Conversation with Gordon Roddick on overregulation in the U.S. compared to other countries.
When most people think of the Body Shop, it's Anita Roddick who comes to mind, but she's only one-half of a partnership that has guided the company from infancy. Husband Gordon, chairman, is the other half -- some would say the better half when it comes to managing the operational side of a very large ($265 million) and geographically diverse (43 countries) operation. We've enjoyed talking with Gordon over the years about a wide range of subjects, including his contention that the free-market system here in the United States is anything but free.
Inc.: We Americans pride ourselves on our free markets. I gather you don't think they're as free and open as we do.
Roddick: I have to say, I think you are the most overregulated country in the world -- up to the point of pedantry.
Inc.: Come on, now. You've set up branches of the Body Shop in 43 countries. Is the difference really that noticeable?
Roddick: The difference is huge in terms of the up-front costs of starting a business in the United States. In fact, it sometimes appears that the regulations are actually designed to serve as a sort of trade barrier, preventing foreign companies from coming in to compete. That may not be the intention, but it often looks as if it is. I mean, there are no sensible interstate-banking arrangements. Sales taxes vary from state to state. Zoning regulations are a pure nightmare. In the name of fairness and equality for all, the franchise laws prevent a company from doing a deal with an individual franchisee. You have to be careful when you ask people their age or even their sex, no matter how obvious it is. I'm not surprised that the Japanese keep whacking you over the head in international competition. The United States is being strangled by lawyers enforcing compliance with regulations.
Inc.: Surely, we can't be worse than Japan.
Roddick: Yes, yes. Japan is a whole heap easier. You have to get over the import hurdle there, which means choosing the right partner, but after that, everything else is much easier.
Inc.: Are there other countries that compare with the United States in terms of regulation?
Roddick: Nobody. Absolutely nobody on earth.
Inc.: Any particular horror stories?
Roddick: No, not really. Most of the problems we run into are actually quite petty. But the cumulative impact is very significant. We have to employ two extra people just to do compliance, and our lawyer works on franchise compliance almost full-time. Of course, all of that increases your costs. I'd guess your regulations probably add about 5% to the cost of doing business here.
Inc.: That's an extraordinary statement when you consider the average American business has a pretax profit margin of about 3%.
Roddick: Yes, and we're lucky. We can afford the extra costs. I mean, we came in with a tried-and-true system that had already been tested elsewhere. We knew it worked. So it was easier for us to absorb the additional expenses. The ones who get hurt most are the start-ups.
Inc.: Why start-ups?
Roddick: Because overregulation adds hugely to your initiation costs. It takes you more time to get started. You have to get more advice. You spend more money for lawyers, accountants, specialists of one sort or another. The result is to introduce a big element of caution in the way you approach business.
Inc.: That's ironic, isn't it? Undermining start-ups just when we need them the most.
Roddick: Well, that is the penalty you pay for trying to take the risk out of life through overregulation. Of course, you must have a degree of regulation. You need some safeguards to protect the environment, the community, the work force, what have you. But here in the United States, you are always trying to cover every eventuality. I mean, it's almost as if you are so conscious of your freedom that you protect it to the point where you are no longer free.
Inc.: Makes one nostalgic for Dan Quayle. More than any other politician I can think of, he would agree with you about all this.
Roddick: I would never have dreamed I'd agree with Dan Quayle about anything.