The relationship between government and business is often fraught, confrontational and difficult to manage. Government regulation, in theory designed to ensure the smooth operation of our economy and society, is often seen as an impediment by businesses keen to progress its interests on its own terms.
But after years working in both the public and private arena I am convinced it doesn't need to be this way.
Rather than struggling against government regulation, businesses should be looking for opportunities to use it to their advantage. Rather than see regulation as something which needs to be avoided, business should be looking to engage with government and move the debate in a direction which would be more beneficial to their own operations.
The problem with simply attacking and fighting against regulation, is that we eventually reach a point where there is no regulation and therefore no checks and balances in place to prevent a market overheating, or adopting deleterious practices.
The sub-prime crisis in the US is a perfect example of where a poorly regulated sector ultimately forced not only its own demise, but caused ripples which are now being felt throughout the global economy. And unfortunately the response to events like this one tend to be reactive, rather than consultative, leading to unnecessarily heavy regulatory responses.
Although it's commonly called for within the business community, in most cases it is naive to expect industries to self-regulate, or to expect governments to get regulation right without a significant amount of input from the business community.
However, smart businesses will look for ways to work with government when it comes to the drafting of regulation, so as to ensure that it achieves the desired outcome of restraining some of the more risky practices businesses will adopt, if not kept in check.
Interestingly, the principle of working with, rather than against, government regulation works across a range of different countries and economies. There are some basic differences, but so long as the commitment to work together exists, the potential for cooperation is vast.
It is up to business, however, to take a fresh look at their regulatory framework and figure out what they are able to achieve, and what areas they need to work on.
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After decades working in the both the public and private service, Patrick Callioni has literally ‘written the book' - having recently published "Compliance and Regulation in the International Financial Services Industry", in which he gives practical examples and strategic advice to industry looking to work with Government in a number of jurisdictions.
Can compliance be turned into a competitive advantage, rather than a driver of costs? Are financial institutions merely passive recipients of government intervention or is it possible for smart corporates to play a role in shaping regulation and compliance, nationally and internationally?
This book addresses these challenges and explores all these opportunities. It provides detailed guidance for those who are responsible for designing and applying compliance regimes in companies. That guidance will be provided in context: legal, social and economic. Understanding the context is essential to anyone wishing to extract value from compliance, possibly turning a cost center into a competitive advantage.
Book a copy at Amazon.com - http://www.amazon.com/Compliance-Regulation-International-Financial-Services/dp/1906403023
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Comments
consensus back on the agenda
What I find interesting about this approach is that it begins with a very important point: you go into a negotiation expecting a positive outcome, not necessarly an entirely favourable outcome, but an outcome which is acceptable to both parties. In order to reach such a position in any negotiation it is fundamental to go into the the meeting with the expectation, not of losing or of winning, but of reaching an agreement.
I believe it is an attitude which lends itself as much to negotiations between business as it does to negotiations between business and government, or even between different government departments.
And I can't help but be reminded of how important in past governments it has been to reach a "consensus" between the different parties, whereas in recent times I wonder whether a more combative approach has been adopted as a result of government culture, rather than business culture.
Any thoughts?
Agency consolidation and the "mega-regulators"
There is a large variety of regulatory agencies dedicated to regulating specific industries, such as the federal Civil Aviation and Safety Authority or the Australian Fisheries Management Authority.
Table: Resources of selected Australian Government regulatory agencies in 2004-05
*Data from 2003-04
Source: Annual reports.
Adopted from Productivity Commission, Regulation and its Review, 2004-05
But occupying a central role in Australia's regulatory system are a few key economic regulators with economy-wide scope. Rather than being confined to narrow jurisdictions, typically these agencies not only regulate a wide variety of industries, but are also multi-dimensional in scope. That is, Australia's major economic regulators regulate for both economic and social outcomes, as well as undertaking technical regulation such as standards setting. These regulators are not built around the institutions that they administer, but rather are built around "functional" lines. (1) For example,
Functional regulation is said to be more suitable for economic systems that are highly complex, and when the boundaries between industries are blurred. With jurisdiction across the economy, functional regulators are able to identify similar characteristics in firms from different sectors and regulate appropriately. (2) In an "institutional" or industry-centric regulatory system, firms may avoid regulation by engaging in activities in which the regulator may not have specialist expertise to regulate, or the regulator may develop standards which contradict those of other regulators.
Some academics have argued that institutional regulation, by "siloing" off industries into distinct and separate categories, is more resistant to possible "runs" of risk across industry sectors, (3) although there has been some evidence to suggest that adopting a functional approach to financial regulation in Australia has not been harmful in this way. (4)
This comment looks specifically at the three major functional economic regulators, the ACCC, ASIC and APRA. However, it is worth noting that the Australian Communications and Media Authority and the Reserve Bank of Australia are also major economic regulators. Furthermore, both the Australian Taxation Office and the Australian Customs Service also have substantial regulatory powers.
ENDNOTES
1. Australian Prudential Regulatory Agency, "APRA and the Financial System Inquiry", Working Paper, January 2000.
2. Di Thomson and Malcolm Abbott, "Australian Financial Prudential Supervision: An historical view", Australian Journal of Public Administration, vol. 59, no. 2, June 2000.
3. RC Merton and Z Bodie, "A conceptual framework for analyzing the financial environment" in The Global Financial System: a Functional Perspective, Harvard Business School, Boston, 1995.
4. Colin Beardsley and John O'Brien, "The Financial Services Reform Act 2001: Impact on systemic risk in Australia", ICMA Centre Discussion Papers in Finance, DP2005-12.