'I spent the first 10 years of my adult life as an activist United Methodist minister -- active in seeking to bring truth, righteousness, and justice to prisons, individuals, and the environment. I have spent the past 7 years working for a small Southwest trucking company as a different kind of activist -- devising counterstrategies to protect against lavish liability judgments, duplicated environmental regulations, and frivolous employment-discrimination claims.
This is not, however, a lament penned by a fading liberal or the complaining cry from the oil-transportation industry protesting a belated entry into the modern world. This is simply an account of how one small, struggling company is trying to manage the reality that regulators of all types -- in the form of lawyers, judges, and state and federal government officials -- seem to be besieging us in increasing numbers each year.
I have come to realize that to deal effectively with regulators, I must take an activist approach not unlike the activist approach necessary to lobby for women's rights or pollution controls. It just doesn't work to sit back and hope that the regulatory problems will go away or somehow pass us by. Nor does it work to react defensively and hire a lawyer every time a regulator heads our way. What works best, in my experience, is to confront the problems head-on -- acticipating difficulties, mobilizing your forces, negotiating, and, when necessary, playing hardball.
Before I provide details of my approach to regulation, let me make a few observations that I believe are necessary to put the regulation issue into perspective. There's a growing perception that deregulation and federal government spending cuts have somehow reduced regulatory pressures on smaller businesses. Actually, the opposite is true. The confusion stems from a problem of semantics. Deregulation means economic deregulation, not the removal of legal constraints. For a 50-year-old company like the one I work for, trucking-industry deregulation has mainly resulted in a change in the competitive environment. Ten years ago, we had half a dozen or so competitors; now we have 26. This increased competition obviously has effected the way we do business, but it has not meant that we operate under fewer legal constraints than before. We still have to deal with officials from such federal agencies as the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA), and the Equal Employment Opportunity Commission (EEOC). Even if their numbers have actually been reduced by cutbacks in federal spending, those deductions have been more than compensated for by the duplication of federal regulations at the state level.
Moreover, regulation of another sort has cropped up in the form of liability and employee suits. The public may pay good money to see Smokey and the Bandit and cheer the truck drivers as their convoy breaks through a police barrier, but we in the trucking industry must constantly remind ourselves that those same moviegoers are potential plaintiffs any time they catch a truck making a wide right turn. And while business owners gloat about the declining influence of labor unions, they forget that disgruntled employees have the equivalent of unions in the courts and government employment regulators. Indeed, it was a complaint by a terminated Turner Bros. Trucking Co. employee in 1982 that first drove the implications of expanding regulations home to me.
I had joined the company, which hauls oil-industry pipe and moves drilling rigs, in 1979 as its first manager of personnel and human resources. That was just about the time the EEOC was beginning to intensify its scrutiny of smaller companies for their hiring and firing practices. As I sought to identify how Turner Bros. might be vulnerable, I found that most of my industry colleagues considered our concern unwarranted: who cared about a little oil trucking company in Oklahoma?
I soon discovered that the government cares when, in 1982, one of our truckyard managers terminated a female employee as part of a reorganization to reduce our payroll. During the course of her employment, he had made a statement about how dangerous a dark pipe yard could be for a woman alone at night. Although a position for night duty never opened up, and the employee was never denied a job because of sex, the statement became important after she was terminated. She went to the EEOC, and we had a sex-discrimination charge on our hands. We produced documents to show we had laid off seven males for each female, but there was nothing we could do about the manager's statement, which I am still convinced showed nothing but his genuine concern for the safety of an employee.
We finally settled the claim out of court. While the amounts involved for legal fees and the settlement weren't astronomical, they were enough for us to take notice and realize that regulation in the large sense was a growing and potentially quite costly phenomenon.
It was at that point that I concluded we had to do more than simply react to suits and government inspectors as they descended on us. Rather we had to anticipate potential problems and move aggressively to head them off before they became costly to Turner Bros. In other words, we had to take an activist approach to regulation.
Underlying this activist approach is something business texts refer to as risk management. The idea behind risk management is to reduce large financial risks via any of several options, including the following:
1. Transfer it with insurance.
2. Absorb or retain it.
3. Remove it completely, say, by discontinuing production of a particular product, or by not offering a particular service.
4. Reduce it by educating employees, installing new equipment, or taking other steps.
How can risk management be used to cope effectively with regulation? By using a combination of these four options. For instance, by improving our employee safety program through greater employee awareness and gift awards (option 4), our workers' compensation insurance premiums declined substantially (option 1).
Since we adopted risk management as the key to dealing with regulation, my title has been changed to "personnel and risk manager." Some might argue that such a title is a contradiction in terms, since people are a company's greatest asset and equipment its biggest risk.
I feel employees are at once a business's greatest asset and risk. I have worked in prisons in two countries and firmly believe that even the most worthless human being prefers to end the day feeling worthwhile, but many things happen during a workday that can have the opposite effect. When that occurs, employees become a risk the organization must manage.
I do not advocate abandoning measures to motivate employees. Quite the contrary. Employee participation and motivation are offensive measures that create a better defense in a regulated world. A broadened risk-management function does not have to be in opposition to effective human-resources management.
Risk management in the context of regulation entails using any of several distinct management tools and approaches, as follows:
* Work with regulators, not against them.
For executives of smaller companies, one of the most irritating aspects of the existing regulatory climate is the abundance of minor technicalities in the rules and laws governing business. But just because many minor technicalities exist doesn't mean they have to be followed to the letter.
Taking an activist approach to regulation means working with regulators informally before they work on you. This sounds dangerous and, when tried with narrow-minded and rigid regulators, it probably is. But in my experience, most regulators are open-minded people who are simply trying to do their jobs as best they can.
Let me give you an example. A few years ago, I took a copy of a computerized truck maintenance program to the regional officer of the U.S. Department of Transportation. Even though the format was not quite what his predecessor had advised, the officer agreed it complied with the spirit of the regulation. While I was there, I invited him to come out to the company to see if he could convince our drivers to wear their safety belts. The officer accepted both the proposal and the invitation.
As part of the informal approach to regulation, I have found that you can often head off time-consuming and costly formal problems by showing evidence of voluntary compliance. This past summer, for example, a local inspector for OSHA showed up unannounced to check on our conformity with the Hazard Communication Standard -- a recent regulation requiring companies to inform employees of possible dangers from chemicals being used in the workplace. The first thing I did was to tell him that we had received an exemption through the Oklahoma State Department of Labor's OSHA consultation division because we had volunteered for and passed a state inspection. When he saw the state letter of certification, he decided not to do his own inspection of our facilities.
He next asked for our written program to inform employees about the chemicals we use that might possibly be hazardous. I had started work on such a program some months before but hadn't completed it, since I had doubts that the requirements for a written program extended to trucking companies. Rather than argue with him about my doubts, however, I simply showed him my written efforts thus far. He seemed pleased with what he saw, and the session was over.
We could have had a difficult time with the inspector if I had been defensive about the fact that he had come unannounced and was making demands I felt we didn't need to comply with. The session could have gone on much longer. Indeed, any inspector can find all kinds of violations if he or she tries hard enough. The real payback may come if you can get your voluntary efforts admitted into evidence at some future trial. Voluntary actions would go a long way toward discouraging a verdict of gross and wanton negligence, or the imposition of punitive damages.
* Rely on the oral tradition.
Some managers insist on putting their procedures and policies in writing, but they are liable to regret the practice if they ever wind up in court. Written policies provide excellent fodder for plaintiff cannons. Any sentence can mean several things in the hands of a skilled attorney. But a skilled defense attorney can defend correct procedures, even if they are practiced orally.
We found that out a few years ago when we were sued by another company's employee, who was injured while unloading pipe from one of our trucks. He contended that our truck was improperly loaded. Our attorney called as a witness the supervisor responsible for overseeing the truck's loading, put him on the stand, and let him be himself. He had much experience loading trucks and explained the fine points of correct and incorrect loading. He argued that in the case at hand, everything had been done correctly. We won the case.
In my view, small companies do not have to create General Motors-length personnel documents. The time may be better spent training managers and supervisors as to why certain things must be done in certain ways. Their testimony will make or break your case anyway, once it reaches the courtroom. Workers with little formal education often have excellent recall of the spoken word. Smaller companies should use this capability as an asset.
This doesn't mean that you should discard all your documentation. Indeed, some written rules are necessary, but they should be of a general, policymaking nature.
Back in 1983, we were sued for $1.5 million by a rail company, charging negligence after one of our trucks was struck by a train. On the witness stand, I was questioned by the plaintiff's attorney about what Turner Bros. does to encourage its drivers to operate vehicles safely. I discussed the training films and lectures we use, and displayed a policy statement we had composed just a few months before the accident. The statement warned drivers that speeding tickets would be dealt with by suspension or firing. I'm certain that document was helpful to us in settling the suit out of court.
* Use old-fashioned paternalism.
Paternalism is supposedly passe. Now the buzzwords are "employee participation" and "shared decisionmaking." Yet it has always amazed me how much weight old-fashioned paternalism carries with employees. They do care if the boss shows up and speaks to them. They like to be called by name. A turkey or a ham at Christmas is worth much more in employee goodwill than the cash value of the gift.
In the context of regulation, I am convinced that employees who feel good about the company are less likely to create problems than those who feel bad about it. Call a man a number, and he will act like one. Those are difficult statements to prove, but I do know that our most paternalistically managed facility -- at Fort Morgan, Colo. -- has the lowest rate of bodily injury, property damage, and cargo damage claims of all of our 10 facilities. I also encounters fewer employee-related suits than any of our other facilities. The Fort Morgan facility is run by a manager who projects a strong father image. Each year he holds an awards dinner to honor the most productive employees. It's a family affair.
At the other extreme, employees are quick to pick up on an uncaring attitude. I know of one recent situation in which we had to lay off some employees and demote others, and perhaps didn't handle the situation as smoothly and caringly as we might have. Not long thereafter, we were reported to the local U.S. Department of Labor office for inadequate maintenance of our forklift trucks. I am certain that one of the demoted employees was the culprit. When he became resentful toward the company, he also became a regulatory risk. In that instance, a little more paternalism might have saved us some grief.
* Don't accept others' risks.
In today's insurance market, you may be assuming someone else's risk any time your company accepts a delivery or visitor. That company delivering potentially explosive oxygen cylinders may not be sufficiently insured. Similarly, the driver delivering spare parts with his personal van may be covered for damage to the car only and not for damages to your facility or for workers' compensation to pay for time lost when he fractures his ankle jumping from your loading dock.
Secondary liability -- paying for an uninsured party's loss -- is a real possibility in today's litigious society. The only way to guard against getting stuck is to check on the coverage of all trucks and vans coming onto your company's property for business purposes.
People entering our facilities to perform any kind of service must show commercial general liability, auto liability, and workers' compensation coverage, along with specialized coverage, depending on the vendor. Thus, a welder working on the customers' equipment we are warehousing must have a certificate showing adequate coverage for workers' compensation for that employee. In addition, we have the welder's employer sign an agreement, endorsed by his insurance company, that in the event of an accident or injury, the employer holds Turner Bros. harmless. We keep records of everyone who comes onto our property for deliveries or repair work, and we enter the data into our computers.
Of course, such policies are only as effective as the people who enforce them. Employees must be trained to folow through on such tedious and seemingly arbitrary procedures. It's easy for an employee to overlook the procedure when a truck driver wants just to change a tire in your company's yard. You have to explain to employees the ramifications of an oversight in this area of operations, so that they take the trouble to comply.
* Be prepared to play hardball.
Any activist will tell you that there are times when flexibility, negotiation, and positive thinking just don't work: sometimes you have to stand up and fight. That's the way it is in today's world of regulation. And it's important that the regulators know you're prepared to be pushed only so far.
Turner Bros. is currently involved in a case that has demanded a tougher approach than we would like. A property owner adjoining one of our facilities complained to the EPA that contaminated storm water was being discharged from one of our facilities. We approached the EPA and offered to put together a plan to remedy the problem. The EPA agreed, and I prepared a plan to determine the extent of the problem, with the intent of getting rid of any contamination that might exist. An EPA official agreed orally to the plan. Unfortunately, the official moved to another position, and a month later we got a letter from the EPA's legal department saying that we were being charged with contaminating the environment.
We tried some more of the "good old boy" approach, but the more we offered to do, the more the EPA officials wanted from us. For instance, we offered to do soil tests for contaminants. The EPA suggested more extensive tests, which are considerably more expensive than what we proposed. We didn't see the need to do extensive tests if our soil samples demonstrated that the problem was only a surface one.
We calculated that to do everything the EPA wanted would cost somewhere in the neighborhood of $900,000. Our company has $10 million of revenues and is currently operating at a loss because of the depressed domestic oil industry. Nine-hundred thousand dollars is a lot for us to spend on a problem that we believe can be remedied for much less. And we are not exactly a major contaminator, after all.
So we decided to start playing hardball. We hired the best attorneys and consultants available to make our case and put together a reasonable alternate plan. That was when the EPA attorney complained to the Federal Administrative Law Judge that Turner Bros. was "attempting to obscure the issues by inundating Your Honor with paper." We could not help but be amused by this sudden reversal of roles.
Right now, we feel we can clean up the facility for $250,000. We're hoping the regulators will become more reasonable.
I know that many executives of smaller companies will look askance at my activist approach to regulation. They no doubt think I'm slightly crazy for using it at Turner Bros. Why bother to spend so much time dealing with regulators before any problems have arisen? Why draw their attention to your company by getting involved in volunteer state programs?
The reason is survival. As frustrating as the current regulatory environment may be for companies like Turner Bros., we realize that many of the laws we fret over have positive long-term benefits to a society intent on maintaining a balance between the common good and the profit motive. Fighting those laws is an exercise in futility. Ignoring them is a game of Russian roulette. An activist approach, we believe, is the only strategy that offers the promise of dealing with regulation in a cost-effective way.
I admit that I have changed since may days as a dead-serious, optimistic liberal in the 1960s. Back then, my fellow activists and I believed that you could solve almost any problem with persistence and money. More mellow now, I am convinced that peace is hard to achieve, that poverty has a momentum of its own, that justice is elusive and fraught with inconsistency. Government may be able to bring a little truth, righteousness, and justice to the world, but one thing seems crystal clear to me: that will only happen with help from business.'