Wrestling with the Rules: How to Lead Through the Haze of Changing Regulations

At least 18 states enacted nearly 50 bills last year related to uses of toxic per- and poly-fluoroalkyl substances, or PFAS, according to the National Conference of State Legislatures. The number of bills passed was more than triple that of 2019, growth that has been accompanied by similar action on the federal level; the NCSL says the 117^th Congress saw the introduction of more than 90 measures addressing PFAS in some way.

And PFAS occupies just one corner of a vast regulatory landscape. An ever-growing patchwork of rules that begets amendments and more rules is a reality businesses face today—and one that is made worse by growing political polarization that can lead to the watering-down or outright reversal of recent decisions. This dynamic has real impacts.

“You can’t hit a moving target,” said Robert Hersh, the national managing principal of the manufacturing group at Grant Thornton. “The lack of visibility hurts companies’ ability to plan.”

Hersh said industries would be better off having to deal with a smaller number of smarter regulations versus a torrent of changes coming at them from different corners. At the federal level, agencies are, among other things, pushing to:

Expand the scope of regulations surrounding the handling of highly hazardous chemicals, both within plants already covered by such rules and to new types of facilities,
Accelerate the transition to zero-emission vehicles by tightening pollutant regulations laid out in 2016, including for heavy-duty trucks,
Introduce the first national limits for PFAS, more colloquially known as “forever chemicals,” in drinking water and a range of household and industrial items.

Some state officials, meanwhile, are rolling out their own measures, including some that echo federal initiatives and at times surpass them in their ambition. One instance: A Minnesota push to limit the uses of the PFAS is, according to the American Chemistry Council, too broad and inexact and could run into snags and other delays facing a similar effort in Maine.

Most groups such as the American Chemistry Council have found some common ground on the need to regulate materials such as PFAS. And with the world’s economies looking to repair the damage from several centuries of industrialization while working on a massive shift in energy consumption, few business leaders are contending there is no place for the guard rails of regulation. But, as American Trucking Associations President and CEO Chris Spear said earlier this month in reference to the Environmental Protection Agency’s emissions rules, “going back and changing what was already agreed upon is not how to do it.”

The back and forth that comes with new rules, restrictions, bans or mandates can be frustrating to follow. It’s no surprise that it often leads to a wake-me-up-when-it’s-over mentality. After all, there are products to make and bills to pay.

“I think we are in the midst of a change in institutional rules that are unclear at best and one that many know they have to address but are ill prepared to do so or whose time horizons are not in sync,” said Harlow Cohen, professor of organizational behavior at Case Western University's Weatherhead School of Management.

Rebecca Morgan, president and CEO of Fulcrum ConsultingWorks Inc., said most companies’ approaches to and adapting to regulations can be placed in quadrants that prioritize leading with innovation, copying the innovators (both of these groups are more open to the evolution of rules), delaying the rollout of new rules and treating fines as a cost of doing business.

So how to best frame your thinking if you’re looking to move into the more proactive of those quadrants? Here are some priorities to consider:

Plan scenarios and keep them fresh

One approach to keeping up with regulatory waves is to adopt the most stringent requirements. If nothing else, such an approach can buy a business some time and certainty since the requirements are less likely to be tweaked on a regular basis. California comes to mind as a good example: Thanks to the size of its economy, its stricter emissions rules for a number of products—most notably in the automotive sector—often set the standard for other jurisdictions to follow, be it via similar mandates or because of inexorable market forces.

But Grant Thornton’s Hersh said that’s “kind of an easy way out.” It’s more convenient, yes, but can also become restrictive.

“It’s not necessarily the best business action,” he said. “The right way to go about this is to have different options. You have to go into this with your open and by being thoughtful. You don’t want to be caught flat-footed.”

Scenario planning, Hersh said, needs to be a core strength of any business—and has become even more important given the recent upheavals that have come because of COVID, the Ukraine war or technologies such as artificial intelligence. Such planning, he added, shouldn’t only be part of an annual exercise or budgeting but be something leaders revisit or least quarterly to validate and recalibrate if necessary.

“Even if what comes to pass isn’t that scenario you planned for, you’re still prepared for other things that come up. Getting out in front of this is a very healthy thing.”

Small and middle-market firms naturally find it harder to commit to exercises such as this but consultants and trade groups are key to building relationships and an organization’s knowledge base on regulatory topics. And many manufacturers, Morgan points out, are by nature more tactical than strategic, more focused on the processes of getting goods out the door than on planning for various scenarios.

An additional possible resource for manufacturers? Insurance brokers with clients in a variety of manufacturing subsectors or in different parts of the country. In some cases, insurance carriers are shaping the market by raising the prices of some coverages or altogether refusing to cover certain risks. One case in point: Parts liability coverage in some West Coast regions that have been hit of late by wildfires traced back to utility equipment failures.

Focus – and deprioritize some things

Regardless of the abundance of resources, it’s difficult for most organizations to effectively track the many regulatory and legislative movements afoot. Small companies, Morgan said, “are swimming upstream” when it comes to this, which make it more important to do two things well from a strategic view: Build a culture that continually supports a company’s values and choose what to worry about.

“It’s about prioritization of risks,” Morgan said. “There are government regulations and industry regulations but maybe you choose not to spend as much time on water rules, for instance [...] A lot of leaders have 10 No. 1 objectives because they refuse to say they have one No. 1 objective.”

That idea ties back to Cohen’s comment about time horizons not being in sync or the broader view being unclear amid a flurry of individual rule changes. Human nature, he said, means we often will change only when we’re truly forced to change. But, Morgan added, leaders still have to make some clear choices and set the course. Oftentimes, it’s best to narrow down your scope of action and do a few things very well.

Lean on recent learnings

Time for a dose of perspective: If the regulatory morass feels overwhelming with its incremental tweaks, consider the anything-but-incremental shock we endured three years ago with the arrival of COVID-19.

“A lot of manufacturers learned they can make big changes quickly,” Morgan said. “They branched into new industries or completely reconfigured floor layouts. They realized they can make big changes—and the vast majority did really well.”

The management challenge in 2023 and beyond is adapting the acuity that came with responding to a global pandemic to the more chronic pace of thriving in an environment of evolving regulations. Within a productive company culture, muscle memories from COVID (as well as the ensuing energy and supply-chain crises) can be repurposed even without the urgency of early 2020 to develop and launch new products.

Manage and initiate change via your suppliers

COVID and its knock-on effects led many manufacturers to take a fine-toothed comb through their supply chains. Hersh said those efforts can be expanded to include dealing with regulatory topics related to materials such as PFAS, limiting emissions or new labor laws.

“We believe it’s important that industry leaders continue to evaluate and learn their supply chains, particularly when it comes to imports,” American Chemistry Council officials said in an emailed statement about how some widely-used fluoropolymers meet safety standards.

Due diligence is more important than ever and Hersh said a dialog is there to be had if the relationship with your supplier is good. But that conversation gets trickier if you’re one of many companies buying from a supplier.

Broadly speaking, Hersh said, deftly dealing with changing regulatory regimes and their repercussions calls for the same qualities as handling disruptive technologies.

“It depends a lot on your culture. Are new ideas valued and embraced?” he said. “You need structure, yes, but also creativity.”

And perhaps a good abacus to count the number of pieces of PFAS legislation coming out of state legislatures.