Australia’s corporate regulator is considering criminal sanctions for bad corporate culture:
The Australian Securities and Investments Commission’s chairman Greg Medcraft told a Senate Estimates hearing that he wants to be able to charge banks and their directors when company culture has allowed for misconduct by employees.
“The areas we are planning to target are those where poor practices may increase potential for poor conduct and therefore increase the risk to trust and investor and consumer trust and confidence,” he said in his opening address.
Medcraft would do well to reassess his position on this issue given the extent to which his proposal diminishes the rule of law. There are two key problems with the proposal.
First, punishing bad culture is code for holding one person responsible for the actions of another person. Medcraft used an interesting analogy to make his point:
“When an employee breaches the law … and culture is responsible, then not just the employee, not just the fruit, but also the tree, which is the officers and the company, should also be responsible,” Mr Medcraft told the Senate committee.
Applying Medcraft’s analogy outside the corporate world might suggest he is advocating that parents should be held liable for crimes committed by their children. Indeed, the parent-child relationship seems to fit the fruit-and-tree analogy even more closely than the employer-employee relationship does.
Legal liability is individual. It’s evolved that way because individuals are capable of making choices about their own behaviour. The philosophical underpinnings to this approach are clear – if we accept that individuals have free will then they ought to be held to account for their own decisions. Holding an employer liable for the criminal conduct of employees is a radical reconstruction of our common law legal system.
Secondly, defining what constitutes poor culture is a hopelessly subjective exercise. At best an ambiguous definition of bad culture could be drafted that would leave room for interpretation in the hands of lawyers and judges – and grant a degree of discretionary power to ASIC.
Frankly, if ASIC is interested in reining in poor culture there’s no need for it to leave the building. ASIC itself has significant cultural problems, not least the lack of respect this government body shows for basic principles of liberal democracy such as the rule of law.
Rather than giving ASIC more power to wield over our economic engine room, the Commonwealth parliament should be looking at ways in which the regulator can be brought to heel.