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Regulation or Strangulation

September 12, 2018

 

Where is the line between Regulation and Strangulation?

 

Whilst many people sacrifice sleep to watch an international sporting event in another time zone, I don’t! However, I often find myself awake during the night reflecting on some ruling or issue that a Regulator has inflicted on an organisation with which I am assisting.  

 

When I can’t sleep during the night, it is not uncommon for me to tune into live television to watch an unfolding event in another time zone that has an impact on world politics, a legal framework or the general business environment.

 

I seized the opportunity to view, via live internet connection, the proceedings in the Brett Kavanaugh Senate Confirmation Hearing for the USA Supreme Court appointment.

 

It was a great education on the legal system in the USA; how laws are created, who determines them, the role of the President, the Senate and the Courts.

 

Ignoring the politics of the appointment and the antics of the proceedings, Brett Kavanaugh is a very impressive legal representative. If I was to study law in the USA, I would hope to have a professor and mentor with Kavanaugh’s depth and breadth of knowledge.

 

One point he made stood out for me and is the basis of this post and its examination of the application of ‘Regulation’.

 

Brett Kavanaugh is a ‘textualist’ with his interpretation of the law. This means that he interprets the law according to the text (the words) of a Legislative Act. Textualists believe that they should not endeavour to subjectively adapt the law that is created by the Parliament but instead enforce it as accurately as possible according to the wording in the Act. I note that this process applies in most judgements, except where courts see a need to create a precedence for a case.

 

In Australia, our legal processes are similar in that Parliament (as representatives of the ‘people’) create the laws and the courts apply them.

 

However, like many Western Countries, we have Government ‘representative departments’ that are charged with policing the law through regulation and other powers. Whilst these are often departments with special powers to enforce a law when necessary, others are established as Regulators to police the law much more strongly.

 

It is these Regulators that concern me. The font line people (usually auditors) are not trained Judges, nor are they educated in the Law. They have often undertaken courses in auditing or some low-level training course. However, they are given the ‘power’ over organisations under their regulatory control that is often mis-interpreted, mis-understood, mis-used or abused.

 

The role of Regulators should be to guide an Industry to perform their business procedures according to the will of the political law makers. Instead, it is common for the front-line people and others within the Regulator to subjectively interpret the legislative statutes, regulation and standards that apply to an industry and enforce their own style of law on the Industry. In fact, it has been reported through many discussions on Linked In and through my own experiences with audits that auditors often create their own laws and sometimes blatantly lie about the legislation or regulations. As they have ultimate power and can exceed their authority without challenge, they are often unscrupulous with their regulatory authority.

 

When a ‘Regulator’ boasts about large numbers of organisations failing audits, particularly when they can cite a narrow parameter for non-compliance, it is very obvious that there is a problem with one or more of:

  • the law itself,

  • the application of the law that organisations practice, or

  • the inability of the Regulator’s Auditors to review the practice of an organisation within the scope of the law.

For example, these figures were taken from a public document in which a Regulator boasted about how tough they are on the Industry. (note: the row below the heading represents the year)

 

If 70-80% of the organisations in this industry are considered by the Regulator as non-compliant at audit, then there is a major problem with the Legislation, the Industry’s understanding of the Legislation, or the way the Regulator is interpreting the Legislation. In the same public document, this Regulator cites a narrow parameter as follows:

 

Clearly, there is an issue with the understanding of organisations’ understanding of the Legislation, or the interpretation of the Regulator, or of the Act itself when such low numbers of organisations are compliant at audit and, on average, less than half are compliant after rectification.

 

On such occasions, the Regulator should provide detailed guidance to organisations on how to apply the law to avoid non-compliance. It is not sufficient to simply state that the organisation should apply the law within their own interpretation of it, then subjectively declare they are non-compliant in an audit at the whim of the auditor. If it is a law that so many people get wrong, the Regulator must step in and ‘educate’ the community on how to correctly apply it in practise.

 

Furthermore, the Regulator must present their interpretation of laws and regulations according to the text that is written into the legislation. Our Legislators debate law and the text in Parliament and through their Parliamentary subcommittees. They usually spend considerable time and energy to write the text so that it represents the flavour of the law they are creating. It is not the prerogative of Regulators to re-write laws by not following the text, or adjusting the text as they please.

 

Yet this continues to occur in some industries, without any checks on the Regulator. The Regulators become ultimate-powers within their industry to which no one feels they can stand up to. When the Regulator or their front line people are challenged it is normal for them to stand their ground with comments such as, “I’ve made my decision” or “I will not argue about it” or “I will take it back to the office for moderation”; the latter being a nice way of saying, “All my buddies at the office will close-rank around me and agree with me”.

 

When I criticise people or organisations, I like to offer some guidance to improve the situation. My recommendations are as follows:

 

1. Regulators should have a mandate to enhance industries. They should shake off their belief that they are ‘police’ whose role it is to catch-out organisations for not applying an operational procedure according to the Regulator or auditor’s subjective interpretation of the law.

To enact this solution, the Regulator should provide ‘education’ and guidance on the appropriate law and how to apply it. Front-line auditors should be charged with guiding organisations during audits rather than attempting to ‘catch-them-out’ on semi-fabricated non-compliances. Most importantly, front-line auditors should be building a sound working relationship with the organisation they are auditing so the organisation can feel they can approach the Regulator for advice and guidance. 

 

2. When there is a major issue with the application of the law, the Regulator should undertake a review to uncover the underlying cause. If the cause is a badly written statute, or an out-of-date law, or simply a ‘bad law’, then the Legislator needs to be informed so they can amend it.

If the cause relates to the application of the law by organisations, then the Regulator should provide guidance and direction, so everyone can be ‘compliant’.

When the cause is the subjective, loose interpretation of the law when auditing, the auditors need to be educated on their powers and their approach to their role. There may be other reasons that this cause exists. For example, my personal experience has been that some auditors are bullies by nature, others ‘show-off' in front of subordinates, such as trainee auditors, and I suspect in some industries, the Regulators like to see auditors finding non-compliances, a little like a parking inspector having a quota of fines they need to meet. I have heard auditors tell blatant lies. I have seen them bully people. I have witnessed racist auditors, sexist auditors and even had one whose sexist gazes made my assistant so uncomfortable that she had to leave the room (apparently not the only occasion this auditor has behaved in this way).

 

I acknowledge that many auditors who I have met are delightful people who do not have these qualities and who, against the direction of the Regulator, often provide guidance to organisations. A few bad auditors tarnish everyone.

 

3. The Regulator should have an Advisory Board consisting of people from the Industry that they are regulating. The Advisory Board should be a mix of higher management, middle management and front-line workers. The Advisory Board should be independent of the Regulator, approachable by members of the Industry, both at an organisation level and by individual workers, and have the power to direct the Regulator to undertake an internal investigation when necessary and report back to the Advisory Board. Above all, the Advisory Board must not be prevented from making public statements if they need to.

 

In closing, I echo Brett Kavanaugh’s strongest conviction, that it is not up to him, as a Judge, to ‘make’ the law. Instead, it is his role to apply it according to the text written into the law.

 

Likewise, I advise Regulators that it is not their prerogative to ‘write the law’ but to apply it according to the text of the Legislation. In doing so, Regulators have one liberty over Judges in that they can also offer guidance. It is critical that they enhance and develop industries, not strangle or destroy them.

 

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