THE fall-out from the profligate 1980s continues. The response from the Federal Government was to tighten up. This meant a plethora of new law and bodies to administer them. In turn this has led to a debate about the best way to regulate corporations.
Last week, the retiring head of the Australian Securities Commission, Tony Hartnell, made a novel contribution to that debate.
But first some background. On one hand, we have the proponents of what is charmingly called black-letter law these are essentially the Federal bureaucracy and the parliamentary drafters. Black-letter law is the unintelligible language of Australian statute law. It arose because crooks found loopholes in simply worded laws: they obeyed the letter of it, not its spirit. Courts, very stupidly allowed them to get away with it. They applied the letter of the law, rather than the spirit. That made life more certain, the judges said.
Ho-hum. The regulators attempted to close the loopholes by trying to foreseeing every possible contingency and providing for it. The crooks found more loopholes and so it went on, adding more uncertainty to corporate regulation all the time.
A fortnight ago, for example, the Government guillotined through the Parliament 200 pages of amendments to the Corporations Law setting out the duties of directors. Insane.
Mr Hartnell pointed out in a lecture at the St James Ethics Centre in Sydney that the simple ethical rule that corporations should not put their hands in the till of associated companies except in the ordinary course of business had resulted in 90 sections and 60 pages of black-letter law.
Mr Hartnell pointed out that the law was complex and long because it evolved with community expectations resulting from changes in the corporate climate: from the 1890s depression to the 1960s mining boom and beyond.
Now the “”community expectation of corporate regulation is blood lust. The “hanging’ mentality is dominant. It is also unqestioning and unreasonable. Effectively it demands blood almost regardless of the law and the facts.”
Earlier this year Mr Hartnell was engaged in vigorous debate with the Federal Director of Prosecutions, Michael Rozenes, QC, through the public medium of parliamentary committee hearings. Mr Rozenes wanted the ASC to do more to get together admissible evidence so corporate crooks could face justice. Mr Hartnell asserted that the prosecution path was not always productive. It engaged huge resources for doubtful return.
This debate, which I thought at the time fruitful, worthwhile and in the public interest was described variously as an unseemly brawl and questions were asked as to why these two were brawling instead of putting crooks in jail and why couldn’t they argue privately. Arguing privately is not very helpful. Because this debate was brought into the open, far better contributions on the issue of corporate regulation have been made.
It certainly set Mr Hartnell thinking again. His lecture last week revealed that. He thought black-letter law could not be eradicated, but it could be supplemented.
At present black-letter law resulted in defective ethics, he said. People thought that if they obeyed the letter of the law they could say “”my conscience is clear”. Moreover, all their sleazy accountants and tricky lawyers could say the same thing.
Mr Hartnell called for a new public institution to buttress black-letter law. Its members would be leading commercial people and it would engage in peer review. It could neither fine nor imprison. Its sole weapon would be shame.
He likened it to the London Takeover Panel which looks at the fairness of takeovers. It publishes short conclusions about the ethics of actions taken by individuals or companies.
Mr Hartnell said that the majority, who wanted to do the decent thing, would be affected. Mr Hartnell’s body would have a code of ethics that corporations would be expected to obey. Many, of course, would look to the code to guide their conduct. This, I opine, would be a good thing. The present Corporations Law is unreadable and therefore no guide on how people should behave in corporate life. Business people have to rely on their Sunday-school lessons, which are not always helpful in complicated corporate matters. An ethics guide, with persuasive enforcement, would help.
Of course, Mr Hartnell’s new body, and the media that reported it, would have to be protected from those who are exposed from turning around and suing for defamation. Otherwise, the public would never hear about who is a corporate sleaze. The shame factor would not work.
What one does to prevent malfeasance by those without shame is a difficulty no law will overcome.