Innovation

Standards are Policy, and They Change the Way We Live

State legislators are keenly aware of the public policy choices they face every day. They are also well tuned to most of the public policy decisions that are made elsewhere, such as in Washington, DC, or in county and city councils around their states. However, some very consequential public policy challenges are found in standards setting bodies where few would even think to look. One such body is the International Organization for Standardization, another is the Sustainability Accounting Standards Board.

The International Organization for Standardization, or ISO, is an international organization created “to facilitate the international coordination and unification of industrial standards.” Such standards are generally a good thing, as they help consumers to understand the quality and safety of products and services. Businesses also benefit as these standards help to increase productivity and reduce costs. But understanding how these standards are developed and by whom is critical to understanding the importance of the “right” standards being created, and to understanding the critical debate now underway.

At the ISO, the standards are developed by experts from around the world in the particular subject area where the standards will be applied. The benefit is that a great deal of knowledge and expertise pours into the creation of the standard. But the creation of the “wrong” standard, one that does not reflect what is already under way in industry, can cause industry to have to reimagine their processes and controls costing time and money. This has happened in the past and cost US industry precious time and resources.

As Europe moved to push the globalization of a standard for quality assurance the US was caught somewhat flat-footed. As Europe unified around a standard, the American National Standards Institute began a long, and losing battle to adjust the standard to fit the way that US companies were already doing business. Once the standard, ISO 9000, was approved and became globally accepted, the US had to change how it did business to be able to compete internationally, and incur the costs to conform to a different way of manufacturing and providing services. The US had to catch up with Europe. Even by 1999 the UK still had twice as many companies that were ISO 9000 certified and Germany had as many as the US, despite both countries and their economies being much smaller. The US had failed to identify this key policy shift, largely because the US failed to fully engage from across disciplines, from industry and local, state and federal government.

The same is happening again, this time with a standard for innovation management. The table stakes are even higher. Some of our global competition is investing heavily in making sure their view of innovation wins as a global standard. Countries, such as China, are aggressively pushing their own interest in the development of innovation standards. Oddly, but following the historic pattern, US company representation at the standard setting meetings is minimal, with the US in general having the lowest participation of any country. Robust representation at the global standards setting meetings by government and US companies is just the minimum requirement for the protection of innovation done the right way. As more and more of our nation’s wealth and success is grounded in intellectual property and innovation a bad result could be dire for our economy and for US citizens.

Another important standards development is happening in the realm of accounting. The Sustainability Accounting Standards Board (SASB) Foundation was created to “establish industry-specific disclosure standards across environmental, social, and governance topics that facilitate communication between companies and investors about financially material, decision-useful information. Such information should be relevant, reliable and comparable across companies on a global basis.” The idea is to develop accounting standards for specific sustainability metrics, because SASB believes that climate-related financial disclosures are most useful to economic decision-makers.

The SASB has a similar structure to the Financial Accounting Standards Board or FASB, which establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). Without such standards businesses could interpret financial information in whatever way makes them look best. In other words, accounting standards improve the transparency of financial reporting, and provide a means for objective auditing, upon which many financial decisions rest. The SASB would create a world where investors would be provided financial data shaped by standards that are intended to include “sustainability matters” that are financially material. Obviously, one open question is defining sustainability particularly and reaching an understanding of when sustainability, or lack thereof, creates a financial event. Regardless of one’s view the resulting impact will be a quite noticeable policy shift.

Standards are policy. Many people tune out at the very mention of standards, but they are part of the public policy world as their impact can be broad and dramatic for innovation, either enabling or hobbling it. Not all national policy is made where we think, and yet the implications can be just as far reaching, if not more so.


In Depth: Innovation

Whether improving processes, creating products or developing new ideas, the application of technology can enable real changes in how state government works, both in quality of services delivered to constituents, cost savings and quality of life. States have the opportunity in our national balance of government power, to address policy …

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