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Thursday, March 25, 2010

Integrity could benefit from twice promised ALRC review of private sector disclosures

Ross Gittins in Integrity flourishes in openness  in the Sydney Morning Herald found an eye-opener in a new book, The Economics of Integrity, by the New York journalist Anna Bernasek, published by HarperCollins: markets and everyday transactions are based on mutual trust and confidence. It's a point that's also true about dealings with government. And a reminder that kicking around somewhere within government are terms of reference, initially promised before the end of last year, for an Australian Law Reform Commission inquiry into private sector disclosures.

 Gittins says despite all the cynicism
there's actually a lot of integrity in the world. Indeed, the economy is built on it. And it's made a major contribution to our prosperity. Economists tend to emphasise the role of competition in making the economy more efficient, and the importance of the individual. Unfortunately, they underplay the role of co-operation and the way we depend on each other. Bernasek says integrity has two components. The first is being trustworthy - following the rules, telling the truth and being careful on the job. The second is having trust in others. So integrity refers to relationships of mutual trust.
Bernasek's view is that to build systems that work the focus has to be on the DNA of integrity:
disclosure, norms and accountability.
Disclosure means a systematic effort to share facts openly. When behaviour is hidden, the temptation to deal dishonestly can be too great to resist. Formal systems for feedback between buyers and sellers encourage people to behave well. Norms means a carefully developed set of rules about acceptable behaviour. Rules that are as clear as possible and are regularly updated and refined to keep them relevant and credible. Accountability means policing the rules and punishing offenders, thus creating considerable confidence that cheating the system doesn't pay.
It must have been concern about private sector organisations that fail the first of these tests, to share information openly, that prompted the announcement a year ago by then Special Minister of State John Faulkner:
"the Government will (later this year) provide the Australian Law Reform Commission with a reference to consider whether FOI should be extended to, or another disclosure regime provided for the private sector."

This appeared to have slipped under the radar completely until on 26 November Parliamentary Secretary Byrne in introducing the Freedom of Information reform bills said:
To ensure the reform package delivers effective change, provision is made in the bill for the act to be reviewed two years after the commencement of the reforms. The government will also consider further improvements and will ask the Australian Law Reform Commission to inquire into whether the FOI Act or another disclosure regime should apply to the private sector."
Senator Faulkner's 2009 came and went. The Parliamentary Secretary's statement  gave no indication when the ALRC  would be tasked. Meanwhile integrity in many areas of the private sector remains an issue of concern-one of the reasons for Financial Services Minister Chris Bowen inviting submissions last October on an options paper exploring strategies for improving protections for corporate whistleblowers. The Minister at the time said:
"..whistleblowers can make an invaluable contribution to the protection of investor interests and the preservation of market integrity. However, whistleblowers must be shielded from the risks they face in coming forward."
An ALRC inquiry on the broader issue of private sector disclosures would make an appropriate bookend. And keep to a promise now twelve months old.

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