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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)

Rated De
26th Mar 2018, 00:54
I find it fascinating that so much energy is spent to circumvent regulation. Then spend enormous sums lobbying for 'light hand' regulation.

Having studied governance for years, I find it amazing in the Australian context that a listed company can maintain briefings of selected shareholders, argue to the regulator that these briefings are 'commercial in confidence' yet somehow simultaneously they conform with listing rule 3.1 and section 674 of the Corporations Act 2001. Simply put, the market is supposed to be informed of any material development to a companies' share price. (section 674 and listing rule 3.1 both stipulate this)

This is a fundamental pretext of the efficient market: All information is instantly incorporated into a share price as all market participants know it at the SAME time.

Yet somehow SOME market participants (shareholders) get commercial briefings that are in confidence. The counter factual argument is that if there is nothing that is released to these selected shareholders that the market doesn't already know why are executives allowed to state they are commercial in confidence?

Either the regulator permits selected briefings,acknowledging the 'insider' status and dismissing the 'efficient market' or they allow all shareholders access to the briefings.

However ASIC say very little, and it is exactly by design as Australia has extremely loose corporate governance and 'regulators' are just empty suits.
Same as it ever was..

angryrat
26th Mar 2018, 01:52
Already happened in QF when the freight cartel was exposed. https://www.google.com.au/amp/s/amp.smh.com.au/business/exqantas-freight-chief-pays-heavy-price-for-cartel-20090503-arek.html

stormfury
26th Mar 2018, 11:24
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

A very good comparison. Not too dissimilar to one of Nassim Teleb’s assertions.
“Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.”
Nassim Nicholas Taleb, Skin in the Game: Hidden Asymmetries in Daily Life

Although I don’t agree with everything that Taleb says; he has some very good thoughts on how large bureaucracies and corporations should be organised and run.

Dated but still relevant:
https://mobile.nytimes.com/2011/11/08/opinion/end-bonuses-for-bankers.html?referer=https://www.google.com/

Lead Balloon
26th Mar 2018, 11:57
And there’s no Santa Claus.

(Just sayin’, for the benefit of those for whom the content of this thread is some kind of revelation.)

cooperplace
26th Mar 2018, 12:03
it's not just corporations. The public service works very hard to ensure that individual public servants are rarely accountable, hence their sometimes high levels of dishonesty.

packapoo
26th Mar 2018, 20:54
it's not just corporations. The public service works very hard to ensure that individual public servants are rarely accountable, hence their sometimes high levels of dishonesty.

Powers that define a certain cricket team's operation seem to have attached the same learning curve......:}

Blitzkrieger
26th Mar 2018, 21:29
If you haven't already seen it, I'd strongly suggest you watch Inside Job (2010) - IMDb (http://www.imdb.com/title/tt1645089/) it spells out the corporate attitude very nicely. It also displays the paralysis suffered by the Government agencies who provide the oversight; an ironic term if ever there was one :ugh:. Perversely, it might just be an economic collapse that save the airlines.