1. Where Next for Small Business Regulation? Building Better Policy 29 th June 2012

2. agenda PART1 1.00Professor Monder Ram OBE – Introduction 1.10our project 1.20our messages for policy-makers/regulators 2.00Q&A 2.10wrap up 2.15coffee PART 2 2.45policy forum discussion 4.30end

3. outcomes insights for small firms encouraging better regulation to support growth deepening the knowledge base the project ESRC study of how small firms receive, understand and respond to regulation why? we know lots about what entrepreneurs say/think, less about what they do researching businesses over time needed to see how they adapt to change what we did researched high growth small firms in the North East and East Midlands over 28 months funded by ESRC

4. the benefits of our approach grounded, holistic approach providing understanding of firms’ day to day experience existing research is often ‘snapshot’ and lacks depth all small firms are not the same multi-method, longitudinal interviews with owner-managers, workers, policy-makers, regulatory bodies, VCs... observations in firms three sweeps of fieldwork in each of 14 sample firms allows understanding of how firms adapt and change over time and space guided by impact/policy agenda (steering group comprising key stakeholders; firm engagement events)

5. sample includes high-growth firms SectorFirmApprox sizeYear founded Location Bio-BusinessBio 1 (bio-tech software development)301989North East Bio 2 (drug manufacture)502008 Bio 3 (drug delivery technologies)152002East Mids Bio 4 (drug development) 522007 Environmental Services ES 1 (waste treatment )202002North East ES 2 (environmental testing service)401999 ES 3 (pollution control )101995 ES 4 (sustainable energy)202007East Mids SecurityS1 (vision technology)321992North East S2 (imaging technologies)402003 S3 (clothing/armour protection)401989East Mids Film & MediaFM 1 (digital communications)102000North East FM2 (design agency)71990East Mids FM3 (TV facilities company)71998

6. our messages for policy- makers/regulators

7. from Red Tape Challenge to supporting growth yes there are burdens the usual suspects – employment; uneven enforcement and some less well-known – displacement burdens there’s government regulation and “regulation” most regulations are experienced as everyday, routine and unproblematic regulation can generate growth but firms experience sectoral and context-specific barriers entrepreneurial firms shape the policy and regulatory environments

8. burden – employment regulations redundancy regulations force employers to act duplicitously – “I did it as gently as I could but the legal side of it made me act completely out of character...it made me look really ruthless” (digital communications) create distress – “it was the hardest thing I've ever had to do” (drug delivery technologies) maternity regulations assume the worst of employers – “built on a premise that all employers are bastards” (drug development) leave firms short-handed compensation culture fuels abuse dismissal, recruitment... redundancy regulations force employers to act duplicitously – “I did it as gently as I could but the legal side of it made me act completely out of character...it made me look really ruthless” (digital communications) create distress – “it was the hardest thing I've ever had to do” (drug delivery technologies) maternity regulations assume the worst of employers – “built on a premise that all employers are bastards” (drug development) leave firms short-handed compensation culture fuels abuse dismissal, recruitment... issues apply across the sample Do policymakers have to experience the visceral and emotive nature of complying? Or do small firms need to be included more in decision-making (e.g. FSB’s suggestion for Regulatory Policy Committee Plus)? issues apply across the sample Do policymakers have to experience the visceral and emotive nature of complying? Or do small firms need to be included more in decision-making (e.g. FSB’s suggestion for Regulatory Policy Committee Plus)? ‘We want to create a new relationship between regulators and businesses where the default setting is trust rather than distrust’ (BIS, 2011) ‘We want to create a new relationship between regulators and businesses where the default setting is trust rather than distrust’ (BIS, 2011)

9. uneven enforcement and advice individual auditors “some UKAS auditors are firm but fair, which is exactly what you want; some are pedantic” (Quality Manager, environmental testing service) professional services “it was a consultancy which threw me into disarray…you end up doubting yourself even though you have thoroughly checked something out” (H&S Manager, environmental testing service) individual auditors “some UKAS auditors are firm but fair, which is exactly what you want; some are pedantic” (Quality Manager, environmental testing service) professional services “it was a consultancy which threw me into disarray…you end up doubting yourself even though you have thoroughly checked something out” (H&S Manager, environmental testing service) How can we further reduce unevenness? Self/co-regulation...? Do consultants thrive on ambiguity? Beware: more clarity = a smaller professional services market How can we further reduce unevenness? Self/co-regulation...? Do consultants thrive on ambiguity? Beware: more clarity = a smaller professional services market “In general, the problem lies less with the regulations themselves and more with the way they are interpreted and applied.” (Löfstedt, 2011) “Businesses want proportionate and consistent enforcement” (LBRO 2010: 7) “In general, the problem lies less with the regulations themselves and more with the way they are interpreted and applied.” (Löfstedt, 2011) “Businesses want proportionate and consistent enforcement” (LBRO 2010: 7)

10. burden - displacement of effort to small firms systems rationalisation and depersonalisation – e.g. shift to e-filing of company accounts “there’s no sort of grace period where you can say, ‘Look, I’ve filed that incorrectly, please can I change it?’” “Put a brain in the way!” consequence: impact on firms resources “when we’ve had interactions with Companies House, it’s actually cost us money because we’ve used the lawyers more than we would have done before” (bio-tech software development) systems rationalisation and depersonalisation – e.g. shift to e-filing of company accounts “there’s no sort of grace period where you can say, ‘Look, I’ve filed that incorrectly, please can I change it?’” “Put a brain in the way!” consequence: impact on firms resources “when we’ve had interactions with Companies House, it’s actually cost us money because we’ve used the lawyers more than we would have done before” (bio-tech software development) beware shifting burden to firms when changing information systems How can efficiency drives also include “brains” (personalisation)? beware shifting burden to firms when changing information systems How can efficiency drives also include “brains” (personalisation)?

11. if you believe government regulation is the main way in which firms feel put upon/controlled – think again not just the government, but financial intermediaries current and future investors have certain expectations of firms (shaping behaviour): “the management team believed there was a better way of doing it but the investors wanted it done a different way;…if they want to do it like that it ties us up in knots, but it’s their money” (drug delivery technologies) other firms/parent companies imposing standards, IT systems, targets, culture: “I keep thinking that we’re going to plateau out and get used to it but then something else is thrown up” (sustainable energy) small firms themselves – self-imposition firm culture, aspirations and expectations (sustainable energy – professionalization) not just the government, but financial intermediaries current and future investors have certain expectations of firms (shaping behaviour): “the management team believed there was a better way of doing it but the investors wanted it done a different way;…if they want to do it like that it ties us up in knots, but it’s their money” (drug delivery technologies) other firms/parent companies imposing standards, IT systems, targets, culture: “I keep thinking that we’re going to plateau out and get used to it but then something else is thrown up” (sustainable energy) small firms themselves – self-imposition firm culture, aspirations and expectations (sustainable energy – professionalization) “regulation” comes at firms from all directions – beware overestimating the importance of government regulation

12. if you believe that small firms are consumed by dealing with regulation – think again “I don’t notice it in a huge way, if I’m honest.” (Senior Operations Manager, environmental services) “It's not like regulation is a huge issue...and we acknowledge you do need a certain level of regulation” (Financial Director, bio-tech software development) “Health & Safety doesn’t take up that much of my time” (Sales Administrator, bio-tech software development ) “I don’t notice it in a huge way, if I’m honest.” (Senior Operations Manager, environmental services) “It's not like regulation is a huge issue...and we acknowledge you do need a certain level of regulation” (Financial Director, bio-tech software development) “Health & Safety doesn’t take up that much of my time” (Sales Administrator, bio-tech software development ) use the existing evidence base that understands firms’ experience and behaviour (and not over-rely on what firms say) use research approaches that look at behaviour as well as attitudes use the existing evidence base that understands firms’ experience and behaviour (and not over-rely on what firms say) use research approaches that look at behaviour as well as attitudes

13. talking regulation up (not always down)

14. regulation and growth growth-oriented firms see sectorally-based regulation as market creating/shaping heating/solar equipment supplier firm relies on FIT regulations autoclaving firm relies on landfill tax price setting high-tech security firm relies on airport security regulations growth-oriented firms see sectorally-based regulation as market creating/shaping heating/solar equipment supplier firm relies on FIT regulations autoclaving firm relies on landfill tax price setting high-tech security firm relies on airport security regulations Are there other markets that can be created? What about a ‘Red Tape Challenge Opportunity’? Are there other markets that can be created? What about a ‘Red Tape Challenge Opportunity’?

15. creating and sustaining markets clash of cultures and timescales bio-tech software development and the NHS “my main beef is clarity – and I mean not so much on the regulatory side – but the NHS and commissioning which is extremely opaque” waste treatment and local authorities “landfill sites have got 25 year contracts with local authorities” vacillation over policy generates uncertainty especially in nascent sectors with emergent rules “the speed and clarity of decisions damages businesses” (sustainable energy – Feed-in-Tariff policy) clash of cultures and timescales bio-tech software development and the NHS “my main beef is clarity – and I mean not so much on the regulatory side – but the NHS and commissioning which is extremely opaque” waste treatment and local authorities “landfill sites have got 25 year contracts with local authorities” vacillation over policy generates uncertainty especially in nascent sectors with emergent rules “the speed and clarity of decisions damages businesses” (sustainable energy – Feed-in-Tariff policy) firms often struggle to fully exploit regulatory-inspired opportunities Is there a lack of sectoral and scientific understanding? Is a more coherent, sectorally-based industrial policy required? firms often struggle to fully exploit regulatory-inspired opportunities Is there a lack of sectoral and scientific understanding? Is a more coherent, sectorally-based industrial policy required?

16. firms shape regulation in pursuit of growth limited constructive contact between firms and regulators “Our relationship with HMRC? There is none” (bio-tech software development) different levels of intervention/shaping meetings with regulators; UK, EU, global (imaging technologies – emerging rules/policies) firms routinely exercise their voices sitting on steering groups (environmental services – engagement with Environmental Agency) opportunities for self-regulation are well-received if backed by enforcement environmental testing labs showing a desire to collaborate in conjunction with Environmental Industries Commission (environmental services) limited constructive contact between firms and regulators “Our relationship with HMRC? There is none” (bio-tech software development) different levels of intervention/shaping meetings with regulators; UK, EU, global (imaging technologies – emerging rules/policies) firms routinely exercise their voices sitting on steering groups (environmental services – engagement with Environmental Agency) opportunities for self-regulation are well-received if backed by enforcement environmental testing labs showing a desire to collaborate in conjunction with Environmental Industries Commission (environmental services) What can government do to encourage more firms to engage in co- regulatory/self-regulatory activities?

17. in summary yes there are burdens but the debate needs to move on we need to appreciate the diversity of “regulation” that firms experience regulation can generate growth not just in a negative sense by cutting in a positive sense – by creating/sustaining new markets

18. any questions?

19. wrap up: an invitation to share our research http://www.ncl.ac.uk/nubs/research/projects/rebel.htm our dissemination plans further academic research further knowledge exchange grants two year post-doctoral researcher How can our research be useful to you? Are there opportunities for us to engage with you further? please complete feedback form

20. thank you coffee (until 14:40)

21. policy forum discussion (14:45 – 16:30) 1.What are two or three key things that government might do in relation to the findings in our research? 2a.Rather than talking about reducing the burden, how can firms and their networks (associations, regulatory services firms etc.) look to improve their own capacity in dealing with regulation? 2b.And how can government help them achieve that? 3.Are there useful lessons we can learn from your experiences of other contexts/countries’ approaches to regulation? 4.What happens next (research, knowledge exchange, policy...)?

22. the research team Professor Simon Down simon.down@anglia.ac.uksimon.down@anglia.ac.uk Professor Jane Pollard jane.pollard@ncl.ac.ukjane.pollard@ncl.ac.uk Paul Richter paul.richter@ncl.ac.ukpaul.richter@ncl.ac.uk Professor Monder Ram OBE mram@dmu.ac.ukmram@dmu.ac.uk