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

May 14, 2018

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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