CurtainTwitcher
25th Mar 2018, 22:24
Some interesting revelations have already come out in the Banking Royal Commission. There are quite a few parallels between two heavily regulated industries (Financial services & Aviation).
Although this article is specific to banking, I'm sure many on these boards can already see how Aviation has moved down the same path to "tick all the boxes", yet avoid criminal responsibility for ignoring the law. The structure of Corporations is key to the avoidance of responsibility at the senior executive level. Group structures and subsidiaries provide fertile ground for "diffusion of responsibility".
Remember this when you consider at your fitness for your next rostered duty or your fuel order. Your pain is their gain, but you'll end up in the dock.
The way banks are organised makes it hard to hold directors and executives criminally responsible
March 23, 2018 12.25pm AEDT
The Financial Services Royal Commission (https://financialservices.royalcommission.gov.au/Pages/default.aspx) has seen evidence that bank directors and executives deliberately put in place policies to ignore the law.
But research suggests the very organisational structure of banks makes it difficult (https://doi.org/10.1108/13590790910924948)to hold directors and senior executives criminally responsible for systemic misconduct (https://www.smh.com.au/business/banking-and-finance/are-banks-irresponsible-about-responsible-lending-20180320-p4z5bh.html).
The way corporations are arranged (http://www.jstor.org/stable/1806069), how decision-making is delegated, and information is gathered and distributed, appears to fragment and diffuse individual responsibility.
This makes it hard to establish criminal culpability (the standard of proof is “beyond a reasonable doubt”), even if directors and executives remain in control of processes and are paid bonuses based on organisational performance.
Certain clauses in commercial contracts and the structuring of corporate groups across multiple jurisdictions can also be used to frustrate investigations.
In cases where corporate criminality can be more directly tied to decisions by executives or directors, subsidiaries (or internal divisions) can be dissolved or sold.
A senior ANZ executive admitted to the Royal Commission (https://financialservices.royalcommission.gov.au/public-hearings/Documents/transcripts-2018/transcript-19-march-2018.pdf) that the bank has no process to verify income and expenditure statements in loan applications.
This is despite laws (http://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-209-credit-licensing-responsible-lending-conduct/) requiring lenders to take reasonable steps to establish borrowers’ ability to service loans.
Moreover, this was not an oversight but a deliberate decision to substitute regulatory requirements for less rigorous internal practices.
This is an example of “decoupling (http://journals.sagepub.com/doi/abs/10.1177/1362480606065911)”.
Decoupling occurs when corporations say publicly that they follow the law, and even create policies to tick regulatory boxes, but then do something entirely different as a matter of standard practice.
With existing corporate governance structures in place decoupling is extremely difficult to detect (http://www.jstor.org/stable/193681) from the outside. It takes active oversight by regulators, internal whistleblowing or public inquiries with coercive powers to gather evidence to identify it.
Certain types of (re)organisation also enable systemic misconduct (https://doi.org/10.1017/S000712340000572X) because they diffuse responsibility and diminish individual culpability.
These include (https://doi.org/10.1007/s10611-017-9741-z) sub-contracting, the use of consultants, creation of subsidiaries and transnational structures, relocating work to low transparency jurisdictions, and the use of franchising systems, dealer networks and agents (http://www.abc.net.au/news/2018-03-22/storm-financial-founders-fined-140k-over-800m-company-collapse/9576418?section=business).
These decisions about organisational structure are made at the board or senior executive levels.
Continues: The way banks are organised makes it hard to hold directors and executives criminally responsible (https://theconversation.com/the-way-banks-are-organised-makes-it-hard-to-hold-directors-and-executives-criminally-responsible-93638)
Although this article is specific to banking, I'm sure many on these boards can already see how Aviation has moved down the same path to "tick all the boxes", yet avoid criminal responsibility for ignoring the law. The structure of Corporations is key to the avoidance of responsibility at the senior executive level. Group structures and subsidiaries provide fertile ground for "diffusion of responsibility".
Remember this when you consider at your fitness for your next rostered duty or your fuel order. Your pain is their gain, but you'll end up in the dock.
The way banks are organised makes it hard to hold directors and executives criminally responsible
March 23, 2018 12.25pm AEDT
The Financial Services Royal Commission (https://financialservices.royalcommission.gov.au/Pages/default.aspx) has seen evidence that bank directors and executives deliberately put in place policies to ignore the law.
But research suggests the very organisational structure of banks makes it difficult (https://doi.org/10.1108/13590790910924948)to hold directors and senior executives criminally responsible for systemic misconduct (https://www.smh.com.au/business/banking-and-finance/are-banks-irresponsible-about-responsible-lending-20180320-p4z5bh.html).
The way corporations are arranged (http://www.jstor.org/stable/1806069), how decision-making is delegated, and information is gathered and distributed, appears to fragment and diffuse individual responsibility.
This makes it hard to establish criminal culpability (the standard of proof is “beyond a reasonable doubt”), even if directors and executives remain in control of processes and are paid bonuses based on organisational performance.
Certain clauses in commercial contracts and the structuring of corporate groups across multiple jurisdictions can also be used to frustrate investigations.
In cases where corporate criminality can be more directly tied to decisions by executives or directors, subsidiaries (or internal divisions) can be dissolved or sold.
A senior ANZ executive admitted to the Royal Commission (https://financialservices.royalcommission.gov.au/public-hearings/Documents/transcripts-2018/transcript-19-march-2018.pdf) that the bank has no process to verify income and expenditure statements in loan applications.
This is despite laws (http://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-209-credit-licensing-responsible-lending-conduct/) requiring lenders to take reasonable steps to establish borrowers’ ability to service loans.
Moreover, this was not an oversight but a deliberate decision to substitute regulatory requirements for less rigorous internal practices.
This is an example of “decoupling (http://journals.sagepub.com/doi/abs/10.1177/1362480606065911)”.
Decoupling occurs when corporations say publicly that they follow the law, and even create policies to tick regulatory boxes, but then do something entirely different as a matter of standard practice.
With existing corporate governance structures in place decoupling is extremely difficult to detect (http://www.jstor.org/stable/193681) from the outside. It takes active oversight by regulators, internal whistleblowing or public inquiries with coercive powers to gather evidence to identify it.
Certain types of (re)organisation also enable systemic misconduct (https://doi.org/10.1017/S000712340000572X) because they diffuse responsibility and diminish individual culpability.
These include (https://doi.org/10.1007/s10611-017-9741-z) sub-contracting, the use of consultants, creation of subsidiaries and transnational structures, relocating work to low transparency jurisdictions, and the use of franchising systems, dealer networks and agents (http://www.abc.net.au/news/2018-03-22/storm-financial-founders-fined-140k-over-800m-company-collapse/9576418?section=business).
These decisions about organisational structure are made at the board or senior executive levels.
Continues: The way banks are organised makes it hard to hold directors and executives criminally responsible (https://theconversation.com/the-way-banks-are-organised-makes-it-hard-to-hold-directors-and-executives-criminally-responsible-93638)