Anthony Hilton: Quality control could be a casualty of Brexit

People in companies tend to think of regulation as a cost, even if it does deliver benefit to customers.

It’s all the more surprising, therefore, that voluntary regulation — the standards companies seek to impose on themselves, rather than have imposed upon them from outside by Government — seems to deliver substantial improvements in profitability. 

Speaking at a conference in London organised by the Geneva-based International Standards Organisation (ISO), Marcus Long — chief executive of the trade association for standard-setters and certifiers — cited academic evidence demonstrating that companies which embraced voluntary standards and complied with their requirements had a better return on capital than their peers.

They also displayed a higher propensity to invest, showed greater inclination to innovate, had higher profitability and spent significantly less time in dealing with other official regulations and regulators, Long added.

At a time when the world is struggling to find ways to improve productivity, his argument was that companies willing to raise their game by embracing these voluntary standards show one way in which it can be done.

There is an issue here between correlation and causation. Do the higher standards cause the productivity boost or are companies that embrace standards better managed to start with, and likely to have found ways to boost productivity anyway?

The answer, Long said, is that adopting standards drives culture change, and that delivers the rewards. Academic evidence clearly proves the benefits of certification.

There is a logic to this.

People talk all the time about regulation but externally imposed requirements will almost always be set at a legal minimum.

In contrast, the ISO system of voluntary standards encapsulates a higher aspiration. Its purpose is to facilitate the delivery of a product or service where the customer has an assurance of a certain level of quality well in excess of the minimum legal requirement. It follows that companies going down this path are likely to do better over time than those who lack the aspiration.

They may also save themselves a lot of money.

One of the most startling facts in the modern world is the soaring incidence of product recall.

Even what were simple products are today much more complex and reliant on microchips and software, which will fail from time to time.

This complexity meets a public ready and willing to litigate when things go wrong. The costs to a company can be huge — think Volkswagen — so being certified to deliver to a certain quality is an important line  of defence.

There is a useful lesson here for insurance underwriters.

The point of the conference was to demonstrate to the insurance industry that firms which worked to voluntary standards were significantly better risks, and they therefore could and should be rewarded with lower premiums.

The idea is that the underwriter should look closely at the way properly approved standards are applied because this could tell the underwriter a lot about the underlying corporate culture and the likelihood of a claim. 

It is an attitude that plays to designing processes and management systems which prevent accidents from happening in the first place, rather than from picking up the pieces afterwards.

In some countries, this is already happening.

A speaker from Italy, Antonio Terracina of the Italian Workers’ Compensation Authority, produced figures which showed how the rolling-out of voluntary standards in his country had in some sectors caused a fall of up to 40% in the frequency and severity of accidents.

This had indeed led to a lower cost of insurance among participating companies.

It could play out in many more ways. Buildings where fire safety is focused on saving lives could also be designed to pay greater attention to business continuity — so the firm can recover quickly after a blaze.

This is interesting, given how prevalent voluntary standards are and yet how little impact they have had on public consciousness. The public at large knows they exist in the production of food but has nothing like the awareness of their importance in other sectors. 

An uncomfortable ambivalence in public attitudes is displayed by the willingness of many to tolerate and to buy counterfeit goods.

Almost everyone has come across pirated recordings of music and films that turn out to be poor quality. They might then regret the money wasted but not be otherwise that bothered by the experience, or sufficiently indignant to do something about it.

But would they be as blasé if they were seriously ill and had bought a medicine in good faith, only to find that it was counterfeit and had no active ingredients? Would they be happy to work in a building where the 1000-ton load-bearing girders were counterfeit and unlikely to hold up against a high wind? How would they feel flying in an aircraft where the fuel filters were fake and liable to fail?

These are real problems, and real examples of what is happening today, which underlines why it is important not only that standards are adopted but also that they are effectively policed so customers can have confidence in the certification. 

The days when companies were close to their suppliers and could keep an eye on them are long gone. In these times of global supply chains with contractors and subcontractors spanning the world, the ability to use properly certified standards as a seal of quality has never been so important. 

It is hard to see how a globalised world could work without it. It is also something to bear in mind when we leave the European Union and lose access to the quality-control apparatus it has in place.

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