggest an important role for social movement activism. As the idea of a “corporate conscience” spreads across industries—from occupational health and safety to industrial food processor inspection to financial auditing—one of the most important motivators is visibility. Activists offer “another source of surveillance,” Short says. “They can provide another set of eyeballs.”

“Jodi L. Short and Michael W. Toffel, Making Self-Regulation More Than Merely Symbolic: The Critical Role of the Legal Environment, Administrative Science Quarterly, 55, 2010.”

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