Regulation, Management Systems, Ethics and the Free Market

We have spent the last two blog posts on management systems as it would apply to the Legionella bacteria outbreak in the Bronx NYC.  This situation is just an example of the complex world we live in today and how intertwined regulation is with self driven management systems, business ethics and our mode of doing business.

Using a macro level approach, let us look a little closer at just what happened.  With most large air conditioning systems there is some form of cooling tower associated with them.  From the business perspective it has every reason to keep the unit in good working order as long as it fulfills the purpose for which it was installed.  What the business primarily wants is for the air conditioning unit to keep it’s building at a reasonable temperature.  Why because if the temperature is pleasing to people it will make them customers and customers generate revenue.  If air conditioning did not help generate revenue, the business would not install, nor use it, since such a system would not serve the single purpose that the free market demands – that of making a profit.  Good working order in this case could narrowly be defined as keeping the cooling tower functionally operational so that the ambient indoor temperature is controlled – the purpose for being installed.  If one accepts that premise then testing for bacteria growth on the shell side of the cooling tower (that which does not enter the building) might be considered as an extra expense that should not be incurred in order to maximize profits.  Now the rationale used at the site might not be so draconian. But, for whatever reason like saving time or saving money or just because of a lack of training the result is the same,  a dramatic health situation for the neighborhood.

Again, from the macro level but this time looking from the government perspective there is every reason for city health officials to assume that the owners of the air conditioning towers will keep them in good operating condition.  The difference in this case might be that the governing body would take a more holistic view of good operating condition that would include all aspects of the system not just that which helps generate profit.  So at this point there is no reason for the governing body to assert itself into the air conditioning cooling tower area.  Then a Legionnaire’s Disease breakout occurs and city health officials, who are responsible for public health, begin a mini epidemiological study to determine the source of this public health crisis.  They discover that ground zero is a cooling tower on the roof of a building.  The cooling tower, they find, is functioning and is keeping internal building temperatures within specified ranges and there are no signs that there is any disease within the building.  However the section of the cooling tower that faces outside, the part of the cycle that contains cooling water which easily forms small water droplets that can be spread throughout the neighborhood by the wind is contaminated with legionella bacteria.  The cause is a lack of proper maintenance of this side of the cooling system.

Now that the source has been found the health officials have two things to do.  First, they must fix the current situation and eliminate the source of the problem.  But just as important these officials must also find a way to make sure this same health problem does not occur again.  It is this second reason that gets many business owners upset and complaining about government.  The reason is that the only way that the government can fulfill their second role is by issuing a rule or regulation that would apply to all businesses with a similar operation.  So in NYC the health department first ordered the immediate shutdown and clean up of the offending cooling tower, thus eliminating the immediate threat.  Then they issued a set of regulations demanding that all buildings with cooling towers be registered with the building department.  Another regulation was issued that directed building management to clean all cooling towers within the next three months and then every three months from then on.  So how is the building department going to know whether a building owner has complied with the cleaning rule?  The answer is a new form that must be sent to the building department upon completion of a clean up.  Problem solved.

At this point we should recognize that were it not for a business that did not properly maintain it’s cooling tower none of these rules and regulations would be in place today.  But more on that later. There is yet another chapter to be written in this saga.  It seems that even with the new regulations in place, with all businesses on a 3 month cleaning cycle there was another outbreak of Legionnaire’s Disease in the Bronx in late September.  There were over 5000 cooling towers registered in response to the new regulation and it seems that there were another 35 that were found when health officials searched for the source of the latest outbreak.  Of the 35 new cooling towers found 15 tested positive for Legionella bacteria.  All were put on the cleaning cycle and there have been no further cases registered.

Business and certain politicians tend to rail against regulation, especially environmental and safety regulations that are seen as adding cost without much benefit.  Having worked in the environmental, health and safety field for many decades I have personally experienced how frustratingly complicated and time consuming some regulations can become.  Almost each and every time I have found myself in the middle of a regulatory nightmare I take a step back and realize that we in business have brought a lot of the pain upon ourselves.  Governmental organizations empowered with keeping our shared environment as clean as possible or our workforce as safe as possible have one basic starting assumption when they begin to develop any regulation, that of trust.  For a regulatory body to fulfill their job they must have a high degree of trust that the businesses they regulate will comply.  This base of trust is built on a foundation that assumes business will act ethically when working in areas that are regulated.  However, this basis of trust come into conflict with the basic premise of the free market system.

As was recently stated in a Wall Street Journal article entitled Critics of Free Market Shouldn’t Overreach  Greg Ip states that “economics has always recognized that markets sometimes fail.  Factories, for example have an incentive to pollute because the public, not the factory’s owners, bear the cost of despoiled air and water.”  This free market premise is not new.  In an opinion piece in the New York Times. Christine L. Corton  states that the London fog is making a come back.  After decades of lobbying that would dilute every effort to pass meaningful regulation, Ms. Corton reminds us that it was not until the 1952 “great killer fog” which lasted for five days and killed an estimated 4,000 people that a serious legislative effort was begun.  That effort culminated in the passage of a Clean Air Act in 1956.  After

tens of years of relatively clean air the fog is returning.  This time it is automobiles that is the culprit she reports.  This, of course, brings to mind the latest business ethics problem, that of Volkswagen’s deceptive software that allows diesel engines in London, and everywhere, to spew much greater levels of pollution into the atmosphere.  No wonder we are starting to see these problems again.  Now that another level of trust has been broken what will the regulatory response be and how much will business blame regulation for inhibiting their ability to do business?

My answer is simple and  yet very controversial to my fellow business associates.  We need to practice a modified free market system.  One that truly puts sustainability on an equal footing with profit.  I believe that a business can make sufficient profit to satisfy their stockholders while at the same time caring about the safety of its employees and with the minimization of damage to the environment.  What it takes is an overarching management system that takes all facets of doing business into account.  In past assignments I have seen how employee culture that fostered the mindset of “good production techniques” which considered environmental and safety concerns early in the design cycle have almost always shown innovative ways to satisfy all aspects of the business.  I have also seen managers walk away from products when one of the business parameters could not sufficiently be brought into line.  I have heard so many times from good people who I have reported to that we can only be in business when we make profit.  I have always answered that profit at any cost is false profit.  It always catches up to us in one way or another.