Some years ago, when he was serving as the CEO for Motorola, before going on to become Kodak's CEO, George Fisher spoke to a group of our master's students from both engineering and business. One of the questions the students asked, after he had given his thoughts on success in life and business, was "How do you become a leader in business?" His response was that those in business should take an evolving problem in their business unit, their company, their industry, or their community and fix it before the problem is regulated or litigated. He assured the students that business people who voluntarily undertake self-correction are always ahead of the game.

There is a diagram I use to teach students this Fisher principle of leadership that shows how its best execution is found in focusing on ethics. That diagram, based on the political science model developed by Professor James Frierson, appears below (Figure 3.2).

Understanding this cycle, what it represents, what moves it, and how companies and industries should respond is a critical part of the study of ethics in business. The phenomenon of a rapidly moving regulatory force drives home the reality that businesses and industries are always better off self-regulating than waiting for government regulations. A historical study of the cycle phenomenon reveals that regulators, as bureaucratic as they are, can move far more quickly than market forces to solve market frauds, abuses, and other perversions that occur when the moral sentiments of markets do not prevail as Adam Smith intended in his assumptions about economic efficiencies.

Every market, consumer, or industry issue that is subject to regulation or litigation began as an ethical issue. Because the law and regulations afforded businesses wide latitude in a particular area, some seized the moment a bit too aggressively. That aggressive seizure of a loophole, without the checks and balances of ethics and market morality, puts companies, industries, and individuals at a disadvantage when the inevitable regulation arrives, because their practices have been so foreign to the now mandated morality. The $X$-axis of the diagram represents time, and the $Y$-axis represents options for self-regulation. The longer companies and industries wait prior to taking self-corrective action, the less likely their self-correction will be allowed, and the more likely regulators are to impose regulation with often unintended consequences, including additional costs, with the addition of a second curve that depicts costs. This diagram depicts the regulatory cycle with an additional line to illustrate the fact that the firm's costs increase the longer the time period for addressing the evolving issues.

Understanding and applying the regulatory cycle is a means of exercising company and industry leadership. Examining issues in light of the cycle provides firms with the opportunity for self-regulation, often a cheaper and more efficient means of curbing the misdeeds that too often occupy loophole areas of markets and industries.

Discussion Questions 1. Name some issues that you have seen or are seeing moving through the regulatory cycle 2. How should a business respond when the public is emotionally charged about its practices, its products, or operations? For example, the international ride-service company, Uber, began its business outside the regulatory radar. This was not a cab service, so no licensing required. This was not a limousine service because the drivers used their own cars. Once Uber took off, local regulators began their imposition of licensing, fee structure, and other laws on this niche that Uber had found for transportation that would cost less than a cab or limo service. Cab drivers lobbied for regulation even as Uber customer complaints and safety issues began to arise. How should Uber have handled the cycle it was experiencing?