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LIQUIDATING CORPORATE ETHICS. Peter Riordan Senior Lawyer Enforcement Australian Securities & Investments Commission The views expressed are those of.

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Presentation on theme: "LIQUIDATING CORPORATE ETHICS. Peter Riordan Senior Lawyer Enforcement Australian Securities & Investments Commission The views expressed are those of."— Presentation transcript:


2 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

3 The Plan: 1.Three case studies. 2.Corporate governance countdown. 3.Ten propositions. 4.Some anecdotal evidence. 5.Is civil penalty the way to go? 6.Reform of the criminal justice system.

4 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.

5 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.

6 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.

7 Eric’s answer: The ethics of business can be summarised in … Ethics are … The thing about ethics … That question was not fair.

8 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.

9 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.

10 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.

11 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.”

12 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.

13 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.

14 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.

15 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.”

16 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.

17 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.]

18 Ten Propositions (relating to the ethical governance of listed public companies)

19 Proposition 1 Unethical behaviour covers a diverse range of conduct.

20 Proposition 2 Fraud has been (and will be) around for ever.

21 Proposition 3 Ethical leadership comes from the top. Ethical behaviour comes from within.

22 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.

23 Proposition 3 Ethical leadership comes from the top. Ethical behaviour comes from within.

24 Proposition 4 We live in a global village. 21 st century business regulated by 20 th century regulators supported by a 18 th century criminal justice system.

25 Proposition 5 Risk, reward and corporate failure are norms of the market place.

26 Proposition 6 We are all guilty of greed and materialism. (Ross Gittins) The myth of the “cult” CEO.

27 Proposition 7 The “pressures” to achieve short term gains will come back to haunt us all.

28 Proposition 8 Listed companies can collapse for a variety of reasons.

29 Proposition 9 As the corporate regulator, ASIC has a central role to play. But what role?

30 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.

31 Some anecdotal evidence: Offset Alpine Printing. The investment newsletter. The Telstra 2 share offer. Nomura. Simon Hannes.

32 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.

33 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.

34 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.

35 Sources 1.“Corporate Governance – Principles, Promotion and Practice”, paper delivered by ASIC Chairman David Knott on 16.07.02. 160702_pdf 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.

36 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.

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