Risk&RegulationMagazine of the ESRC Centre for Analysis of Risk and Regulation No 7 Summer 2004

Risk management in the 21st century

Testing times: experiments and regulation

Consumer health and food regulation

Watching the watchers: new anti-terrorist legislation

Corporate social responsibility

Risk&Regulation: CARR ReviewNo 7 Summer 2004

Editor: Joan O’ MahonyAssistant Editor: Sabrina Antâo

Enquiries should be addressed to: Centre ManagerESRC Centre for Analysis of Risk and Regulation

The London School of Economics and Political Science Houghton Street, London WC2A 2AE

United Kingdom

Tel: +44 (0)20 7955 6577 Fax: +44 (0)20 7955 6578Website: www.lse.ac.uk/Depts/carr/

Email: risk@lse.ac.uk

Published by theESRC Centre for Analysis of Risk and Regulation

The London School of Economics and Political ScienceHoughton Street, London WC2A 2AE

Copyright in editorial matter and this collection as a whole:London School of Economics © 2004

Copyright in individual article:p4 Michael W Oborne © 2004

p12 Kieran Poynter © 2004Michael W Oborne and Kieran Poynter have asserted

their moral rights.

All rights reserved. No part of this publication may bereproduced, stored in a retrieval system, or transmitted, inany form or by any means, without the prior permission in

writing of the publisher, nor be issued to the public orcirculated in any form of binding or cover other than that

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Design and Art Direction: LSE Design UnitPhotography (unless stated): LSE Photography

Printed by: BSC Print LtdISSN 1473-6004

Online ISSN 1473-6012

Front cover photography: © Stockbyte 2004

3 Editorial: The View from DavosFollowing the World Economic Forum Annual Meeting this year, CARR Co-Directors, Bridget Hutter and Michael Power, report on thechallenges of new global risks.

4 Risk Management in the 21st CenturyA recent OECD report identifies new challenges for risk management. Guest Columnist Michael Oborne describes its findings.

5 CARR NewsAll the latest news, plus recent activities of CARR members.

6 Watching the WatchersTracy Cohen examines new questions of risk and regulation that are raised by recent anti-terrorist legislation.

7 Warning! This Regime May Contain GapsIncreasing concerns about food allergens highlight the difficulties the Food Standards Agency faces in protecting consumer health, argues Henry Rothstein.

8 Testing TimesWhat is the purpose of regulatory experiments? Javier Lezaun and Yuval Millo look at two very different areas of experimentation: GMOs and options markets.

10 The Stakeholder Route to Corporate Social Responsibility Joan O’ Mahony considers the long- and short-term causes of corporate stakeholding.

11 Meet the RegulatorOfcom, the new regulator for the UK communications industry talks to CARR.

12 Risk and Value Management Managing risk and creating value need not be at odds. Guest columnistKieran Poynter, Chairman of PricewaterhouseCoopers, shows how thetwo can be productively integrated.

14 CARR Conferences CARR sponsors risk and regulation conferences throughout the UK.

16 CARR SeminarsReports from CARR’s regular seminar series.

17 CARR BooksAn extensive range of risk and regulation books by CARR members.

18 CARR in PrintNew publications by CARR members.

19 CARR PeopleCARR staff and their expertise.

www.lse.ac.uk/Depts/carr/

Contents

An important aspect of CARR’s work is to engage usersof risk and regulation research by disseminating ourresearch findings and by engaging in discussions anddebates with leading practitioners from government,

business, and civil society. This magazine reaches out to a wideand diverse audience, prompting many enquiries and discussions;our workshops and seminars attract users of our research; andCARR increasingly engages in consultative forums with specialistpractitioner groups around particular policy initiatives. The extentto which CARR’s intellectual agenda is central to key corporateand political debates was also emphasised when risk andregulation issues took centre stage at the World Economic ForumAnnual Meeting in Davos this year.

Managing New Risks was one of the main themes discussedby the 2,100 participants in this international meeting of worldleaders. The broad-ranging programme focused on two mainareas. The first was the issues that businesses face in identifyingnew risks, in risk assessment, and in risk perception. The secondconcerned more general global risks, such as climate change,terrorism, pandemics, and demographic changes. CARR’s Co-Directors were involved in the design of the first of these themesprior to the event, and Bridget Hutter attended the meeting. Sheparticipated in a number of public and private discussions,ranging from broad debates about setting the agenda for riskthrough to more detailed talks about the dangers of risk aversionand litigation risks.

Discussion of the main contemporary risks that businessesface centred on political and economic uncertainty and the needfor stable national and global business environments. Fearsarising from major risk events were also of major concern. Therewas a suspicion amongst some participants in Davos that thereare serious dangers of overreaction, in part brought about by theease with which news can be transmitted and magnified aroundthe world. Public anxiety about risks are a particular concern insome sectors, notably in the life sciences area where thenecessity for businesses to appreciate different perceptions andfears has been learned in what one participant referred to as the‘School of Hard Knocks’.

Risk aversion emerged as a major concern with someparticipants in the Annual Meeting regarding it as the main riskfacing businesses in 2004. The argument was that unduepessimism could lead firms to manage risk too tightly, therebyadversely affecting their business activities. In addition businessmay be forced to take a risk-averse role by others. The role ofregulation and governments emerged as a key concern amongstthe business audience, the contention being that governmentsforce business to be too risk averse. The costs of governmentregulation were, perhaps unsurprisingly, attacked as too high, butthere was also agreement that some regulation is necessary, anda willingness to recognise that business has, at any point inhistory, always been heard to complain about ‘too muchregulation’. This would doubtless be an interesting topic forfuture discussion.

Litigation costs were identified as the other major risk forbusinesses in 2004. This was especially the case amongst thebusiness audience from the United States, where class actionscan result in multi-million dollar lawsuits. Participants spoke of ‘awealth transfer system created by the judiciary’ and lawyers whomade their living out of encouraging ‘forum shopping’ betweenstates with differentially sympathetic courts. Once again the realissue here is one of balance. Clearly individuals and groups needthe space to challenge corporate wrongdoing. The difficulty iscaused, as with all law, by the more capricious cases andespecially by those who opportunistically exploit the legalsystem. A balance needs to be struck between the just rights ofindividuals, groups, and companies; and systems must bedevised which maintain this balance. This is, of course, as truefor countries subject to corporate regulatory shopping as it is forcompanies subject to individual forum shopping.

A principal ambition of the Annual Meeting was to explorewhat could be constructively done to manage risks. Here anumber of common themes emerged, notably the need forcooperation. Intergovernmental cooperation was advocated forlarge-scale global problems, especial ly those requir ingstewardship for future generations. But the general consensuswas that this alone is insufficient; we cannot be solely reliant ongovernments. Rather, the management of risk demands a moregeneral cooperation between governments, civi l societyorganisations, and business.

Bridget Hutter and Michael PowerCARR Co-Directors

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CARREDITORIAL

The view from Davos

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Risk has been a significant concernsince the dawn of recordedhistory. Not only are there morerisk situations today, but modern

technological developments have brought aheightened awareness of risk: both of thoserisks that we knew about in the past, and ofthe emerging, new risks that are associatedwith the march of progress.

A key element in this heightenedawareness is the fact that we now know agreat deal more about the physical worldthan we did in the 19th and much of the20th century; in addition, the mechanisationof much of daily life has brought humanbeings into contact with new risks. At thesame time, technology has provided uswith the tools to measure and to managerisk, and at times to avoid it altogether. Theinsights of behavioural psychology andeconomics have helped us to understandhow risk is perceived and managed ineveryday life. Yet the increasing complexityof modern life is going to require new and different ways to manage risk and toshare its burden among citizens,collectivities, and governments.

The OECD’s International FuturesProgramme (IFP) has recently produced areport which explores the implications of anumber of deep-rooted changes for themanagement of risk in the 21st century

One such force is demography. In onescenario, by 2050 the world population isset to increase to at least 9 billion fromtoday’s figure of 6 billion: virtually all of theadditional 3 billion people will live in urbanareas. As a consequence, a much largerfraction of the world population will beseriously exposed to well-known hazardssuch as natural disasters. Many megacitieswill, for example, be located in earthquakefault-zones, yet will be lacking adequateurban planning and construction norms.

Changes in the environment are asecond driving force: the sheer speed ofthose changes may put our level ofscientific knowledge to a severe test indealing with the risks associated withphenomena such as climate change, waterscarcity, and reduction in biodiversity.

Then there is technology. Will factors suchas the connectedness brought about bycommunications networks ultimately provemore useful to terrorists, or to those fightingterrorism? What systemic vulnerabilities willemerge from this dependence on networks?

Finally, many questions arise that arelinked to changing socioeconomic forces.Does greater economic concentration meanincreased vulnerability? If government’s roleis shrinking, who is really in charge in anemergency? If the public’s perception of riskis increasingly formed not by expertknowledge, but by media that seek toentertain, could a lack of awareness lead toover-reaction and misguided behaviour in theface of risk?

Building on case studies in five large riskclusters – natural disasters, technology-related risks, infectious diseases, foodsafety, and terrorism – the IFP’s report onemerging risks focuses in particular on thepossibility of major systems becoming morevulnerable in the future. Health services,transport, energy, food and water supplies,information and telecommunications, andsafety and security are all examples ofsectors with vital systems that can beseverely damaged by a single catastrophicevent or chain of events. The reportidentifies the challenges facing OECDcountries, especially at international level, inassessing, preparing for, and responding toconventional and newly emerging hazards.It sets out five broad areas of action to

address those challenges:

• Re-examine the policy approach to riskmanagement, with a particular view toimproving policy consistency across riskareas, and to making a more coherent useof risk policy tool-kits.

• Develop synergies between the publicand private sectors by getting the incentivesright, by clarifying the legal frameworks, andby enhancing the role of the private sectorin risk management.

• Inform and involve stakeholders and thegeneral public: enhance dialogue, buildtrust, and develop a safety culture.

• Strengthen international cooperation,notably by improving the sharing ofknowledge and technologies acrosscountries, and by enhancing internationalsystems of surveillance and monitoring.

• Make better use of technologicalpotential and enhance research efforts todevelop, for example, tools that reducethe vulnerability of systems and increasetheir resilience.

The report proposes a number of detailedrecommendations for governments and theprivate sector as to how risk managementmight be improved by acting in these five directions.

The report is available at:www1.oecd.org/sge/au/index.htm

MichaelObornehas been at theOrganisation forEconomic Co-operation andDevelopment (OECD)since 1980. He ispresently Director of MultidisciplinaryIssues and Director of the InternationalFutures Programme.He is also responsiblefor the GlobalScience Forum.Currently, theInternational FuturesProgramme isworking on projectsfocused on thecommercialisation of space, the newsecurity economy,monitoring andmanaging newsystemic risks and the emergingbio-economy.

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CARR at World Economic ForumThe CARR Directors advised the organisers of the World Economic Forum’s AnnualMeeting in Davos in January on this year’s programme. Bridget Hutter, Co-Director of CARR, spoke at several sessions of the Annual Meeting which this year attracted an audience of over 2,100 participants from 94 countries, including 30 heads of stateor government and 75 cabinet ministers.

Award for Economics ProfessorOur congratulations go to Tim Besley who has been awarded the Duncan Black Prize(jointly with Stephen Coate of Yale University) for his paper On the Public Choice Critiqueof Welfare Economics. The paper was published in the journal Public Choice in 2003.

Tackling Research Ethics CARR held an in-house session on research ethicsin February. Professor Henrietta Moore, LSEDeputy Director, spoke about research ethics fromLSE’s point of view, and Dr Patricia Spallone,Associate Director, BIOS Centre, discussed thebroader issues of research ethics, drawing on herexperiences at The Wellcome Trust.

Staff NewsCARR welcomes Tracy Cohen who joins us as BP Postdoctoral Fellow. Tracy’scurrent research examines the attempt by African governments to regulate, and insome cases prohibit, the adoption of Voice over Internet Protocol (VoIP).

We say farewell to Michael Huber who completes his three-year tenure at CARR as Aon Senior Research Fellow in Risk Management.

Consultations and DebatesCARR regularly communicates its research findings to practitioners and participates in discussions and debates across the UK.

Tim Besley was invited to be a panel discussant at the launch of the Treasury’s newpublication: Microeconomic Reform in Britain: Delivering Opportunities for All. Theevent, at 11 Downing Street, was introduced by the Rt. Hon. Gordon Brown MP,Chancellor of the Exchequer, and was attended by an audience of over 70 academics,politicians, and senior civil servants.

An article by Christopher Hood about the Gershon review of the civil serviceappears in The Guardian’s new monthly magazine, Public. The magazine addressescurrent challenges to public sector management, and is intended to appeal to seniormanagers working in health, local government, Whitehall, and the universities.

Bridget Hutter, Martin Lodge, and Mark Thatcher met with Trevor Bull from theBangkok Ministry of Finance’s State Enterprise Policy Office to discuss training needsfor regulators, especially those in the regulated utilities.

Bridget Hutter and Mike Power explored the challenges facing insurers, includingemerging issues involving re-insurance receivables, with the Donald McDonaldPartnership, a new firm of consultants to the insurance industry. The CARR Directorsalso met with David Schofield, Senior Capital Governance Advisor, from BP to discussissues in implementing a new internal controls framework.

Joan O’ Mahony presented a paper at a one-day event on violence and civilsocieties. The event brought together social scientists from Germany, France, and theUK, and was hosted by the Maison Française D’Oxford in association with the FrenchNational Scientific Centre. Papers shortly available at www.mfo.ac.uk

In February, Mike Power presented a seminar on the theme of trust in the ‘audit society’at the second of three Nationwide/Demos seminars on trust. James Strachan from theAudit Commission was the respondent at this event held at Nationwide’s London offices.

CARRNEWS

Have you moved or changed jobs recently? Please keep us informed of any changes in your contact detailsso you can continue receiving Risk&Regulation. Email: risk@lse.ac.uk or Tel: +44 (0)20 7955 6577

International EventsCARR members continue to be active in disseminating theirresearch findings across the globe.

Julia Black contributed a paper on the democratisation offragmented, state and non-state regulatory structures to aconference on Economic and Social Regulation, Accountabilityand Democracy in Sao Paolo, Brazil.

Tracy Cohen presented two papers at an eventheld by the Centre for Innovation Law and Policyand Bell University Laboratories at the University of Toronto, Canada. The papers examined thetension between privacy and increased surveillance

requirements for telephone operators and international tradechallenges to Canada’s domestic regulatory framework fortelecommunications and broadcasting.

Javier Lezaun attended two meetings organised bythe European Commission to discuss the social andpolitical implications of science: Interfaces BetweenScience and Society (Milan, 2003) and ModernBiology and Visions of Humanity (Genoa, 2004).

CARR has also recently been privileged to welcome fourdistinguished international scholars: Dr Fiona Haines, DeputyHead of the Criminology Department at the University of Melbourne;Professor Steve Kelman, Weatherhead Professor of PublicManagement at Harvard University’s John F. Kennedy School ofGovernment; Professor Jerry Mashaw, Sterling Professor of Lawat Yale Law School; and Professor Gunnar Folke Schuppert,Chair for State and Administrative Science at the Social ScienceResearch Centre (Wissenschaftszentrum), Berlin.

Risk&Regulation 2004Research Student Conference16 – 17 September 2004CARR, LSE

A conference for doctoral students in the social sciences topresent and discuss work in progress.‘It gave me a great number of original ideas for my research.’‘The breadth of disciplines, approaches and perspectives was fantastic.’

For more information or to apply please see our websitewww.lse.ac.uk/Depts/carr or email regulation@lse.ac.uk

Deadline for applications: 25 June 2004

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Watching theWatchers

Tracy Cohen examines new questions of risk andregulation that are raised by recent anti-terrorist legislation.

Futuristic novels and Hollywood movieshave long prophesised a ‘surveillancesociety’ as the norm. In a world post-2001, the prophecy is closer to reality

than it ever was before.The promulgation of anti-terrorism legislation

world-wide is spawning innumerable related lawsthat are starting to have an impact on how travel,business, communication, shopping, and evencharitable donations are conducted. Such lawspredate the terrorist attacks on the World TradeCentre and those in Kenya and Morocco amongothers. Previously in most western democracies,public policy debates about the efficacy of suchlaws went hand-in-hand with debates about theirpossible dilution or protection of civil liberties andconstitutional rights. Recent events, however, nowraise broader questions related to themanagement of risk and regulation. What do thesenew systems of control look like? What newmodels of public-private regulation do theypropose? And what challenges do they present forthe regulatory state and civil society, both of whichmust negotiate the power preferences of multipleactors: local and foreign governments,international organisations, domestic activists, andultimately, political constituencies?

Regulatory initiatives to combat terror take manyforms, but some global patterns can be observedin the way that countries have responded to UNResolution 1368 calling on increased cooperationbetween countries to prevent and suppressterrorism. Governments are introducing widerinterception and monitoring powers, embodied for example in the USA Patriot Act or the lobby for a European arrest warrant. Due-processrequirements are being eroded as demonstrated inthe detention of suspected terrorists without trial forvarying periods in the US and UK. More recently,there have been proposals to further identity controlthrough national ID cards and biometric identity

procedures; the UK is one of the first countries toallow the use of face recognition technologies tomonitor ‘persons of interest’. New terrorist activitiesand crimes have been defined, including thefunding of terrorist organisations or giving materialsupport to these organisations. Recent Canadianand Australian legislation targets just such funding;New Zealand has fast-tracked law to provide forthe freezing of the financial assets of suspectedterrorist organisations, and the EU has ensured thepassage of the Money Laundering Directive. Franceand Germany have seen a growth in data-sharingbetween law enforcement and national securityagencies. Indeed, everywhere, data-sharingbetween domestic, regional, and internationalorganisations has increased.

Doubtless some form of global Hobbesiancompact is operating between citizen and state inan understandable desire to be safe from acts ofterror. Yet, constitutional concerns aside, there arenew questions emerging about the purpose andeffectiveness of terrorist risk reduction andmanagement. First, the question arises whetherpolicy models proposed by the most active statesare capable of universal application. Countries withscarce policing resources have adopted new anti-terrorism laws, often requiring institutions andregulatory enforcement well beyond their means.What some have called ‘policy laundering’ seesthese countries, compelled to adopt new securitymeasures, take examples from international ‘best-practice’ without the requisite institutions andresources to monitor or enforce such laws. Forexample, in 2002, the African Union passed ananti-terrorism convention that requires theimplementation of complex technological bordercontrols to minimise terrorist acts and providemutual legal assistance to other countries.

Second, is the risk management of terrorismtargeted at protecting national security or nationaleconomies and political credibility? National security

has long been used as a hackneyed justification formeasures that are essentially about protectionism.Telecoms provides a good example where securityarguments to resist foreign ownership of domestictelecommunications has already seen expression inthe rejected attempt by Deutsche Telekom toacquire US Voicestream Wireless in 2001 and asimilar rejection of Hutchison Whampoa’s proposedinvestment in Global Crossing in 2003. In thesurveillance society, this justification may wellbecome the norm.

Third, current favoured regulatory models posedifficult problems if national security is to betacked on. For example, in a mature andcompetitive market, co-regulation has certainadvantages because it reduces unnecessarystate regulation. However, in the surveillancecontext, this partnership converts manytelecommunication companies and internetservice providers into unwitting law-enforcementagencies. This raises concerns regarding bothpolitical accountability and consumer choice,leaving little option to select a service providerbased on their approach to individual privacy. Butthe case of telecoms also highlights the questionof how appropriate are the co-regulatory modelsbetween the state and the private sector for lawenforcement activit ies associated with thesurveillance of network communications.

Despite many questions, one clear issue thatemerges is that the public policy discourse in thisrealm must urgently include real risk impactassessments and new and brave debates onterrorist regulation, its role, and on the design andeffectiveness of the institutions required toimplement such regulation.

Tracy Cohen is BP Postdoctoral Fellow at CARR.

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Improving the way that governments manage risksto the public has been the subject of considerablecontemporary debate. Policy prescriptions havecommonly focused on such themes as

transparency, independence, and stakeholderconsultation. One test-bed for these ideas has beenfood safety regulation. Following the BSE debacle,the Food Standards Agency (FSA) was created in2000 to pioneer a new approach to risk regulation;pledging, amongst other things, to ‘put consumersfirst’. Recent polls suggest that the agency hasstarted to win public trust, but the FSA has found itmore difficult to actually improve food safety.

The problems posed by food allergens illustratethe difficulties confronting the FSA. Just over tenyears ago food allergy was a rare condition, buttoday, for still unexplained reasons, almost 2 percent of adults and between 5 and 8 per cent ofchildren are allergic to a range of foods. One in 70children has an allergy to peanuts alone. For asignificant minority of the population, therefore,everyday activities such as food shopping or eatingout can involve life-threatening decisions. Indeed,food allergens are responsible for at least tendeaths each year; over half of which are due tocommercial catering.

Perhaps unsurprisingly, the FSA has made foodallergens a priority. Amongst other things, theAgency is spending £1m a year on research,strengthening food labelling and raising awarenessamongst businesses, inspectors and consumers.These initiatives may be helpful, but they fall short ofwhat is needed to prevent further food allergydeaths. Allergic consumers need robust informationabout their food purchases in order to avoid foodsthat contain allergenic ingredients or contaminants.The current regulatory arrangements, however, failto meet the information needs of consumers withfood allergies.

Food allergy regulation is failing for at least threereasons. First, there are serious gaps in the law. TheFSA has helped the EU tighten rules on labelling theingredients of packaged food. Yet there are noequivalent rules for listing ingredients in catered and

loose foods, or indeed for allergenic contaminants ofany food; ‘may contain’ warnings, which are familiarto shoppers, are entirely voluntary and do little tohelp if they are inconsistently applied. Instead, thecaveat emptor, or ‘buyer beware’, legal frameworkputs the onus on consumers to question staff whenpurchasing loose or catered food. This absence ofhard rules on information provision regularly leads toconfusion and sometimes fatal incidents.

Second, there is wide variation in business andconsumer behaviour. Many major businesses arestreets ahead of the law in controlling food allergens,but smaller businesses face greater difficulties inmeeting consumer needs. There are almost400,000 small independent caterers, many ofwhom employ poorly trained, transient andsometimes non-English speaking staff. Kitchenculture works against accurate recipe following andcontaminant control, and long supply chains make ithard for caterers to know the composition offoodstuffs. One study found that a fifth of takeawaymeals that customers had requested to be peanutfree, actually contained peanut protein. Suchproblems are compounded if consumers do notmake their needs clearly known or take insufficientcare about what they consume.

Third, existing regulatory controls are poorlyenforced. Local government food safetyinspectors have little expertise, there is no officialguidance on managing allergen risks, and allergencontrol does not figure in local political priorities.On the rare occasions that inspectors analysefood samples, local authorities do not discloseresults for fear of causing public panic and toprotect commercial confidentiality. Enforcement isespecially difficult for catered foods. In theabsence of hard rules on information provision,inspectors are often unclear about compliancecriteria. Even prosecutions following fatal incidentscan be hampered by reliance on unwitnessed orcontested dialogue between businesses and,sometimes deceased, customers. Consequently,many inspectors interpret the law leniently.

Overcoming these problems needs more than

simple awareness-raising initiatives. The FSA,however, is faced with multiple challenges. Themulti-level governance dimension of the food safetyregime, for example, both limits the FSA’s power tochange EU rules and restricts its ability to changelocal authority behaviour. But these barriers can beoverestimated. Arguably, member states couldunilaterally introduce tougher controls given the risksto health presented by food allergens. No memberstates have yet gone down that route, whichsuggests that other factors are shaping policy.

First, scientific uncertainties about safetythresholds make it difficult to set legal standards fortrace contaminants, though not for ingredientswhich are the cause of most deaths. Second, thecatering lobby prefers voluntary to statutory controlsand, with an annual turnover of between £30-£50bn, their views carry considerable weight. Third,whatever the law says, it is difficult to changeentrenched business behaviour; getting staff just towash their hands is hard enough. Fourth, there areskill constraints and poor targeting of scarceresources across the regime, including the FSA.Fifth, although polls suggest that just under a third ofthe population wants tougher controls on foodallergens, regulation imposes an unequaldistribution of costs and benefits on allergic andnon-allergic consumers. Further controls thatspawned ubiquitous ‘may contain’ warnings, orcaused some foods to disappear from menus,might even result in a public opinion backlash.

Such problems, which are familiar in a range ofregulatory contexts, help explain the FSA’s preferredpolicy stance. But at the heart of the food allergensissue is an important clash in cultural perceptions ofrisk which the FSA is yet to resolve. Some, mainlycaterers, view food allergen risks as a consumerhealth problem and, therefore, the responsibility ofthe consumer, not the supplier. On that view, foodhygiene laws are inapplicable. Allergic consumers, incontrast, argue that allergens need to be treated asfood safety risks if they are to have robustinformation on ingredients and contaminants. TheEuropean Commission has already stated that itconsiders food hygiene law to be fully applicable toallergens. The FSA, nonetheless, prefers the viewthat it is ultimately for the courts to decide. Thatclash in the experience and perception of risk leavesambiguous the allocation of rights andresponsibilities for food allergens; an issue that vitallyneeds to be resolved if consumers are to beadequately protected.

Food allergens regulation holds wider lessons forrisk regulation reform. The case highlights the rangeof obstacles that stand in the way of improving bothpolicy and delivery; obstacles that go beyond simpleinstitutional reform. The difficulty in allocating rightsand responsibilities, however, also suggests thatgreater clarity is needed on what it means to putconsumers first.

Henry Rothstein is a CARR ESRC Research Fellow.

Increasing concerns about food allergens highlight thedifficulties the Food Standards Agency faces in protectingconsumer health, argues Henry Rothstein.

Regulators routinely conduct experiments.They run pilot programmes, create small-scale trials of future policies, and generallyput their initiatives to test, before

introducing them into the ‘real world.’ Theseregulatory experiments may take place prior to theannouncement of a new policy, in the initial phase of policy implementation, or during moratoria –instances when government procedures are haltedwhile a deeper investigation of their implications iscarried out. Regardless of the timing of suchexperiments, what is common to all is that thecourse of traditional regulatory practice is altered,for a limited period, to allow authorities to assessthe potential effects of their decisions under tightlymonitored conditions. In what follows, we arguethat regulatory experiments are an integral part ofcontemporary governance; they are increasinglyused to bring certainty and resolution to complexgovernance issues. And yet, experiments, by theirvery nature, present the regulator with unanticipateddilemmas of validity and legitimacy.

We can draw a few preliminary lessons from thestudy of experimentation in the natural sciences.There, the ability of experiments to produce newinformation rests critically on the creation andmaintenance of an ‘experimental gap’: materialsand actors are isolated from their naturalenvironment – their real world – so that they can bemanipulated and closely observed, underconditions that would otherwise be absent. Theseparation from the real world that givesexperiments their scientific value, however, alsorepresents a political liability. Any experiment is opento validity challenges: to claims that it fails toreplicate vital characteristics of the real world, and istherefore inapplicable. Experiments harbour thus aninherent tension: they need to be separated fromthe real world to produce valuable results, but theirrelevance depends on maintaining concreteconnections with that world.

How then is experimental evidence translatedinto specific regulatory action? How is theseparation between the experiment and the worldbridged through concrete decisions in the domain

of rule-making? Let us look more closely at thesedynamics with the help of two examples, one takenfrom the area of environmental regulation, the otherfrom the governance of financial markets.

First Case: the experimental release of Genetically Modified Organisms (GMOs)In 1999, the British government established anumber of experiments, known as the Farm ScaleEvaluations (FSEs), designed to measure the effectsof three herbicide-tolerant genetically modified (GM)crops (maize, oilseed rape, and beet) on farmlandwildlife. In what it was claimed amounted to ‘thelargest scientific experiment of its type in the world,’plots of GM and conventional crops were plantedside by side in hundreds of sites throughout Britain.The goal was to quantify the differential impact ofthe broad-spectrum herbicides used in combinationwith the new transgenic varieties. After four years ofresearch, the experiment showed that theherbicides used in conjunction with the GM cropshad detrimental effects on biodiversity in the case ofoilseed rape and beet. The planting of GM maizeappeared to be marginally beneficial.

As a purely technical exercise, the FSEs havebeen described as a rather expensive and time-consuming demonstrat ion of the abi l i ty ofherbicides to kill weeds. Yet, as a regulatoryexperiment, the FSEs have altered the contoursof the public debate on GMOs, shaping the spaceof decision-making in which the regulatoroperates. They represent the most recent phasein a progressive scaling up of the experimentalprocess to real-world dimensions, which beganwith the testing of GMOs in laboratories orgreenhouses and continued to their planting inincreasingly large fields.

Despite the growing approximation to a realisticscale, the experimental gap of the FSEs hasbecome an obligatory point of reference for bothcritics and defenders of biotechnology. When theFSEs were still underway, environmentalists arguedthat the experiments would fail to analyse many keyissues, such as gene flow and coexistence, and thatthe issues addressed would be framed

unrealistically, for example, by ignoring habitualpatterns of crop rotation. At the same time, theycomplained that the process would release largequantities of possibly harmful organisms into theenvironment. When the results of the FSEs werepublished, environmentalists maintained this generalcritique, but were able to use the evidence of theFSEs on oilseed rape and beet to support theirposition. As a Friends of the Earth campaigner putit, ‘these trials were never enough to give GM cropsthe green light, but they may provide enoughinformation to give them the red one’ (BBC NewsOnline). In contrast to this interpretation of the‘experimental gap’, advocates of biotechnologyclaimed that since the trials only measured theeffects of herbicides, and not of the geneticmodification of the crop, they could hardly proveany adverse effects of genetic engineering per se,and should therefore not be the basis of a regulatorydecision on biotechnology.

Thus the gap between the experiment and theworld became the space wherein the different sidesof the debate articulated their arguments. But howdid the experimental evidence affect the decision ofthe regulator? Certainly, the FSEs limited thenumber of potentially available options. A decisioncounter to or actively ignoring the evidence theyhad produced seemed unimaginable, particularly ifthe regulator chose to immediately authorise a cropshown to have a detrimental impact on biodiversity.Indeed, such an obvious contradiction of explicitexperimental results did not take place. Theenvironment secretary recently decided to allow thecommercialisation of GM maize only, and with anumber of restrictive conditions. Instead of justifyinga blanket approval or a general ban, the regulatorused the FSEs to disaggregate the category of‘Genetically Modified Organism’ into individualcrops, with disparate environmental impacts. In thiscontext, the authorised GM maize became aregulatory bridgehead – a limited breach of theexisting moratorium that may eventually lead to apermanent breakthrough in the regulatorystalemate. Rather than dispelling uncertainty andtracing a coherent long-term course of action, the

Testing timesWhat is the purpose of regulatory experiments? Javier Lezaun and Yuval Millo look at two very differentareas of experimentation: GMOs and options markets.

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FSEs have served to justify the next step in a stilluncertain regulatory terrain.

Second Case: the Options Pilot ProgrammeOur second example of regulatory experimentationcomes from financial regulation: the introduction oforganised stock options trading in the US, which atthe time, in the early 1970s, was a highlycontroversial decision. Stock options are leverageinstruments: by selling options for a relatively lowpremium, market participants may take uponthemselves disproportionately large futureobligations. The financial regulator, the US Securitiesand Exchange Commission (SEC), viewed optionsand their impact on the economy with suspicion. Itsmain concern was that the approval would unleashforces they would not be able to regulate. Thetrading of options and the aggregated effect ofobligation embedded in them might createpressures on the securities markets. In addition, theSEC feared that approving a standardised financialcontract might open the floodgates: options would‘mutate’ into a variety of assets and contracts,threatening the economic environment as a whole.The main proponents of options, on the other hand,the organised exchanges (which previously tradedsecurities or commodities futures), claimed that theaddition of options would help make the marketsless risky and more efficient, contributing to a more stable economy.

In an attempt to resolve this dispute a regulatoryexperiment was set up in 1973. This experimentconsisted of approving a pilot programme ofoptions trading. In contrast to the geneticallymodified crops experiment discussed earlier, therecould not be a separation between the ‘laboratory’and the ‘outside world’. While the FSEs involved anestimation of their effects on the environment byplanting a number of well-demarcated experimentalfields and comparing them with conventionalcounterparts, to appreciate the impact of optionson the economy these new financial contracts hadto be traded in actual markets. To assure thatoptions could be studied, and that accurateinformation about them could be collected while

keeping their impact under control, the pilotprogramme included significant restrictions. Themost important was that the SEC would have toapprove each and every change in marketprocedures before they were implemented. TheSEC would thus have authority to stop theoperation of options markets, completely orpartially, at any point.

The pilot programme was therefore a ‘life size’regulatory experiment in which the ‘laboratory’ andthe real world were one and the same. The crucialfactor that turned it into an experiment was theSEC’s ability to stop or alter any aspect of thetrading. This restriction, the SEC hoped, wouldcreate a regulatory separation between optionsmarkets and the rest of the American financialsystem, but the restriction did not go uncontested.The exchanges that traded options, which did notwant the development of the markets stifled by theduty to get approval for each change, challengedthe validity of the pilot programme. They arguedthat the restrictions of the pilot programme (itsexperimental gap, in our analysis) invalidated theexperiment’s results: knowing that their behaviourwould be scrutinised by the SEC, marketparticipants would alter their decisions. ‘Realistic’market behaviour would be substantially differentfrom that of markets under the pilot programme.

The SEC terminated the pilot programme whenthe regulator realised that options markets weregrowing too fast for information about them to becollected and analysed properly. Following thisdecision, in 1976 the SEC and the exchangesagreed to place a moratorium on the addition ofnew options contracts, thereby freezing the growthof these markets.

Does the termination imply that the regulatoryexperiment had failed? Not necessarily. Theexperimental status attached to options proved tohave a significant political value for the regulator.The exchanges were well aware that optionstrading was part of an experiment, and theiragreement to the moratorium can be attributed, atleast partially, to the experience of the pilotprogramme that preceded it. Without it, a decision

to impose a moratorium on options would likelyhave encountered much stronger resistance andwould have carried with it a high political price.Although the regulatory experiment did not producecertain knowledge, it did help create an agreementbetween the regulator and regulated on the needfor a temporal moratorium.

What do the two cases tell us aboutregulatory practice in contemporary society?The cases show that regulatory experiments rarelyproduce certainty. Not only does the evidencethey generate admit multiple interpretations, theexperimental gap itself becomes the subject of validity challenges. Sometimes, however,uncertainty is the most useful political outcome ofan experiment, for it legitimises the regulator’sdecision to halt the regulatory process, or to act ina highly precautionary manner.

Experiments are difficult to ignore – they aredesigned to draw attention to specific variablesand outcomes – and this framing function can bevery relevant for the purposes of regulatorydecision-making. As a result, experiments oftenredefine disagreements by directing the debate tothe evidence produced in the tests. Regulatorshope that experiments will form a commonlyaccepted point of reference, around which thepublic debate revolves.

In conclusion, experiments may not dispeluncertainty or produce the consensus necessary tochart a broad regulatory course, but they helpdefine and legitimise specific decisions at importantcrossroads. This capacity to bring partial resolutionto regulatory stalemates in times of intensecontroversy makes experiments a powerful politicaltool. Given their increasing centrality to strategies oftechno-scientific governance, they deserve closeranalytical scrutiny.

Javier Lezaun and Yuval Millo are ESRC ResearchOfficers at CARR.

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CARRRESEARCH

I 10 I Risk&Regulation I Summer 2004 I

In its earliest expression, UK corporate socialresponsibility (CSR) was predominantly aboutcharity. Victorian businessmen were oftenphilanthropists, giving generously to the poor and

providing health-care and educational opportunitiesfor their workers. Contemporary CSR practicecontinues to be charitable: companies donateheavily to good causes and allow staff paid leave towork voluntarily in local communities. Yet, despitethis apparent continuity, a major change hasoccurred. Individuals and organisations who areneither shareholder nor union member aredemanding a say in how business defines,executes, and reports on responsibilities that areover and beyond those prescribed by law. With therise of the idea of the ‘stakeholder’, companies arefinding themselves with decreasing control over thecivic practices with which they become engaged.

Why should such a change have taken place?There are three interrelated causes. First,modernisation and two world wars, for the UK inparticular, has seen the decline of paternalism, theblurring of class boundaries, and a correspondingbreakdown in deference to authority. As a result, ithas become more acceptable to question theactions of organisations and to be suspicious ofsecrecy. Second, increased social complexitymeans that such will ingness to question isaccompanied by a greater anxiety or uncertaintyabout the answers received. There is a growingsense that no single person or agency can have allthe answers, or all the solutions. There is then, agreater legitimacy in involving others in what waspreviously considered the domain of the expert.Finally, this growth in the willingness to questionwould have little impact if the beliefs and actions ofindividuals remained atomised. The third causal

factor in the rise of stakeholding is the huge increasein bodies, nationally and internationally, representingthe interests of individuals: consumer associations,charities, single-interest groups, and NGOs.

These broad changes are behind the demand fora new type of corporate responsibility: aresponsibility that not only accepts obligations, butwhich is also willing to enter into dialogue aboutthem. Such broad changes are unlikely to bereversible. Thus, in one form or another, the‘stakeholder’ and the demand for ‘stakeholding’ arehere to stay.

The problem however is that we simply do notreally know what stakeholding looks like, or what itshould look like. According to most CSR companyreports, stakeholding, in some sense, involvescommunication – with any group or individual likelyto have an impact on business operations. Theexpected outcomes of such communicativeinitiatives are relationships of trust and goodwill: thevery attitudes that produce cooperation amongworkers, that encourage innovation, and that securethe loyalty of customers and suppliers. These are therelationships that are necessary for companies to beable to take risks and to protect themselves fromrisk. Companies who can get it right, who can createpermanent banks of trust and goodwill are, it isargued, more likely to increase lasting market valueand to survive for longer.

But if communicative relationships, and their by-product trust, are key to success, there are fewguidelines on how to build them. The UK Businessin the Community (BiTC) has a ‘tool-kit’ for CSRbeginners, but nowhere does it explain howstakeholding dialogue should proceed. The one-way conversations typical of the CSR annual report,company websites, or even the annual meeting,

The Stakeholder Route to Corporate Social Responsibility

Joan O’ Mahony considers the long- and short-termcauses of corporate stakeholding.

CARRRESEARCH

often seem to be counter-productive for the buildingof trust. For example, a BiTC survey of financialjournalists reported that most of them found CSRreports unhelpful and confusing. The lesson is that itis not simply communication that counts, but thequality of communication. Yet, while much researchhas been carried out on CSR in general – how tomarket it and measure it – there is little known aboutthis most critical of areas: the intricacies of buildinglong-lasting and meaningful dialogues betweencompany and stakeholder.

The small amount of empirical research on suchdialogues reveal the following. First, the type ofcommunication most likely to foster trust is frequent,involves face-to-face interaction, and is two-way.Companies must be motivated to learn, not just toconvince. Such communicative efforts are morelikely to create the mutual awareness that isnecessary in order to trust. Company andstakeholder are more likely to understand oneanother, even if they do not agree.

Second, all stakeholders matter, but they matter indifferent ways. Building good relationships with onegroup while ignoring another will not work.Stakeholders often exist in synergistic networkswhere reputation matters, and a poor relationshipwith one group may destroy the goodwill of another.Additionally, the synergistic relationships shared by acompany and its multiple stakeholders are important,for they provide a check against the divide and rulestrategies that are frequently the resort of managersengaged in stakeholding relationships.

Third, trusting in distrust is also important.Regulators and watchdog organisations must keepsome distance from a company, and it is importantthat companies respect their professionalism. AnNGO that gets too close to a company can lose thesupport of its own membership, and consequently itstrust in a company becomes irrelevant.

Final ly, stakeholding requires signif icantresources. Companies who cannot invest in it maybe better served avoiding it, rather than riskingmore distrust from raising expectations that theycannot follow through on.

The stakeholding idea creates challenges forboth business and academics. Al l involvedrecognise that there are limits to stakeholding'sdemocratic potential. At some stage trade-offsappear between process and outcome, betweenfor example, dialogue and company profits. Foracademics, much work needs to be done to findout where stakeholding can work and howrelationships of trust can be built. For managers,the central challenge is how to negotiate thedelicate balance of risks and benefits associatedwith the building of trusting relationships. Thesenegotiations place the manager in a position similarto politicians who, as the sociologist Max Weberasserted, should meet the demands of bothdemocracy and efficiency with imagination andcourage, and with a recognition of values that arenot reducible to the functions of the free market.

Joan O’ Mahony is Leverhulme Special ResearchFellow at CARR.

MEETTHEREGULATOR

CARR: What are the two biggest obstacles Ofcomfaces in fulfilling its functions? ER: The level of innovation is high, so the biggest obstacle isthat we are constantly confronted by significant near-termchallenges. The second difficulty is a much more mundane one:once you work inside a regulator, you discover how difficult it isto actually withdraw from regulation. We’re trying to withdrawfrom direct regulation of broadcast advertising, and we’ve beencastigated by the consumer bodies for doing so. It’s also difficultwith politicians: we were given about 200 new duties in theCommunications Act compared to what the previous regulatorshad, and that was largely the result of the backbenches and theLords adding new duties into the bill as it went through.

CARR: Do you find the concept of ‘risk’ has anyrelevance in your work? ER: Yes, absolutely. We have to do cost of capital calculations,so risk is part of that in a very direct way. The other more generaleconomic dimension is that how we regulate has an importantimpact on companies and investors’ assessment of risk; we needto try to regulate in a way that reduces unnecessary regulatoryrisk. Another area where it comes into play is just organisationalrisk. We’re a new organisation, merging five organisations. Thereare all sorts of risks associated with that, and we have to managethose organisational risks in a very careful way.

CARR: Has Ofcom modelled itself upon, or emulated any other regulator?ER: We looked at the Financial Services Authority, particularly inrelation to their consumer panel, and we’ve come out with aconsumer panel that is pretty similar to theirs. Anothercomparison which we considered was the Bank of England. Wethought about the extent to which we should publish minutes inthe way they did, because there’s an issue of accountability, anissue of transparency. On reflection, we decided we couldn’t dothat because so much of what was going through the Boardwas commercially sensitive. So we publish a note of what we’vecovered in the meetings, whereas the Bank of Englandpublishes every word of the Monetary Policy Committee.

CARR: What do you think are the benefits or perils of the new structure? ER: At the very least we will end up with a much more efficientregulator. The real benefit is that you get policy coherencebetween the communications sectors, particularly betweenspectrum use, telecoms, and broadcasting. Over time therelationship between broadcasting and telecoms is increasing,and its very rare that you’ve got a public institution that is beingcreated with a view to the future which, as a result, is slightlyahead of the curve. And I think that is of enormous benefit insuch a heavily regulated area. The biggest peril is all thepressures of being new: when you’re trying to merge five differentorganisations into one, it’s a big management challenge.

CARR: Under what circumstances would you like tosee yourself cease to exist?ER: In the telecoms sector I definitely can envisage effectivecompetition being established and regulatory withdrawal takingplace. Broadcasting is more difficult, because you might have an

effective market for broadcasting and content, and that mayaddress many of our concerns as consumers, but I don’t thinkthat it will address all our concerns as citizens. And I suspectthere will still be a case for positive regulation in the sense ofactual intervention to secure certain interests through what we’vecalled public service broadcasting. It may not be on the samescale as it is today, but at the moment, I think the intellectualcase for it is something that will endure 20 years from now.

CARR: Were you taken aback by the reaction of themedia to the PSB review?ER: The one thing that surprised me about the overall mediareaction was the extent to which the media and the press mediawent hunting for anti-BBC stories. I knew they’d do that, but theintensity surprised me. What I underestimated was just howmuch, in a report of this breadth and scale and scope, manyparts of the press would just go through it trying to find pieces ofinformation or certain sentences that they could quote selectivelyin order to serve their particular interests. So we were taken outof context. It was alleged that the regulator attacked the BBCwhereas that is not a fair representation of what we did at all.

CARR: What happens to regulatory bodies undercircumstances where rules are being fundamentallyrewritten, when it’s not just about implementation? Forexample, some of the discussions about top-slicing?[distributing a license fee to other broadcasters with publicservice requirements]ER: Well, that’s not an issue for us, that’s an issue for the BBC.[But] if as a country we can’t debate issues like top-slicinglicence fees, or contestable funding, or the scale and scope ofpublic service broadcasting in general, if we can’t debate thosethings, the quality of our public debate is in a pretty parlous state.So, I am certainly against one thing: people being so defensiveand paranoid that they try to close a debate of this kind down.These things need to be put on the table. It doesn’t presupposean answer and, to take that one example, we will weigh up verycarefully the pros and cons of it in our second phase work.

CARR: The term ‘citizen-consumer’ [in Ofcom’smandate] clearly reflects different preferences. Howdo you assess the consumer interest? ER: If you can establish effective competition, you are broadlyspeaking going to be serving the consumers’ interest. I think thecitizens’ interest is much more difficult to assess. But in bothareas what we try to do is to research it where we can. What dothe public think about public service broadcasting? And whichelements of it do they most value? That is in a sense, trying tounearth what the citizens interest is.

CARR: What’s your top tip to aspiring regulators?ER: People think of regulators as sort of necessary but bad –but it’s an important public service. Good regulation is in thepublic interest, and that’s a good thing to do. The second thingis that the communications sectors are just really interesting, fastmoving, and fascinating. You couldn’t find a better place to learnabout them than in Ofcom,because we are in a position ofbeing able to take a real overview.

Ofcom is the new regulator for the UK communications industries. It recently published its Public Service Broadcasting Review (PSB). Here, Ed Richards, who led the review and is Senior Partner onOfcom’s Executive Board, talks to CARR.

I Summer 2004 I Risk&Regulation I 11 I

I 12 I Risk&Regulation I Summer 2004 I

KieranPoynter

Kieran Poynter hasbeen Chairman ofPricewaterhouseCoopers since theUK firm adoptedLLP status on 1 January 2003.He has previouslybeen SeniorPartner andManaging Partnerof the UK firm.

GUESTCOLUMN

Managing risk and ensuringsecurity are crit ical forcreating and sustainingshareholder value. Banks

need to set about creating shareholdervalue in a way that fully recognises both therisks and the opportunities that are presentin the markets in which they operate.

Most businesses arm themselvesagainst risk with insurance, crisismanagement, and business recovery plansto thwart or cushion the impact of potentialcatastrophes. However, taking thistraditional view of risk management leavesan organisation with a support functiondesigned to reduce losses. In the long runthis can lay the foundation for preparednessand security but it falls short on two counts.First, most risk management activities aredeveloped and implemented at businessunit level: they are very often not integratedinto the core processes of the business.Second, businesses are prevented fromharnessing the power of risks by matchingthem with opportunities, from convertingrisks into advantages that enhanceshareholder value.

Where does value come from?One way that value is created is throughinformed and inspired managementdecisions in all spheres of commercialactivity from strategy to operations; by

necessity, these involve takingrisks. Such management requiresthe continual reassessment of thefuture market and competitiveenvironment, the continual re-deployment of precious resources,

and the continual delivery ofsuperior cost-competitive products and

services to meet the changing needs of

customers. This is a little different fromwhat many would describe as the sourceof value, since we are often moreaccustomed to thinking about value interms of highly refined, and slightlyabstract, business metrics such asEconomic Profit (EP), Shareholder ValueAdded (SVA), or Risk Adjusted Return onCapital (RAROC). These are all valid indifferent ways, and share the basic featurethat the cost of capital must be coveredbefore value is created. The cost of capitalis determined by (i) the volume of capitaltied up in the business, and (ii) the rate atwhich that capital is charged. The rate atwhich capital is charged is partly a functionof the risks borne by the providers ofthat capital. Accordingly, if managerscan develop business plans andperformance targets which strike anoptimal balance between maximumreturns, minimum capital, and minimumrisk, they will maximise the value created.

But what if things don’t turn out quiteas planned? What if the competitivelandscape changes? What if opportunitiesare missed because management is toobusy executing a business plan that wasdevised nine months ago?

The reality is that we do not live in adeterministic world where it is alwayspossible to plan and calculate your way tovalue creation. Rather, the challenge is tocreate and sustain shareholder value in aworld of constant change, and ofconsiderable uncertainty. This might soundlike bad news. It will be for some, but forothers – those who can embrace andmake use of these phenomena – it is verygood news indeed.

The significance of change,uncertainty, and risk Why do companies and investors need tounderstand risk? For many, risk is includedin the model via a risk premium on the costof capital. Simplistically, we need to knowabout a company’s risk because it tells uswhat returns are required to compensatefor risk. However, we would suggest thatthe significance of risk extends beyond thecomputation and manipulation of aneconomic performance adjustment factor:risk is there to be managed.

SolvencyAt one level, this is manifested in the

question of solvency, andwhether there is sufficient

capital to bear extremelevels of loss. This is thepreoccupation of regulatorsand rating agencies, whoseprimary interest is toprotect the interests of

creditors, customers, and thewider financial system. However, thequestion of solvency links to shareholdervalue through the determination ofminimum capital levels (thereby limiting thescope for financial leverage) and creditratings (thereby ‘charging’ equity holdersfor the risks borne by debt holders,customers and others).

Variability in returnsAt another level, variability in returns needsto be interpreted by managers andinvestors to determine whether theirstrategies are working, and whetherexpectations for future cashflows shouldbe revised. If there is no sense of whatconstitutes a reasonable range ofexpectations, then there can be no context

Risk and Value Management

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within which to assess the significance ofperformance variations. Thus, managingthe business to reduce earnings variabilityand managing internal and externalexpectations with respect to earningsvariability have clear links to value.

Impacting the numeratorBut there is a still more compelling aspectto this. An understanding of risk can helpidentify where opportunities exist toinfluence future expected outcomesthrough risk management. Traditionalvalue-based management methodsfocus on pulling ‘value levers’ in adeterministic sense; linking risk andvalue management extends thisconcept to include factors overwhich management may not haveabsolute control, but over which they maybe able to exert some degree of influence.

Consider the effect of a businesscontinuity plan. The value proposition hereis that plans are developed in advancewhich have the effect of mitigating thepotential negative cashflow and earningsimpact of some sort of calamity. Byreducing the l ikelihood of loss, the‘expected’ outcome is enhanced.Assuming the costs of developing the planare more than covered by this shift, theenterprise has a higher expected value asa result. This is an instantaneous outcome,and is independent of any presumptionthat calamity subsequently strikes.

On the upside, supposing there isuncertainty about whether a particularretail banking product will gain marketacceptance. Should management simplyaccept that uncertainty and hope for thebest? Or should they take measures toenhance the likelihood of its acceptance,for example by researching customerpreferences and tailoring the product, orthe marketing message, to appeal directlyto those preferences? If this results in ahigher expected probability of success,and the resulting shift in the distributioncurve more than covers the costs of theprogramme, then intrinsic value isnecessarily and instantaneously boosted.

A comprehensive risk and value frameworkIn promoting comprehensive integratedrisk and value management, I wouldadvocate the closer integration of riskand value management disciplines andprocesses. This involves developing aclearer understanding of the dynamics ofr isk and value in the business, andcreating processes and structures toimprove business management with thebenefit of that understanding.

For example, in relation to the three

key dimensions of investment andmanagement, financial risk engineering,and communication, the integrated riskand value management framework canhelp answer the following questions in thetable below (figure 1).

What is the starting point for integratedrisk and value management? Oneapproach is to build considerations ofchange and uncertainty into existing

management processes and metrics.Take the business planning

process for example.The business plan

formalises corporate strategyfor a particular time-frame;

there are three importantprinciples to be followed.

Plan for riskBusiness plans should be formulated inprobabilistic rather than deterministicterms. Management and the Board shouldbe comfortable not just with the expectedoutcome from following strategy, but alsowith potential outcomes which fall short ofexpectations to a defined level ofconfidence. This process can also alertmanagement to the existence of furthervalue creation opportunities: if risksinvolved in scenarios can be anticipatedand either eliminated or mitigated at theplanning stage, there will be an immediatebeneficial shift in intrinsic value.

Promote risk ‘ownership’ andaccountability at all levelsThe process of anticipatingand defining the distribution offuture business outcomesshould cascade up and downthrough the business. This isanalogous to the regularbudgeting process wherebybusiness units and corporatefunctions are tasked with submitting

their draft budgets for consolidation andchallenge at the corporate level. This formsthe basis for the creation of a consolidatedcorporate plan which integrates risk fundinginto the value creation of the business.

Be flexible to changing circumstancesThe business plan should not lockmanagement into following a particularcourse of action for the duration of theplanning period. Just as annual businessplans are formulated in the context of a longer term strategic plan, so themanagement system should promote thecontinuous reformulation of strategy ascircumstances dictate. In practice, thisprocess may take the form of periodicrestatements of the plan, with an emphasison defining expectations and variations, andlinking this into a revised managementagenda at multiple levels in the organisation.

The definition of future businessscenarios should combine bothquantitative data analysis and qualitativeexpert judgement on the part of managers.These various inputs are iterativelyconsolidated and reconciled to the pointwhere a comprehensive picture of riskand value emerges f rom bo th top-down and bottom-up perspectives. Withsuccessive iterations of this process,management will be able to create this

picture without much moreaddit ional effort than is

anyway required for regularbudgeting purposes.

Furthermore, the risk andvalue models which aredeveloped as part of thiscan be used to supporthigh level revisions of thebusiness plan andchanges in strategy as

key assumptions varyand major uncertainties are resolved.

I Summer 2004 I Risk&Regulation I 13 I

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Investment and Managementinfluencing business outcomes

• How should I incorporate risk into mystrategic planning process?

• Are my investment plans robust tochanges in my business environment?

• How should I select betweenalternative risky projects?

• How should I allocate capital betweendiverse business units in a way thatmaximises value for the group?

• Does my performance measurementand incentivisation system stimulate theright behaviour?

• Can I create excess returns throughportfolio management?

Financial Risk Engineeringtaking risk to market

• How can I reduce my cost of capital?

• Do I have sufficient capital in mybusiness (or too much)?

• What is the ‘value’ of reducing risk inmy business?

• What is the optimal capital structureand dividend policy to support mygrowth plans?

• How should I structure my insuranceprogrammes? Should I self insure?

• Should I be targeting a particular credit rating?

• How should I structure the financing ofmajor projects?

Communicationinforming market perceptions and expectations

• Why doesn’t my share price reflect theintrinsic value of my business?

• How should I ‘read’ market signals inrelation to share price, debt margins andinvestor/analyst feedback?

• How can I better manage marketexpectations in relation to risk and value outcomes?

• How do I obtain a common languagefor discussing risk and value issues within my business?

• What levels of disclosure areappropriate? How can I gain from greaterdisclosure, and how might I lose?

Figure 1: Integrated Risk and Value Management

CARR sponsors risk and regulation conferences at LSEand at universities throughout the UK.

CARRCONFERENCES

Soft Risks, Hard Lessons: usingcorporate governance to managelegal, ethical and reputationaluncertaintiesUniversity of Cambridge, January 2004A joint workshop organised by the Centre forBusiness Research, the Forum for Philosophy inBusiness and CARR.This one-day event on corporate governance andrelated ethical issues featured keynote addressesby Onora O’Neill, Principal of Newnham College,Cambridge and 2002 Reith Lecturer, and CharlesFombrun, formerly professor of management atthe Stern School, New York and currentlyexecutive director of the Reputation Institute.

Professor O’Neill gave a talk entitled ‘IntelligentTrust and Intelligent Accountability’. She arguedthat the extensive use of managerial methods foraccountability purposes has damaged anddistracted professional cultures, and thatdefensiveness has come to dominate at theexpense of informed judgement. Managerialconceptions of accountability have also deflectedattention from the need to define the primary,substantive obligations of agents to right bearingprincipals. Defining accountability primarily as‘answerability’, O’Neill suggested a form of more

intelligent accountability grounded primarily indialogue with right holders.

In his talk on corporate reputation and risk,Professor Fombrun argued that it is not only oursociety that is obsessed with celebrity: ‘the starsystem has also happened to our companies.’ The era of deregulation and liberalisation ofmarkets fostered enormous forces of competitionbetween companies and products, andcompetition for money, talent, knowledge andattention. While this has generated significantwealth creation and business growth, the morenegative consequence has been a ‘winner takesall’ mentality in both society and business, in whichall the attention is focused on a few individuals. Asa result a few companies are making hugeincomes while many others are barely surviving.

This was the reason for the series of businessscandals over the last two years that have engulfedcorporates such as Enron, Tyco, Adelphia andWorldCom. Fombrun went on to consider howreputation could be used to regulate corporatemisbehaviour. Companies’ reputations, he said,were valued far more by the markets than byaccountants; therefore companies put a lot ofemphasis on branding and marketing themselves inorder to gain the support of investors.

Amongst the part icipants were AdrianCadbury, father of the modern corporategovernance movement, and representatives fromthe Foundation for Independent Directors,Reuters, accountants BDO Stoy Hayward, andThe Change Partnership.

Business History and RegulationUniversity of Southampton, March 2004CARR, in association with the University ofSouthampton’s Centre for Research in Accounting,Accountability and Governance, held a workshopon ‘Business History and Regulation’ on 3 March2004. This third and last of the business historyinterdisciplinary workshops was led by businesshistorian Terry Gourvish; it brought togethereconomists, political scientists, management

scientists, accountants and historians to debateregulatory processes.

Peter Casson, University of Southampton,opened the workshop with a paper on ‘A Study ofInstitutional Change: the Finance Act 1989 andEmployee Share Ownership Plans’. Examiningexperience in both the US and UK, Cassonshowed how the incentives offered by theinstitutional structure can lead to outcomes otherthan those intended by the legislators. GeraldBurke (University of Oregon), spoke on OrganisingEconomic Diversity: Antitrust, Associations andAccounting in the United States, 1906-25. Burkewas concerned with the efforts of Louis Brandeisand others to encourage ‘associational antitrust’and improved methods of cost accounting in theUnited States in the name of ‘regulatedcompetition’. He offered some interesting data tosupport his contention that these interventions hada positive impact in terms of higher productivity.

Among several provocative issues was thequestion: does capitalism function moreresponsibly with high or low information flows?Tony Arnold (University of Exeter) and SeanMcCartney (University of Essex) examined‘Regulation and Strategic Policy Formulation in theBritish Railway Industry, 1870-14’. In an innovativecontribution that provided new data on railwayprofits and concentration levels, they examined theimpact of the regulation of Britain’s private railwaycompanies before the First World War. Key themeswere the fluctuations of public policy towardsmergers, and the response of the private sectortowards these fluctuations.

Finally, Forrest Capie (City University) offered aprovocative interpretation of financial regulation inBritain over the last three centuries. Extensiveregulation in the 18th century gave way, first toderegulation in the 19th century, and then to self-regulation in the 20th. Capie pointed out that theage of ‘neo-liberalism’ has seen extensive additionsto the regulatory framework. He highlighted the roleof financial crises in encouraging change.

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CARRCONFERENCES

One of CARR’s objectives is to establishlinks with practitioners and policymakers in risk management andregulation, both to communicate and

disseminate research findings, and to gain accessand insights into the worlds of practice. Theinclusion of practitioners in workshops andseminars is part of this strategy. Two recentworkshops were particularly successful in thisregard: Challenging Insurability. Flood Managementand Insurance Regulation in December andAuditing in Action in February.

The Aon workshop on Challenging Insurability,organised by Michael Huber, brought together aninteresting mix of academics and practitioners todiscuss historical and institutional aspects of floodinsurance. The insurability of events is moreproblematic than ever before. On the one hand,the increased sophistication of risk managementtools suggests that virtually all events can beinsured; on the other hand, the growth of riskshas been taken as an indicator of decreasinginsurability. This tension has brought a politicaldimension to defining and clar i fy ing theresponsibilities and limitations of insurance,especially in the field of weather-induced risks.The conference was largely concerned withexplicating such features and problems, and withindicating potentially viable solutions to them. Theempirical focus was on flood insurance, a topicthat is currently high on the public agenda in bothdeveloped and developing countries.

David Crichton (Middlesex University and UCL)compared the English, Scottish and Welshinstitutional setting of flood insurance. PeterZimmerli (Swiss Reinsurance Company, Zurich)

and Andrew Dlugolecki (Climate Research Unit,University of East Anglia) described the differentinstitutional arrangements for flood insuranceacross the developed and developing world.Reimund Schwarze (Deutsches Institut furWirtschaftsforschung, Berlin) presented theresults of a consultancy project to introduceprivate flood insurance in Germany. The historicaldimension of insurability was emphasised byGeoffrey Clark (State University of New York atPotsdam). And finally, Michael Huber (CARR) gavean account of how models of private-public floodinsurance regimes are negotiated.

The ESRC workshop Auditing in Action,organised by Michael Power and ChristopherHumphrey (University of Manchester), broughtacademics and practitioners together to discuss arange of issues about the audit process,particularly pertinent in the wake of the apparentfailure to detect a large fraud at Parmalat. Thepapers presented were all field studies of auditing,and two contributions dealt specifically with thebusiness risk audit (BRA) model. ChristopherHumphrey (with Rihab Khalifa (LSE) and KeithRobson (UMIST) argued that BRA was much morethan a technical innovation and was part of arepositioning of the professional identity of auditorsas advisers and consultants; a process which wasundermined by the collapse of Enron. RobertKnechel (University of Florida) traced the history ofrisk-based auditing, arguing that it was born in aclimate of cost pressures on auditors. There was alively panel session discussing the future ofauditing, led by Jonathan Hayward (IndependentAudit), Martyn Jones (Deloitte), and David York(ACCA). Auditing is an essential resource for

regulatory systems and in the wake of Enron andParmalat pressures for the reform of auditing havebeen great. However, the technical dimension ofauditing has always been relatively immune fromthese pressures, changing slowly, and oftenregarded as a ‘black box’ by regulators. It wasargued that this was set to change with thedevelopment of new standards by the InternationalFederation of Accountants. Some practitionersexpressed concern that new regulatoryarrangements could change the incentives to audit,leading to an undersupply of good auditing; butthis market failure scenario was doubted by others.This discussion was followed by two detailedstudies of the audit decision process inScandinavia (Stig Westerdahl, Mid SwedenUniversity; Peter Ohman and colleagues from MidSweden University, Lulea University of Technologyand the University of Oslo). Finally, Jean Bedard(Laval University) presented empirical work on howaudit committees construct themselves as effectiveand credible bodies in organisations.

These two workshops show that, in differentways, both insurance and auditing are critical riskmanagement technologies operating at the baseof many regulatory systems. Apparent failures inthese practices, either because the limits ofinsurability are reached or because of frauds andcorporate collapses (also suggesting limits to‘auditabi l i ty’), tend to have far-reachingconsequences, not least the increased regulationof these tools of risk management themselves.

Auditing and Insurance

I 16 I Risk&Regulation I Summer 2004 I

Regulation of the NHS in EnglandGwyn Bevan, LSE11 November 2003

NHS organisations face two instruments ofregulation: clinical governance and performance(star) ratings. Clinical governance is a system ofsteps and processes to ensure high qualitypatient care. Performance (star) ratings are basedon key targets, a wider set of indicators, andresults of clinical governance reviews. Bothinstruments are undertaken by the Commissionfor Health Improvement (CHI) which is soon to bereplaced by a new inspectorate with widerpowers: the Commission for Healthcare Audit andInspection (CHAI). Prof Bevan explored theregulatory issues arising from this and newpolicies being introduced which emphasisepatient choice and payment by results.

Beyond National Styles ofRegulation – GM food in Germanyand the USAstrid Epp, Bielefeld University25 November 2003

The transatlantic divide on biotechnology isexemplified by the varying public response over theintroduction of GM food, and in the regulatoryapproaches to the issue. On the surface, legalregulations in the US seem to be less strict than inEurope. National differences in the legal regulationof similar issues are predominantly explained byreference to the particular regulatory style of a givencountry: the ‘national styles approach’. Epppresented a comparison of German and USregulatory approaches to GM food, and argued thata focus on the interorganisational networks thatemerge around an issue allows for a betterunderstanding of the regulatory process.

Decentralisation of EuropeanEconomic LawDr Myriam SennSwiss Federal Banking Commission 9 December 2003

Interest in decentralising governance is increasingall over the world. In European economic law, theregulation of the implementation of competitionrules introduces a decentralised enforcementsystem. In financial services law, the proposal for anew directive on investment services is to introducea four-level regulatory approach which centralisesrule-making while enforcement remainsdecentralised. Dr Senn examined these regulatorystructures, taking into account that they raisedifferent issues of coordination and the delegationof power and control.

Rules and Discretion in theDesign of a Procurement SystemDr Steve Kelman, Harvard University 13 January 2004

Dr Kelman was responsible for an effort toderegulate the process by which the USgovernment procured goods and services, part of the Clinton Administration’s ‘ReinventingGovernment’ programme. He discussedconceptual, philosophical and jurisprudentialarguments for greater reliance on rules versusgreater room for discretion in the management of government procurement (and, by extension, in other areas of government regulation and/orpublic management). Kelman went on to discussthe specifics of de-regulation in the context ofpublic procurement in the US, and finally drew acontrast between administrative law and publicmanagement approaches to the government’sself-regulation.

The Ensuring State and Modes of RegulationProfessor Gunnar Folke SchuppertSocial Science Research Centre, Berlin10 February 2004

The concept of the ‘ensuring state’ develops uponthe idea of the ‘enabling state’ by emphasising theresponsibility of the state in areas where non-stateagents play a dominant role in the provision ofpublic services. Even if public goods or services areprovided by external bodies, the state still has amajor role in ensuring these public goods, whetherit is by audit, regulation, or funding. Moderngovernance is centred around the business ofregulation, because without the appropriateregulatory framework the ensuring state would notfunction. Prof Schuppert concluded that new formsof regulatory regimes, like ‘co-regulation’ at theEuropean level, might facilitate this form of‘governance with society’ to evolve.

Law as a Last ResortProfessor Keith Hawkins, Oxford University9 March 2004

In almost all types of legal disputing, formalities are employed only as a last resort. Case attrition is a constant feature in the legal system, becausepre-trial negotiations are employed to search forsolutions that avoid the costs, risks, and delays of trial. Prof Hawkins outlined and applied a theoryof legal decision-making in the context of theregulation of occupational health and safety. Hefocused on the forces acting on the creation,handling, and disposal of cases in a regulatoryagency, addressing in particular the conditionsunder which legal officials deal with a problem byelecting the public and consequential – but highlyunusual – course of going to court.

Getting to Grips with Regulatory Quality Professor Claudio Radaelli, Bradford University16 March 2004

Recent European regulatory reforms have focusedon ‘good regulation’ and ‘regulatory quality’. Yetpolicy-makers who have sought to import specificinstruments and ‘new’ approaches to law-makingfrom their original Anglo-Saxon context to otherEuropean contexts have found it difficult toimplement successful programmes. One reason forthis is that the notions of quality that circulate in thecurrent debate are insensitive to context. Another is that ‘success’ means different things to thepolitician, the bureaucrat, and the technocrat. Thispaper explains the diffusion of regulatory impactassessment (RIA) in continental European countriesby using ‘context’ and the interaction betweendifferent logics in RIA as explanatory variables.

Corporate Social Responsibility as a New Self RegulationBen Hunt, Author, The Timid Corporation27 April 2004

In 1995, Shell set a precedent for future behaviourwhen it decided to reverse its decision to dumpBrent Spar into the sea. This early example ofcorporate social responsibility (CSR) illustrated howa moral duty to do ‘the right thing’ replaced morereasoned scientific criteria for making decisions.Nearly ten years on, we see that notions ofcorporate social responsibility are influencingbusiness behaviour like never before. Yet is CSR aprogressive development? Hunt argued that CSR isa response to a more insecure, mistrustful societythat tends to see all industrial activity from the one-sided perspective of harm and risk. He noted thatan inflexible dogma of social or moral responsibilityis replacing pragmatism and commonsense indecision-making.

Full abstracts and details of seminars can be found on the CARR website: www.lse.ac.uk/Depts/carr

CARRSEMINARS

FORTHCOMING LUNCHTIMESEMINARS22 June 2004Catastrophic Risk, Insurance and TerrorismProfessor Richard EricsonUniversity of Oxford

12 October 2004New Social Risks in EuropeProfessor Peter Taylor-GoobyUniversity of Kent

9 November 2004Science: A puzzling profession?Professor Robert DingwallUniversity of Nottingham

Further seminars for Autumn Term 2004to be arranged.

CARRBOOKS

I Summer 2004 I Risk&Regulation I 17 I

CARR Books and Special Journal Editions

NewRegulating LawChristine Parker, JohnBraithwaite, Nicola Lacey and Colin ScottOxford University Press 2004

Preparing for the Future:Strategic Planning in theU.S. Air ForceMichael Barzelay and Colin Campbell

Business and Politics in Europe, 1900 – 1970:Essays in Honour of Alice TeichovaTerry Gourvish, ed

On Different Tracks:Designing RailwayRegulation in Britain and GermanyMartin LodgeGreenwood Press 2002

British Rail 1974-97:From Integration toPrivatisationTerence GourvishOxford University Press 2002

The Labyrinths ofInformation – Challengingthe Wisdom of SystemsClaudio Ciborra, OxfordUniversity Press 2002‘a series of highly literate jewel-like essays that are

intellectually fascinating but could alsochange the life of any practitioner.’Shoshana Zuboff, Harvard Business School

Environmental Policy inEurope: Assessing theCosts of ComplianceAndrew Gouldson and Evan Williams (Eds)European Environment 12 (5) 2002

The Politics ofDelegation: Non-Majoritarian Institutions in EuropeMark Thatcherand Alec Stone Sweet (Eds)West European Politics 25(1) 2002

Biotechnology 1996-2000: The Years ofControversyGeorge Gaskelland Martin BauerLondon: Science MuseumPress and Michigan StateUniversity Press 2001

From Control to Drift:The Dynamics ofCorporate InformationInfrastructuresClaudio Ciborra and associatesOxford University Press 2001

The Government of Risk:Understanding RiskRegulation RegimesChristopher Hood, Henry Rothstein and Robert BaldwinOxford University Press 2001

‘...a significant contribution to the existingliterature on risk regulation.’West European Politics

Regulation and Risk:Occupational Health andSafety on the RailwaysBridget HutterOxford University Press 2001‘...a classic and deft piece ofsocio-legal scholarship ... sure

to have an enduring impact on the debate.’Public Law

Cranston’s Consumersand the Law (3rd ed.)Colin Scott and Julia BlackButterworths 2000

Regulation InsideGovernment:Wastewatchers, Quality Police andSleaze-bustersChristopher Hood, Colin

Scott, Oliver James, George Jones and Tony TraversOxford University Press 1999

Telecoms Regulation:Culture, Chaos andInterdependence Insidethe Regulatory ProcessClare Hall, Colin Scottand Christopher HoodRoutledge 1999

The Politics ofTelecommunicationsMark ThatcherOxford University Press 1999‘an excellent comparativestudy, rich in empirical

findings, given analytical focus by anexplicit theoretical framework.’Government and Opposition

The Audit Society:Rituals of VerificationMichael PowerOxford University Press 1999‘A book like this – so rich inideas, observations and

interpretations – has to be taken seriously.’European Accounting Review

A Reader inEnvironmental LawBridget Hutter (Ed.)Oxford University Press 1999‘a timely and useful bringingtogether of major socio-legalstatements on the law.’Environmental Law Review

Rules and RegulatorsJulia BlackOxford University Press 1999‘a refreshing book thataddresses the question of‘self-regulation’ in a new way.’Modern Law Review

I 18 I Risk&Regulation I Summer 2004 I

CARRPRINT

CARR publications can be viewed on the CARRwebsite: www.lse.ac.uk/Depts/carr/

Selected RecentPublications

Give Chance a Chance:Random Reflections onTargets, Inspections andTransparency Gwyn Bevan and Christopher Hood British Medical Journal 328 (7440)2004: 598.

Regulating Law – the case of financeJulia BlackIn C Parker, J Braithwaite, N Laceyand C Scott (eds.) Regulating Law,Oxford University Press, 2004.

Patents and Pollution Javier Lezaun In N Stehr (ed.) Biotechnology:Between Commerce and CivilSociety, Transaction Books 2004.

Constructing a Market,Performing Theory: TheHistorical Sociology of aFinancial DerivativesExchange Yuval Millo and Donald MacKenzie In R Swedberg (ed.) NewDevelopments in EconomicSociology, Edward Elgar, 2004.

Regulation in the Age ofGovernance: the rise of thepost regulatory stateColin ScottIn J Jordana and D Levi-Faur (eds.)The Politics of Regulation, EdwardElgar, 2004 (also published asNational Europe Centre WorkingPaper no 100, Canberra: AustralianNational University).

Winners and losers inEuropeanization: reformingthe national regulation oftelecommunicationsMark ThatcherWest European Politics, April 2004.

Now available in paperback

The Government of Risk:understanding risk regulation regimesChristopher Hood, Henry Rothsteinand Robert Baldwin Priced £18.99 and also availableonline through Oxford ScholarshipOnline: www.oxfordscholarship.com

CARR Discussion Papers

COMING SOON

DP24 The Battle for Hearts and Minds?Evolutions in organisational approaches to environmental risk communication Andy Gouldson, Rolf Lidskog and Misse Wester-Herber

DP23 Creation of a market network: theregulatory approval of Chicago BoardOptions Exchange (CBOE)Yuval Millo

DP22 The Interaction of ‘Civil’ and PublicInternational Regulation: lessons from theEnergy and Biodiversity InitiativeStephen Tully

DP21 Access to Justice within the SustainableDevelopment Self-Governance ModelStephen Tully

AVAILABLE NOW

DP20 Justifying Non-Compliance. A CaseStudy of a Norwegian Biotech Firm Filippa Corneliussen

DP19 The Impact of Regulations on Firms. A Study of the Biotech IndustryFilippa Corneliussen

DP18 Reforming the UK Flood Insurance Regime. The Breakdown of aGentlemen’s AgreementMichael Huber

DP17 Mapping the Contours ofContemporary Financial Services RegulationJulia Black

DP16 The Invention of Operational Risk Michael Power

DP15 Precautionary Bans or SacrificialLambs? Participative Risk Regulation andthe Reform of the UK Food Safety Regime Henry Rothstein

DP14 Incentives, Choice and Accountabilityin the Provision of Public Services Timothy Besley and Maitreesh Ghatak

DP13 Regulating Parliament: the regulatorystate within WestminsterRobert Kaye

DP12 Business History and RiskTerry Gourvish

Business Risk and Antitrust: comparative perspectivesTony Freyer

The Risks of Working and the Risks of Not Working: historical perspectives onemployers, workers, and occupational illnessJoseph Melling

DP11 Strategies, Methods and Reactions:questioning the open method of co-ordinationMartin Lodge

DP10 Drivers and Drawbacks: regulation andenvironmental risk management systemsMarius Aalders

DP9 Conceptualising Insurance: riskmanagement under conditions of solvencyMichael Huber

DP8 Social Licence and EnvironmentalProtection: why businesses go beyondcomplianceNeil Gunningham, Robert Kagan and Dorothy Thornton

DP7 Neglected Risk Regulation: theinstitutional attenuation phenomenonHenry Rothstein

DP6 Mass Media and Political AccountabilityTimothy Besley, Robin Burgess and Andrea Pratt

DP5 Embedding Regulatory Autonomy: the reform of Jamaican telecommunicationsregulation 1988-2001Lindsay Stirton and Martin Lodge

DP4 Critical Reflections on RegulationJulia Black

DP3 The New Politics of Risk Regulation in EuropeDavid Vogel

DP2 The EU Commission and NationalGovernments as Partners: EC regulatoryexpansion in telecommunications 1979-2000Mark Thatcher

DP1 Regulating Government in a ‘Managerial’Age: towards a cross-national perspectiveChristopher Hood and Colin Scott

DP0 Is Regulation Right?Robert Baldwin

Business Risk Management in Government:pitfalls and possibilitiesChristopher Hood and Henry Rothstein

Risk Management and Business RegulationBridget Hutter and Michael Power

Risk&Regulation is also published on CARR’swebsite and back issues are available free onrequest. Please email risk@lse.ac.uk if youwish to order copies.

Risk&Regulation

CARR REVIEW

Magazine of the Centre for Analysis of Risk and Regulation No.1 Spring 2001

Risk&RegulationMagazine of the Centre for Analysis of Risk and Regulation No.2 Autumn 2001

BureaucraticCompetencies: A contradiction in terms?

OrganisationalLearning and Risk Management

Why We Need to UnderstandCorporate Life

The Government of Risk

Risk&RegulationMagazine of the ESRC Centre for Analysis of Risk and Regulation No.3 Spring 2002

Deirdre Hutton onconsumer-drivenregulation and Michael Spackman on regulatorypopulism

also Navigating the debate on corporate socialresponsibility

Regulating MP’s conduct

Decentralising governanceacross the world

Lessons of Caribbeanregulatory reform fordeveloping countries

Is Japan on the brink of an audit explosion?

customer care?

alsoWhere the Ivory Towers Meetthe Whitehall Village

The Operational Risk Game

Regulatory Fever

Controlling the Campus

On the Railroad to Nowhere?

Risk&RegulationMagazine of the ESRC Centre for Analysis of Risk and Regulation No.5 Spring 2003

CARR research staff

Tim BesleyDirector of Suntory and ToyotaInternational Centres for Economics and Related Disciplines (STICERD)

Professor of Economics

Public economics; Developmenteconomics; Political economy.

Julia BlackReader in Law

Regulatory techniques and processes;Interpretive and discourse basedapproaches to regulation; Rule making;Financial services regulation.

Claudio CiborraProfessor of Information Systems

Global information technologyinfrastructures; Business risk strategy in relation to building and managingintegrated infrastructures.

Tracy CohenBP Postdoctoral Fellow

Telecommunications regulation;International trade in services; Institutionalmodelling and design; Law anddevelopment; Privacy regulation.

Christopher HoodCARR Programme Director: Regulation of Government and Governance

Gladstone Professor of Government and Fellow of All Souls College, University of Oxford

Regulation of public-sector bodies;International comparative analysis of riskregulation regimes; Institutional factors inshaping regulation; Transparency and‘better regulation’.

Bridget HutterCARR Co-Director

Peacock Professor of Risk Management

Sociology of regulation and riskmanagement; Regulation of economic life;Corporate responses to state and non-state forms of regulation.

Robert KayeESRC Research Officer

Self-regulation and parliamentary self-regulation; Good government; Britishgovernment and politics.

Javier LezaunESRC Research Officer

Implementation of biotechnologyregulations; Traceability and marketinfrastructures; Science and technology studies.

Martin LodgeCARR Deputy Programme Director:Regulation of Government and Governance

Lecturer in Political Science and Public Policy

Comparative regulation and publicadministration; Government and politics ofthe EU and of Germany; Railway regulationin Britain and Germany; Regulatory reformin Jamaica.

Peter MillerProfessor of Management Accounting

Accounting and advanced manufacturingsystems; Investment appraisal and capitalbudgeting; Accounting and the publicsector; Social and institutional aspects of accounting.

Yuval MilloESRC Research Officer

Economic sociology; Financial riskmanagement; Financial regulation;Derivatives markets.

Joan O’MahonyLeverhulme Special Research Fellow

Business regulation and civil society; Roleof non-state sources in risk management;Political sociology.

Michael PowerCARR Co-Director and Programme Director:Organisations and Risk Management

PD Leake Professor of Accounting

Role of internal and external auditing; Riskreporting and communication; Financialaccounting and auditing regulation.

Henry RothsteinESRC Research Fellow

Comparative analysis of risk regulationregimes; Risk regulation and publicopinion, the media, interest groups andregulatory professionals; Transparency and accountability.

Colin ScottReader in Law

Regulation of government,telecommunications regulation andregulation of consumer markets; Newdimensions of regulation of the publicsector and regulatory innovation.

Mark ThatcherSenior Lecturer in Public Administrationand Public Policy

Comparative European regulation andpublic policy; Telecommunications andother utilities; Institutional design andindependent regulatory agencies.

CARR research associates

Michael BarzelayReader in Public Management, LSE

George GaskellProfessor of Social Psychology, LSE

Terence GourvishDirector, Business History Unit, LSE

Andrew GouldsonLecturer in Environmental Policy, LSE

Carol HarlowProfessor of Public Law, LSE

Michael HuberResearch Associate

Donald MackenzieProfessor of Sociology, University of Edinburgh

Edward PageSidney and Beatrice Webb Professor of Public Policy, LSE

Tony ProsserProfessor of Public Law, Bristol University

Judith ReesDeputy Director, LSE

Professor of Environmental and ResourceManagement, LSE

Lindsay StirtonLecturer in Law, University of East Anglia

Peter Taylor-Gooby Professor of Social Policy, Sociology and Social Science, University of Kent at Canterbury

Brian WynneProfessor of Science Studies, Lancaster University

CARR administrative team

Sabrina AntâoEvents and Publications Administrator

Amy EldonAssistant Administrator

Louise Newton-ClareCentre Manager (Finance, Research and Special Projects)

Anna PiliCentre Manager (Administration, Eventsand Communications)

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