Shame on You!

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Scholar argues that shaming is an effective tool against violators of regulations.

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Last year, Mark Wahlberg responded to public outrage over his earning 1,500 times the salary of his female co-star by donating $1.5 million to victims of sexual abuse and harassment. Events like these demonstrate how public shaming can stimulate positive behavior. So, how can policymakers use this information when writing regulations?

Sharon Yadin, a law professor at the Peres Academic Center in Israel, proposes shaming as a strategy to achieve regulatory goals more quickly and cheaply.

Yadin defines regulatory shaming as the release of negative information by the government about a private entity to correct market failures and advance desired social goals. She posits that by communicating a negative view of the shamed business, regulatory officials invite others to apply pressure on that business, altering its image and reputation among customers.

Yadin distinguishes between regulatory shaming, which involves a negative judgment and expression of disapproval, and disclosure regulations, such as nutritional labels, which communicate purely factual information.

For example, the Food and Drug Administration currently engages in regulatory shaming by publishing a list of companies that prevent the entry of generic drugs to the market to protect their own versions. The Securities and Exchange Commission publicizes high wage gaps in public companies.

Regulatory shaming can even be used to enforce moral or social norms in the absence of a legal violation. Yadin says that regulatory agencies might publicize wrongdoing through newspaper advertisements, media campaigns, or social media outlets. They could also require certain recalcitrant companies to ask the public for forgiveness through corporate apology advertising.

Yadin argues that for shaming to work well as a regulatory strategy, three necessary steps must be met. First, regulators must refrain from abusing their administrative authority and be sure to convey accurate information to the public. Second, the shaming community must agree with the regulator’s narrative and message. Finally, once the community internalizes the message, it must express disapproval to motivate the shamed business entity to modify its behavior.

Yadin stresses that employees can play a critical role in emphasizing the degree to which a company deserves public shame because a company’s reputation becomes even more threatened when its own employees risk their livelihoods to express their disapproval. Yadin also notes that investors can respond to shameful information by refusing to invest in companies based on their values in order to preserve their own public image.

Yadin recommends that regulatory agencies adopt regulatory shaming strategies as a cheap, efficient, and economic means of enforcement. She says that regulatory agencies can deter companies from engaging in misconduct by transmitting information through inexpensive press releases and online publications. Widespread knowledge of a company’s wrongdoing, she reasons, could ultimately reduce the value of that company’s stock, creating a tangible incentive for the company to adapt to collective norms.

In these ways, Yadin argues, shaming can reduce enforcement costs by supplementing and reducing the severity of civil or criminal sanctions.

Shaming can also enhance democratic participation in the regulatory process, she suggests. By empowering civilians to take action against misconduct, shaming might stimulate trust between the government and its citizens. According to Yadin, regulatory agencies that rely on shaming would step back when non-governmental organizations, such as unions, become directly involved in the market, allowing community members to decide whether a corporation has acted with moral integrity and what actions should be taken.

Moreover, Yadin justifies public shaming as form of psychological or emotional punishment that imposes less severe burdens than criminal or administrative proceedings. As a softer enforcement mechanism, regulatory shaming can generate the same benefits as harsher enforcement schemes without causing as much damage to the company.

Although shaming is a cheap enforcement mechanism, Yadin acknowledges critics’ concerns that regulatory shaming may raise indirect costs to the government, as companies placed on a list or featured in press releases are likely to pursue legal action against the government. She dismisses this concern, however, by pointing out that these costs are not unique to regulatory shaming.

Yadin also recognizes the potential for regulatory shaming to over-deter company behavior, especially given the speed at which information can be communicated over the Internet. Because excessive regulatory shaming can negatively impact a company’s reputation and financial health, Yadin advises policymakers to consider the technique, timing, and locality in which it engages in shaming.

Notably, big businesses have reacted against the idea of public shaming by lobbying Congress to hamper regulatory agencies’ ability to disclose information. For example, chemical company lobbyists reportedly convinced elected officials to criminalize the publication of information about the potential consequences of accidents on neighboring regions. In addition, many states now have laws protecting food-processing companies from public criticism that is not supported by scientific evidence.

Despite business opposition, Yadin encourages government agencies to engage in regulatory shaming reasonably and proportionately, seeking to encourage officials to take steps that will encourage companies to want to restore their image by adding social value to the community, much as Mark Wahlberg did last year.