Should Regulators Shame Companies into Compliance?

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Naming and shaming can serve as a legitimate, efficient, and democratic regulatory approach.

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In the internet age, shaming individuals on social media and other online platforms for their behavior has become very common, especially in the #MeToo era. People shame others for all kinds of behaviors, such as parking in handicap spots, or just for being overweight (“fat shaming”). Some people consider such shaming immoral, undemocratic, and disproportionate, although others believe that it can serve as an effective and legitimate civilian deterrent of undesirable behavior.

A new kind of shaming is now gaining momentum in an entirely different context: regulatory shaming. Regulatory shaming refers to the publication by administrative agencies of negative information about regulated private bodies, mostly corporations, in order to further public-interest goals.

For example, the U.S. Occupational Safety and Health Administration (OSHA) routinely employs shaming tactics toward employers to encourage compliance with worker-safety regulations. OSHA tweets frequently—sometimes several times a day—about occupational safety violations, not only naming specific companies but also condemning their behavior.

One OSHA news release stated that a specific, named company’s “history of safety violations continues, putting employees . . . at risk of serious injuries.” OSHA continued by stating that the agency’s “10th inspection since 2011” of the company’s operations resulted in nearly $2 million in fines and that the company’s “extensive list of violations reflects a workplace that does not prioritize worker safety and health.”

OSHA also publishes databases and other forms of information on its website, revealing companies’ workplace safety records, their regulatory infringements, and their voluntary commitments to “beyond-compliance” safety goals, through the agency’s cooperative programs.

Another agency, the U.S. Food and Drug Administration (FDA), also harnesses shaming to promote regulatory goals. For example, FDA recently published a “blacklist” of pharmaceutical companies that the agency claims act unethically in the markets or fail to meet regulatory requirements. According to FDA, these companies are suspected of “gaming the system” to prevent fair competition in the pharmaceutical industry, thwarting generic drug companies’ efforts to compete with branded drug companies, and thus driving up drug prices. FDA also posts on its website numerous documents exposing company misconduct, such as warning letters and notices of violation addressed to such companies.

Can regulatory shaming work? Is it an appropriate and legitimate regulatory tool for administrative agencies seeking to control corporate behavior? How should agencies use naming and shaming for regulatory purposes, and what criteria should they consider when publicizing information on corporate behavior?

In a recent article, I argue that regulators in various industries should experiment with naming and shaming as part of their overall enforcement strategy. Regulatory shaming can be performed in various ways. Examples include: publishing a consumer complaint database on the agency website; producing rankings of companies based on their performance—via stars or scores—disseminated through social media, websites, or press releases; and many other data-sharing techniques.

What all of these agency publications have in common is that they can be used to influence corporate behavior to advance the public interest. Such shaming does not merely comprise disclosure of information, which is sometimes mandated by administrative agencies as a regulatory strategy; it is also designed to convey a moral message to the public about the behavior of specific firms.

Regulatory shaming also depends on the public to “enforce” norms through “sanctions” deployed by consumers, employees, and other businesses, such as boycotts, strikes, demonstrations, condemnations, and business ostracism. It can therefore be viewed as a form of private enforcement of regulatory norms, facilitated by public regulators.

Regulatory shaming is founded on corporate sensitivity to reputational gains and losses. This sensitivity can relate to the publication not only of legal infringements, but also of corporate actions that are broadly considered socially irresponsible or morally flawed in some way. Only recently, a group of almost 200 chief executives of leading companies declared their commitment to ideas of corporate social responsibility, allowing room for businesses to look out for the interests of stakeholders in the wider sense, not only of shareholders.

Regulators can use regulatory shaming tactics not just to deter non-compliance with binding regulations, but they also can use the other side of the coin—praising tactics—to encourage companies to adopt beyond-compliance behavior. This is a highly interesting and potentially rewarding regulatory strategy worth exploring.

Shaming is an efficient means of enforcement: especially cheap relative to other enforcement strategies such as criminal or administrative sanctioning. It can enrich many agencies’ enforcement pyramids, which lack efficient tools to deal with new challenges in today’s markets. It enhances compliance by creating another form of both specific and general deterrence.

Shaming also serves democratic purposes, as it promotes public participation in regulatory processes. In addition, shaming in the regulatory context escapes the usual objections to shaming in other contexts because it is directed at corporations, which are artificial entities. Common criticisms of the shaming of individuals as being inhumane, cruel, and immoral do not apply in the same manner to the shaming of firms.

Of course, regulators should use this tool carefully, reasonably, and proportionately, and consider the possible outcomes of shaming tactics as well as enforcement alternatives.

For example, regulators should take into consideration the costs of shaming to firms, the agency, and the public. They should identify the appropriate media and techniques for implementing shaming, as well as the intended shaming community. Regulators should also determine the legal basis for shaming by specific agencies and take into account the past results of shaming practices in the industry—as well as of other enforcement tools— and the firms’ reputational sensitivities.

Ultimately, although the general concept of shaming is often perceived negatively as it pertains to individuals, regulatory shaming can serve worthy social and economic goals in the hands of administrative agencies seeking to promote responsible conduct by business entities.

Sharon Yadin

Sharon Yadin is an associate professor at the Peres Academic Center School of Law in Israel.