JOHN MENADUE. How and why corporate regulators have failed us.

The failure of corporate regulation and regulators is in plain sight for all to see. And it is not just in banking. Political ideology and corporate conceit has enabled the powerful to tilt the ‘market’ in their favour at the expense of the less privileged. The result is growing inequality and insecurity.

The Liberal Party branch offices,the BCA,News Corp and the Australian Financial Review also failed to uncover corporate failure and malfeasance on a grand scale.Was this deliberate or were they just asleep?

It is unlikely  that the regulars were wilful .. It is more likely that they just wanted to please the big end of town.  

The Abbott Royal Commission into the conduct of trade unions revealed only minor misdeeds by the trade union movement. The Royal Commission into banking is almost causing the sky to fall in.

Whilst unions are heavily regulated the facts of corporate regulatory and supervisory failure are everywhere

  • In vocational employment we have seen widespread waste of public money and exploitation of vulnerable young people as a result of regulators failing to ensure that unscrupulous operators could not exploit the system.
  • As Charles Livingstone, in this blog, has pointed out, Crown Casino, other casinos and club and betting interests are just too powerful to regulate. Fines for breach of regulations are miniscule.
  • Our intelligence and security services have become increasingly politicised and uncontrolled. The regulators have joined the club.
  • Regulators failed to protect the Murray-Darling Basin from blatant water theft.
  • Dodgy entrepreneurs in child care received large payments for children they never cared for.
  • Fair Work Australia and other regulators have failed to protect mainly young people, particularly working holiday makers and students who have been exploited by labour hire companies. The Seven/Eleven chain has become a symbol of failed regulation in the labour field.
  • Live sheep exporters brazenly defy regulations to protect animals.
  • Land clearance regulations to protect vegetation are widely ignored.
  • Regulations to ensure that miners repair degraded land are seldom effective.
  • And then there are the banks with their lying to clients, their deceit and greed.  Did the RBA consider withdrawing any banking licences? Obviously not. The banks knew that the regulators would not seriously challenge them. They felt invulnerable.

Why has corporate regulation failed?

  • A major cause of failure amongst regulators is the prevailing ideological view expressed by the Coalition and big business that only business can deliver prosperity and jobs for Australians. Business therefore deserves favourable treatment. The Liberal Party platform expressly states that ‘only businesses and individuals are the creators of wealth and employment’. If businesses are to perform this role effectively, government and regulators must get out of the way. And after all regulation is akin to socialism. Timid regulators read these clear signs.
  • One of the first things the Abbott government did was to establish a Commission of Audit headed by businessman Tony Shepherd. A key recommendation of this Commission was ‘reducing red tape’. The Coalition government then established a regulatory reform agenda to address ‘unnecessary regulation and red tape’. In this process, many regulations designed to protect the public interest were removed or degraded. It was all done in the name of that popular conservative slogan ‘get rid of the red tape’.
  • Consistent with this view of red tape and regulation, Tony Abbott cut funding to ASIC by $120 million over four years in his 2014 budget. In the Budget last week ASIC was cut by a further $26 million. The budget of the Office of the Director of Public Prosecutions was also cut.
  • But even with considerable resources, regulators can often find it difficult to match the knowledge and experience that operators have so easily at hand. I found at Qantas that it was not all that difficult to best the Department of Transport that lacked the resources and knowhow that we had of the international airline industry.
  • Unlike the ACCC which has been a tough cop on the beat, ASIC and APRA, even with their considerable powers, have failed as effective regulators. Far from being tough watchdogs, APRA and ASIC became compliant puppy dogs who were so anxious to please. ASIC has power to launch criminal and civil prosecutions against corporations. But for 15 years it chose not to. Instead of prosecuting, offenders were obliged to sign ‘enforceable undertakings’ for serious breaches of regulations. No one went to goal .The regulators imposed fines that would not cause any big company to even blink. Th CBA admitted to ‘unconscionable conduct’ in rigging the bank bill swap rate in 2012.  The penalty was a derisory $25 million. Only lengthly gaol sentences will deter many of our greedy and dishonest corporate cowboys in the ranks of directors and chief executives. These are the people who kept telling us time and time again that it was the fault of a few’bad apples’ and in any event the problems had been fixed. But the problems continued and they continued to pick up outrageous salaries .
  • Any problems were invariably found to be attributable to the lower ranks and never the Board or CEO. The multi-million dollar bonuses, handshakes and golden-parachutes continued.
  • There were comfortable relationships between regulators and the regulated. Some of the key bank regulators on retirement from Treasury and the RBA moved across to well paid jobs with the banks. It was all a cosy bankers club.
  • Too much faith was placed in efficient markets, so light or even self-regulation was preferred. After all the regulators obviously felt that they were all members of the same trustworthy family.
  • . The fundamental  problem is timid regulators who want to please their ministers, conservative political ideologs  and the big end of town.

The failure of regulation in the banking field will inevitably lead to a focus on how effective regulation is in other fields-health and private health insurance, VET, gambling, alcohol and mining.

What we have seen in recent weeks is another example of why the Australian community is so sceptical about our institutions and how they operate.  The evidence is clear that the system is loaded in favour of the powerful and the vested interests.

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2 Responses to JOHN MENADUE. How and why corporate regulators have failed us.

  1. Kim Wingerei says:

    Spot on, and I wonder if the the Royal Commission into the banking industry will also adequately address the systemic failures of APRA, ASIC and the other regulatory bodies? Is it adequately covered in the frame of reference for the commission?

  2. Simon Warriner says:

    John, I agree with your article, and I am well aware of a serious, evidenced complaint to ASIC that ASIC failed to even acknowledge receipt of, that involved criminal fraud against a public company I worked for, and have personally witnessed Worksafe Tasmania take 6 months to ASSESS (not investigate) a serious 90 page complaint with evidence of extortion, bullying and breaches of duty of care by senior officers of the public service as being not worthy of investigation on the basis that those accused denied the complaints were true, without bothering to ask anyone who might have supported the complainant.

    I have thought long and hard about why our regulators are so f’n toothless and have drawn the conclusion that it comes back to the leadership of our politicians in office.
    This lot of miscreants (of all parties) collectively demonstrate a failure to understand conflicted interests when they sign up as party candidates for the job of representing an electorate full off constituents, many of whom do not support the policies of the party in question. That failure to understand the dangers inherent in having conflicted interests is then applied to the task of governing, with the witless and woeful results you have so ably described.

    The answer, I humbly suggest, will not to be found in adjusting the regulator settings, but in the electorate being made aware of the flaws of party politicians and sourcing their governance from a somewhere not contaminated by the interest conflicting garbage that party politics has, inevitably, become. Independent candidates have much potential to fill this void if properly marketed to the voters. The dilemma is that it will take a concerted effort by an organised group to perform that marketing task and most independents would instinctively steer well clear if it was not performed scrupulously and professionally.

    Smart people don’t willingly conflict their interests, and they are therefore unlikely to be attracted to or remain long in party politics. This fact drives the relentless and arguably exponential decline in the intellectual quality and ability of the party offerings and I submit that we are in fact witness to the tail end of such a decline.

    I would like to think we are smart enough as a nation to avoid what happens if we ignore this declining standard of leadership, but the reality is probably that we will leave it too long and fall for some smooth talking despot who tells us it is all shite and he will make it better

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