Corporate Governance:
Legislate in haste, repent at leisure
While strictly non-partisan, AIMS understands the importance of helping political parties of all stripes to gain insight into the significant public policy challenges facing the region and the country. In recognition of the contribution that AIMS makes to policy debate, AIMS
President Brian Lee Crowley was invited as a non-party commentator on a panel at the national convention of the PC Party of Canada in Edmonton.
The other members of the policy panel were
Senator Donald H. Oliver, Deputy-Chair Senate Committee on Transport and Communications
John Eckert, President, Canadian Venture Capital Association
Walter Robinson, Federal Director, Canadian Taxpayers Federation
In his remarks Crowley addressed three questions put to him by the conference organizers. His second talk, a mock budget address, discussed the budgetary choices facing the federal government, he emphasized the wrong-headedness of holding on to labour policies designed to address systemic unemployment when the real challenge facing the country, and the world, in the 21st century is substantial labour shortages. These remarks are below:
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Ladies and Gentlemen,
Too often we have a tendency to worsen problems by legislating in a heavy-handed manner at a moment of moral panic. These ‘solutions’ often supplant or displace more rational and thoughtful, but less sexy and populist actions that would actually make things better.
There is no doubt that there is a serious problem of ethics in the senior leadership of the business community, and people have seen vast amounts of wealth, including their retirement savings, vanish in a puff of smoke. This requires a response, but which response matters enormously.
Remember that markets are in the middle of sorting a great deal of this out — as they should. The world in which the valuations of Yahoo, Inktomi, WorldCom AOL and Global Crossing were larger than those of Ford, GM, IBM and GE has come crashing down. All company balance sheets are being scrutinized with a very large magnifying glass and investors and analysts are demanding higher degrees of accountability and getting them. The market is meting out rewards and punishments as it should. Moreover, in his excellent presentation, Senator Don Oliver has outlined some of the other measures that companies, directors, industry associations, institutional investors, the TSX and others are taking to make the market more transparent and to ensure that confidence is restored.
Many of the corporate cowboys were being audited by the same complacent auditor: Andersen. That company has paid the price of its complacency, and has gone out of business, destroyed by the marketplace and the ordinary operation of the criminal law. The other major accounting firms are suddenly on their best behaviour, as they do not want to suffer the same fate. Some sensible accounting reforms are no doubt necessary, and certainly we need to keep our legislation abreast of US standards, but again, markets and investors are doing the vast majority of what needs doing.
Finally, most of the people involved in these scandals in executive suites and boardrooms, it is now clear, broke the law and are being prosecuted. The law is adequate to deal with this kind of malfeasance, fraud and misrepresentation, although again it might appear the more vigorous and aggressive enforcement might be indicated in some areas.
The chief problem that we face is that we cannot set up institutions based on the assumption of mistrust and dishonesty. The failure that we have experienced is a failure of morals and ethics. We cannot make people be honest or ethical by legal exhortation, so that there is no legal regime that can prevent people from not playing by the rules. All we can do is to create a regime in which failures to play be the rules are caught and made public and punished as quickly as possible, yet do not create a legal and regulatory burden that is so onerous that it prevents the normal functioning of business and the economy.
That leads to my concluding thought: the crisis in corporate governance that we face is in fact a crisis of moral leadership and the best way to deal with that is through a renewal of moral and ethical standards in the business and the political world. Laws can only really shape the form of human behaviour, whereas what we have here is a problem of essence.
People need to want to act ethically, and that comes from within, as well as from the moral atmosphere and expectations that our leaders in all spheres create. Both in Canada and the US, in my view, that leadership has been sorely lacking in business and politics. And that, and not some major overhaul of our legal approach to corporate governance, is what we most need now.
