David P. McCaffrey

Corporate Resources and Regulatory Pressures: Toward Explaining a Discrepancy

The suggestions of Stephen Wasby, David Andersen, Richard Hall, Gwen Moore, Robert Quinn, John Rohrbaugh, andASQ reviewers are gratefully acknowledged. This paper presents a preliminary framework for understanding why politically and legally strong corporations face significant regulatory pressures. Three general factors are addressed. First, divisions within and between industries bring about unlikely proregulation coalitions. Second, the responses of agencies to pressures do not reflect the balance of resources among interested organizations because (1) the marginal values of technical lobbying decline significantly after a point because of agency standardization of responses, and (2) regulatory organizations do not react in neutral ways to competing claims because of their cultures and stability. Third, proregulation litigation, the diverse dispositions of federal courts, and rules of judicial review interact to considerably offset better endowed corporate litigation. Studies are suggested on the variance of units within sectors and on the development of dialectical and decision-making perspectives on regulation.*

Drift and Adjustment in Organizational Rule Compliance: Explaining the Regulatory Pendulum in Financial Markets

This article integrates research on rule development, compliance, and organizational change to model rule development and compliance in organizations, using causal-loop modeling from system dynamics to articulate explicitly a few key underlying processes. We focus on financial markets as a case area, suggesting that recurring regulatory problems in financial markets in the United States over the past 60 years, although differing in specifics, are structurally similar. At the heart of the model is the tension between production goals that focus on short-term, certain, salient benefits and required adherence to production-constraining rules that attempt to mitigate long-term, uncertain, nonsalient risks. It describes systemically how organizations attend to rules depending on the nature of the benefits of production compared with those of rule compliance. The model captures the operative mechanisms responsible for the development of pressures for production and for rule compliance in organizations, providing a structural explanation both for problem-prone organizations characterized by erosion of standards and increased violations and for organizations following rules more reliably. Drawing on studies of institutional work, we conclude by suggesting research on how agency, through strategic and tactical choice, potentially modifies structure in rule compliance.

Shared Regulation in the United States Securities Industry

The processes determining regulatory impacts are increasingly centered within firms and industries themselves, and in the working relationships among private and public actors. This article examines two aspects of this issue: (a) the effects of economic interdependence on the social control of industry and (b) the emergence and behavior of regulatory professions within the private sector and their collaboration with public regulatory counterparts. We consider how these forces have influenced private regulation in the United States securities industry.

The Early Politics of Shoreham

The first local reaction to LILCO’s proposal to build Shoreham was favorable. But a movement against nuclear power on Long Island shortly emerged, first forming outside of the Shoreham area. Partly by design and partly through chance, the anti-Shoreham movement delayed the project at critical early points, with lasting consequences.

The Politics of Settling Shoreham

The Reactions to the Settlement Under the settlement Shoreham would close. By early 1989 seventy percent of the people on Long Island favored this, and 20–25 percent opposed abandoning the plant. Electricity rates would increase about sixty percent over ten years. While some of the increase would occur in any event due to inflation, paying for Shoreham—whether the plant operated or not-was the major factor underlying the rate increases facing Long Island. Governor Cuomo argued that a large rate increase was inevitable, and the settlement allowed the lowest possible increase. But the settlement was rejected both by those who felt that LILCO was “getting off” too easily-the symbol of a “sixty percent rate increase” was powerful~and by those who objected to scrapping a functional 804 MW power plant.

Shoreham’s Construction

The Atomic Energy Commission gave LILCO a construction permit for Shoreham in April, 1973. Over ten years later Shoreham was the most expensive nuclear plant in the nation on the basis of cost per kilowatt (See Table 9, in Chapter 2). A review of the Shoreham project by the New York State Public Service Commission (PSC) concluded in 1985 that about one- third of the plant’s costs were incurred imprudently, indicating the scope and magnitude of Shoreham’s construction, engineering, and managerial problems. In the 1970s other nuclear projects ran far over budget, and planning and control failures were widespread in the industry (United States Office of Technology Assessment, 1984; Cook, 1985; Leigland and Lamb, 1986; Tomaine, 1987; Campbell, 1988; Morone and Woodhouse, 1989). Thus, while the Shoreham project evolved into a distinctively large failure, many of its fundamental problems were common in the industry.

The Emergency Planning Controversy

Since 1970 the Atomic Energy Commission (AEC), later the Nuclear Regulatory Commission, has recognized a need for procedures to protect the public in case of accidents at a nuclear plant. Prior to the Three Mile Island accident in March of 1979 emergency planning was not a major priority because the AEC/NRC considered the probability of a major accident to be so low and back-up safety systems to be so reliable. Applicants for an operating license had to indicate how they would respond to an emergency, but did not need to specify the steps to be taken to implement the plans. Also, the AEC/NRC evaluated emergency plans not when it reviewed the construction permit, but when it issued an operating license. This meant that an emergency planning problem might surface only after a multi-billion dollar facility was built (Urban Law Review, 1980).

Takeover, Settlement, or Shoreham?

One way for New York State and Suffolk County to attempt to block Shoreham was to refuse to participate in emergency planning. Another was to take over LILCO, one way or another, and then abandon the plant; or threaten a takeover to force the company to abandon it. Such maneuvering dominated the Shoreham controversy in 1988.

Shoreham’s Beginnings

About forty years ago the Federal government undertook a long-term effort to develop nuclear power, and eventually to draw private industry into the field. By the 1960s it appeared that nuclear power was likely to be the power source of the near future. Orders for new plants dramatically increased by 1968; Shoreham was one of these.

OSHA’S Chemical Regulations, 1970–1976

The adverse effects of asbestos were well documented long before the Occupational Safety and Health Act. By 1918, U.S. and Canadian insurance companies had stopped selling life insurance policies to asbestos workers. In the early 1920’s, a new disease involving progressive scarring of the lungs leading to respiratory disability and heart failure was noted, and it was called asbestosis. By the 1930’s, there were suspicions that asbestos was a carcinogen; this was confirmed by British and American studies in the 1950’s and 1960’s.