Why the philosophy of compliance will always fail

Richard RobinsonCompliance, Due Diligence, Legislation

R2A Article: Why compliance fails

A very popular pastime of Australian parliaments is to pass legislation and regulation on the basis that, once it becomes the law, everyone will comply and it will, therefore, be effective.

A concomitant result is that many boards and their legal advisers conduct compliance audits to confirm that these legal obligations have been met and, having done so, declare that they are ethically robust, safe and societally responsible.

This is a flawed philosophy at many levels.

  • First, the sheer number and extent of laws and regulations in Australia means that the actual possibility of demonstrating compliance with each and every one is a logical impossibility. 

    Conceptually, the philosophy of compliance suggests that the more laws and regulations the better, even if the cost to demonstrate compliance continues to increase.

 

  • Second, in safety terms, mere compliance can never make anything safe.

    It is simply not possible for our parliaments and regulators to predict in advance all the possible existing concerns, let alone the circumstances of possible future problems.The objective should be to understand the purpose of something and to meet that need. Compliance is a secondary aspect.For a simple example: Pool fencing is designed to prevent children drowning, not to satisfy a building surveyor, although this may be necessary to satisfy society that it has been done properly.

 

  • Third, compliance has always been about ensuring minimums; controlling the worst excesses.

    It is seldom about promoting the best that we-can-do.The behaviour of the financial sector, the sex scandals in religious orders and the mistreatment in aged care are cases in point. From a societal viewpoint, the horrendous matters reported in the various Royal Commissions simply ought not to have happened.But, will increased legislation and regulation prevent such dreadful things from re-occurring in the future? Or is there a better way?

Interestingly, the engineers seem to have always understood this.

The Code of Ethics of Engineers Australia has always emphasised that the interest of society comes before sectional interests.

These basic understandings, as articulated, for example, by the managing director of a major Australian Consulting Engineering firm to a young engineer in the 1970s, include:

1. S/he who pays you is your client.

A simple rule. Often overlooked. Having a building certifiers paid for by the developer easily leads to lazy certification. A better approach would be to have the (future) owners pay for the certification. The possibility of a conflict of interest would be functionally reduced by design.

 

2. No kickbacks.

A lot or rules and regulations can be written about this. But if a professional adviser does not understand that a hidden commission is morally indefensible, there is a problem that no amount of regulation can fix. It may not be illegal to pay a spotter’s fee, but it’s certainly morally suspect.

 

3. Stick to your area of competence.

Don’t provide advice or opinions without adequate knowledge. Does this really need legislation and regulation?

 

4. Be responsible for your own negligence.

That is, recognise that you can’t always be right. Amongst other things, advisers need professional indemnity insurance, in part, to remedy honest mistakes.

 

5. Give credit where credit is due.

That is, don’t take credit for what others have achieved.

 

There is nothing new or novel about these basic understandings. But rather than legislating and regulating with a list of things not-to-do, it may be better to re-design the commercial environment so that virtuous behaviour is rewarded.

Certainly, the old ACEA (Association of Consulting Engineers, Australia) used to do this. ACEA required that member firms were controlled by directors who were bound by the Engineers’ Code of Ethics.

This meant that in the event of a decision between the best interests of the consulting firm and the client’s, the client’s interests normally held sway.