A major cause of public disillusionment with governments, public servants and big business is the number of instances of reprehensible behaviour or misuse of office for which the perpetrators do not appear to have been appropriately sanctioned or punished.
Our statement:
- analyses recent instances in which those engaged in proven or probable misconduct or unethical behaviour have not been held to account for their conduct,
- reviews the chain of responsibility for preventing, oversighting and sanctioning wrongdoers so as to deter any repetition of such conduct,
- suggests some principles which could reduce the likelihood of such forms of behaviour.
Instances are given from the Federal and State governments and the private sector.
Responsibility for failure to act can, in principle, be sheeted home to Prime Ministers, Ministers, heads of departments and agencies and even external integrity bodies, and their equivalents in the private sector.
But examples of abuse of office occur so regularly that there is clearly an expectation among perpetrators that they will not be punished and a reluctance on the part of their managers and other responsible parties to do anything about it. Both need to be tackled. We propose to:
- Insist on appropriate sanctions or punishment.
- Establish that ignorance of what subordinates are doing is not an excuse for inaction but a confession of failure to implement adequate control systems and require commensurate sanctions or punishment including termination of employment where such controls are not in place.
- Strengthen organisational control and compliance mechanisms.
- Strengthen the capacity of accountability bodies to investigate and publicly report and hold them accountable for failure to investigate any malfeasance within the scope of their authority.
- Ensure more votes are cast at Annual General Meetings of public companies.
See below for the tables
WHO IS RESPONSIBLE?
A. Misuse of Public Assets.
1. Abuse by Ministers and other members of parliament.
Responsibility for disciplining Ministers rests in the first instance with the Prime Minister of the day. While notoriously bad behaviour is sometimes the trigger for announcing a new Code of Conduct such as the ‘Bonk Ban’ only 8 Ministers have resigned or been stood down for corrupt activity since the start of this century. In that time 27 Ministers have resigned or been removed from office following a disagreement with the Prime Minister, and five for poor personal behaviour. The above identifies misconduct and possible corrupt actions by Ministers that were not been disciplined by the Prime Minister of the day. Some were referred to the Australian Federal Police for investigation but were not pursued for reasons that were never satisfactorily explained.
All members of parliament are subject to discipline by the Speaker or President of their House but this power relates to behaviour in Parliament rather than abuse of office.
2. Line Management in the Public Service.
The examples above show that prime offenders could be at any level within a public service department. In every case the first responsibility for disciplinary action is their immediate supervisor and so on, the top of the chain being the Departmental Executive, the Department Secretary, and ultimately the Minister. This responsibility was not exercised in the cases described and there appears to be a view that “No one told me my subordinates were doing wrong” is an adequate excuse for having failed to act. It constitutes an admission of culpability for not requiring matters of significance to be reported and properly oversighting their staff. It is now over 40 years since Lord Carrington resigned as UK Foreign Secretary because his department had failed to warn him about Argentina’s upcoming invasion of the Falkland Islands. It seems highly unlikely that any Australian politician today would be required to do the same thing. So far as we know, no Australian public servant has ever faced disciplinary action for their failure to adequately advise their superior officers or their minister on any matter.
3. Public Service Corruption – Internal Audit and Risk Management.
Within public service departments, and separate from the line management of operations, one or more bodies is responsible for assuring probity, typically an internal audit unit or risk committee. Any improper conduct that operating units and their senior managers have failed to prevent should be picked up by such bodies, but unless their performance is further reviewed by external agencies there is little public transparency concerning their activities.
4. External Integrity Bodies.
When there appears to be evidence of serious impropriety, the matter can be referred to different external integrity bodies, each with different purposes and powers. In relation to the federal government, these include the Auditor General, the Public Service Commission, the National Anti-Corruption Commission and the Australian Federal Police.
In all the cases cited relating to the public service, the conduct could have been prevented. There has been no sanction imposed by any of the above bodies. Several cases were referred to external integrity bodies who, despite strong evidence of likely malpractice, chose not to pursue them.
B. Private Sector Misconduct.
Similar considerations apply to the responsibilities of line management as in the public service, with the ultimate responsibility for sanctions and remedial actions resting with the Boards of public companies or with the relevant governing committee in the case of partnerships. If these fail in their duty to ensure probity, external bodies such as the Australian Stock Exchange, the Australian Competition and Consumer Commission, the Australian Securities and Investment Commission and the relevant police force are empowered to impose sanctions. Again in the private sector examples identified no or inadequate action has been taken by such bodies.
WHAT SHOULD BE DONE?
Examples of egregious and publicly known abuse of office occur so regularly that there is clearly an expectation among perpetrators that they will not be punished and a reluctance on the part of their managers and other responsible parties to do anything about it. Both need to be tackled. Our proposals are:
- Insist upon the administration of appropriate sanction or punishment.
- Establish that ignorance of what subordinates are doing is not an excuse for inaction but a confession of failure to implement adequate control systems and require commensurate sanctions or punishment including termination of employment where such controls are not in place.
- Strengthen organisational control and compliance mechanisms.
- Strengthen the capacity of accountability bodies to investigate and publicly report and hold them accountable for failure to investigate any malfeasance within the scope of their authority.
- Ensure more votes are cast at Annual General Meetings of public companies.
Exemplary punishments: It is difficult to start imposing heavy sanctions when previous perpetrators have remained unpunished, but it is necessary so as to send a strong signal to those who are tempted to take bribes or offers of future employment to act against the public interest. There is a suspicion that there are areas of certain public service departments where it is expected that such abuses will occur and many in a position to take advantage of the opportunities will do so. Shock treatment is needed. Binding disciplinary guidelines are needed across government and corporations, specifying minimum penalties for corrupt behaviour and actions taken should be reported to the public.
Ignorance is failure, not an excuse: The media have a role to play in communicating this message widely. It will be facilitated when a senior person loses their job for not ensuring probity among their subordinates.
Organisational compliance mechanisms: Effective management of the compliance of subordinates should be an important element in assessing the performance and promotability of all public servants and private sector managers. In relation to the Commonwealth, the Public Service Commission should undertake regular audits of the performance of Departmental compliance mechanisms.
Accountability bodies: ART’s research and recommendations on anti-corruption commissions will be detailed elsewhere. The widespread disillusionment with the performance to date of the National Anti-Corruption Commission needs to be dealt with quickly and solutions will involve greater transparency and, almost certainly, a change of leadership.
Other accountability bodies are often underfunded (perhaps deliberately so) and have limited powers to initiate investigations, compel evidence and impose punishments. Their scope and authority need to be broadened and they should be held accountable for a failure to investigate corrupt activities that occur within the scope of their powers. Compliance audits should be undertaken far more frequently than they are today. The effectiveness of all accountability bodies should be reviewed by external auditors regularly in order to avoid corruption within compliance processes or capture by the parties they oversee. Terms of reference of commissions of enquiry should be examined by independent parties to ensure they do not exclude possible wrongdoers from investigation. Addressing all these issues will involve much greater resourcing of accountability bodies. Some of the contracts that are alleged to have been corruptly awarded involve such large sums of money that an investment in strengthening the capacity of the relevant accountability bodies might be repaid many times over.
More votes at AGMs: Annual General Meetings are usually effective in protecting the financial interests of investors as the largest shareholders are institutions whose managers are judged on the success of their investment strategies. Such institutions usually either exercise their votes themselves or assign them to a governance advisory firm. They are less effective in dealing with questions of probity of conduct among senior managers and Board members because the chairman only needs to persuade a handful of individuals not to pursue a particular issue and those individuals want to stay on good terms with the company to have access to information that will affect the company’s financial performance. They are likely to look the other way on non-financial matters when invited to do so.
This problem might be at least partially countered by harnessing the votes of small or retail investors who seldom bother to vote. Rather than inviting them to give the Chairman their proxy vote, an invitation that not all shareholders take up and in any case doesn’t address the problem at all, all votes not made in person or by post should be assigned to a corporate governance firm selected by lot from a panel approved and regularly reviewed by the Australian Securities and Investment Commission.