Adopted in 1985, the directive 85/374/EEC on liability for defective products aims to “ensure that producers take responsibility for defective products vis-à-vis consumers”.
Ethical Business Practice & Regulation (EBP&R) is a new code for business conduct, drawing on behavioural science, responsive regulation, safety in business and integrity management. The idea is to set ethical standards for business which minimize the problems giving rise to mass claims of the sort encountered in the last 30 years.
The drivers for this new approach are the increasingly regulated environments in which 21st century businesses operate, the challenges of big data management and its control, cases of preventable, systemic or systematic or blatant business errors, and in the context of all those, the risk management issues which flow from ever increasing consumer expectations and greatly increased litigiousness.
The overarching goal of EBP&R is an effective relationship between business and regulators, resulting in better outcomes for both whilst reducing risk exposure to mass claims. Some examples of EBP&R include open culture in civil aviation safety, feedback mechanisms provided by market vigilance systems and sectoral ombudsmen.
The operating world for business is increasingly characterized by volatility, uncertainty, complexity and ambiguity. The main drivers are digitalization and automation, increasing connectivity and globalization as well as changing societal values including new ways of mobilizing people. This changing environment results in more and more grey areas in the consumer interface and in the regulatory environment. EBP&R encourages leaders and employees to create an effective ethical culture where they do the right thing, based upon ethical values and supported by cultural norms and institutions.
EBP&R requires people to recognise ethical dilemmas, to challenge constructively, to speak up if they know or suspect unethical behaviour, and to use mistakes and wrongdoing as an opportunity to learn and improve. For organisations, EBP&R is also an opportunity to be open and to engage with regulators.
The current interface between businesses and regulators can encourage an open learning culture but whilst a lot of the groundwork is known, it is untrusted. This will call into focus the improvements of self-governance and co-regulation, a fundamental factor to allow businesses and organisations to keep their freedom to innovate and operate based on ethical principles.
Where do we stand
In 2017, the OECD published a comprehensive compilation applying behavioural insights (over 120 examples in 23 countries), which noted that governments are searching for more simple and effective regulatory solutions without resorting to additional rules or sanctions. Overall, the OECD recommendations on regulation were favouring a responsive regulation approach, advocating taking into consideration behavioural insights early in the design of policy.