LIQUIDATING CORPORATE
ETHICS
Peter Riordan
Senior Lawyer Enforcement
Australian Securities & Investments Commission
The views expressed are those of the presenter, and not the Australian
Securities and Investments Commission
The Plan:
1.
2.
3.
4.
5.
6.
Three case studies.
Corporate governance countdown.
Ten propositions.
Some anecdotal evidence.
Is civil penalty the way to go?
Reform of the criminal justice system.
OTHELLO
Cassio:
Reputation, reputation, reputation. Oh I
have lost my reputation. I have lost the
immortal part of myself, and what remains
is bestial. My reputation, Iago, my
reputation.
Iago:
As I am an honest man, I thought you had
received some bodily wound; there is more sense
in that than in reputation. Reputation is an idle
and most false imposition: oft got without merit,
and lost without deserving. You have lost no
reputation at all, unless you repute yourself such
a loser.
Billy Maddison
Question:
The American business environment has
fundamentally change following the insider
trading, and savings and loans scandals.
Explain “business ethics”, and how they are
applied today.
Eric’s answer:
The ethics of business can be summarised in …
Ethics are …
The thing about ethics …
That question was not fair.
August 21, 2002.
The following statement was given today on behalf
of Michael Kopper:
“Today, Michael Kopper has accepted personal
responsibility for his role in the Enron tragedy.
Michael has admitted that he misused his
position at Enron to enrich himself and
others, and in so doing violated his duties as
an Enron employee.
Michael also has agreed to pay millions of
dollars to a restitution fund for victims of
Enron, and he has promised to co-operate
with the Department of Justice and the SEC
in their continuing investigations.
Michael hopes that these actions
demonstrate his deep regret for his own
conduct. He apologizes to all those whose
lives have been affected by what he did.”
Corporate Governance is concerned with:
• management accountability;
• Boards having a supervisory and managerial
function;
• separation of supervisory / managerial roles;
• full and timely disclosure to shareholders;
• engagement of honest professional advisors.
Role of ethics in corporate governance.
Corporate Governance
Countdown (AFR 07.08.02)
• Feb 2001: HIH collapse
• Apr 2001: Ramsay Report – recommends
reforms to keep auditors independent
• May 2001: One-Tel collapse
• Jan 2002: Enron collapse – failure of
auditors Andersen to detect questionable
bookkeeping –debt shifted to off-balance
sheet entities.
Corporate Governance
Countdown (AFR 07.08.02)
• Mar 2002: Worldwide network of auditor
Andersen starts to unravel.
• Jun 2002: Worldcom reveals massive accounting
fraud - $A13B of expenses treated as capital items
to inflate short-term profits.
• 16/7/02: ASIC Chairman Knott calls for executive
pay restraint, improved corporate governance, and
action to deal with ASX’s potential conflict of
interest.
Corporate Governance
Countdown (AFR 07.08.02)
• 17.6.02: PM rejects calls for tougher
business laws. “I don’t believe that
because there have been some failures in
certain areas, you dump a whole lot of
additional regulation on honest, ethical,
law-abiding business men and women.”
Corporate Governance
Countdown (AFR 07.08.02)
• 17.6.02: ASX rejects ASIC criticism and
dismisses calls for tighter corporate governance
guidelines.
• 26.06.02: Harris Scarfe CFO, Hodgson gaoled
6years (18 x fail act honestly; 6 x improper use
position; 7 x false information to ASX).
• 01.8.02: Bush signs tough new US corporate
governance and accounting laws.
• 02.08.02: ASX reverses its position announcing a
new Corporate Governance Council.
Corporate Governance
Countdown (AFR 07.08.02)
• 08.08.02: PM warns business leaders over
corporate ethics.
• Various dates in 2002: ASIC tells public that it
has sent 69 “white collar criminals” to gaol in last
3 years.
• [Persons identified in Annual Reports: eg
dishonest company directors and advisers; manage
whilst disqualified; scam operators. NB No
directors of listed public companies.]
Ten Propositions
(relating to the ethical governance of
listed public companies)
Proposition 1
Unethical behaviour covers a diverse
range of conduct.
Proposition 2
Fraud has been (and will be) around
for ever.
Proposition 3
Ethical leadership comes from the top.
Ethical behaviour comes from within.
Oscar Wilde:
I can resist everything, except temptation.
Charles Colson:
What fools we are when we think we can
legislate away human immorality. We
certainly need laws, but I stand as living
proof that the cure comes not from laws and
statutes but from the transforming of the
human heart – the embracing of a moral
code to which conscience is bound.
Proposition 3
Ethical leadership comes from the top.
Ethical behaviour comes from within.
Proposition 4
We live in a global village.
21st century business
regulated by 20th century regulators
supported by a 18th century
criminal justice system.
Proposition 5
Risk, reward and corporate failure are
norms of the market place.
Proposition 6
We are all guilty of greed and
materialism.
(Ross Gittins)
The myth of the “cult” CEO.
Proposition 7
The “pressures” to achieve short term
gains will come back to haunt us all.
Proposition 8
Listed companies can collapse for a
variety of reasons.
Proposition 9
As the corporate regulator, ASIC has a
central role to play. But what role?
Proposition 10
The criminal justice system is
designed to “keep in check” the poor,
the unemployed, and the working
class.
It has no role to play in the lives of
the rich, the professional class, and
the boards of listed public companies.
Some anecdotal evidence:
Offset Alpine Printing.
The investment newsletter.
The Telstra 2 share offer.
Nomura.
Simon Hannes.
Civil penalty actions
What they are.
The appropriate balance.
Whitlam (5 years/$20K pen.)
Adler (20y/$900K);Williams (10y/$250K)
- joint $7.9m compensation
One-Tel directors: ASIC seeking $75m com
GIO officers: alleged mislead own Board.
Reform of criminal proceedings
(CEOs, CFOs, Chairman, Exec Directors)
Trial before judge only.
Proof to high standard.
No right to silence.
No privilege against self-incrimination.
Adverse inference if forgetful.
Macbeth
Tomorrow and tomorrow and tomorrow,
Creeps in this petty pace from day to day to the
last syllable of recorded time.
And all our yesterdays have lighted fools the way
to dusty death.
Out, out brief candle.
Life’s but a walking shadow, a poor player that
struts and frets its hour upon the stage, and then is
heard no more.
It is a tale, told by an idiot, full of sound and fury,
signifying nothing.
Sources
1.
“Corporate Governance – Principles, Promotion and Practice”, paper delivered by ASIC
Chairman David Knott on 16.07.02.
http://www.asic.gov.au/asic/asic.nsf/lkuppdf/ASIC+PDFW?opendocument&key=Monash_spch_
160702_pdf
2.
“Getting to the root of modern evil”, article by Ross Gittins, SMH, 28.08.02.
3.
“Yes, you can legislate for morality”, article by Ross Gittins, SMH, 26.08.02.
4.
“You can’t enforce honesty”, article by Ross Buckley, AFR, 12.07.02.
5.
“Sorry, guys, but greed corrupts absolutely”, article by Warren Scott, AFR , 01.08.02.
6.
“Corporate crime laws ‘not used enough’”, article by Elizabeth Gooch, Age, 14.07.02.
7.
“Corporate collapse and the riddle of the silent insto shareholders”, article by Martin Lawrence,
Investor Weekly, 24.06.02.
8.
“PM puts CEOs on notice”, news item by Fiona Buffini, AFR, 07.08.02.
Sources (cont)
9.
“US investors need more than corporate integrity to lift hopes”, article by Malcolm Maiden, Age,
19.08.02.
10.
“Time is right for CFOs to make a stand” and “CFOs: villians or fallguys?”, articles by Elizabeth
Fry, CFO, 01.08.02.
11.
“Corporate cop on the beat: You’re booked”, article by Richard Gluyas, Weekend Australian,
20.07.02.
12.
“Harris Scarfe collapse: Hodgson gets 6 years”, news item by Katherine Towers, AFR, 27.06.02.
13.
“Former WorldCom executive charged”, news item, SMH, 02.08.02.
14.
“WorldCom fraud doubles to $A13 billion”, news item, SMH, 09.08.02.
15.
“Self-regulators get down to business”, editorial in The Australian, 08.08.02.
16.
Enforceable Undertaking by Rene Rivkin and others, 04.10.00.
17.
“Global Investment Fraud”, paper by Niall Coburn (ASIC), 2002.