'R' Files, The

Review - Institute of Public Affairs, Dec 2003 by Moran, Alan

Self-Regulation of Business: Oil or Grit in the Wheels of Commerce?

During a Seinfeld episode, an altercation with a dry cleaner about missing garments led to accusations that the dry cleaner might have borrowed them. This brought the business owner's indignant response that the Dry Cleaners' self-regulatory Code of Practice forbids such action and a retort from Seinfeld, 'You need a Code of Practice to tell you not to steal from your customers?'

Seinfeld's dry cleaner's code of practice clearly included redundant provisions, but such codes can be worthwhile. If adhered to, and especially if backed up by some form of sanctions, they can bring greater consumer confidence in an industry's operations. They can also be used by the signatory firms to demonstrate premium features of their operation that mark them out from their competitors.

Self-regulation has been elevated in priority by the in-coming ACCC team of Graeme Samuel and his deputy Louise Sylvan, formerly the head of the Australian Consumers Association (ACA). The ACCC has put out a set of guidelines for developing and endorsing voluntary industry codes. Containing 18 essential principles and 18 corresponding code essentials, the guideline offers a blueprint for those industries wishing to develop such a self-regulatory code. In Business Review Weekly, Graeme Samuel offers some reasons why such an approach is beneficial. Aside from pleasing consumers, these include saving ACCC resources in that self-regulation can lead to fewer complaints, lower compliance costs, as well as a reduced stream of litigation.

Mr Samuel sees self-regulation being more formalized in a co-regulation framework which will include support and some endorsement from the regulator. Under this form of self-regulation, the ACCC recruits itself into the action and provides a quid pro quo to industry, including authorization by the ACCC of what might otherwise be anti-competitive behaviour.

The issue has been on the radar of Louise Sylvan during the decade-and-a-half that she has been a prominent consumerist lobbyist. She was part of a Government Taskforce put together to examine the issue three years ago. She makes the fanciful claim to have been 'the sole consumer on a body of about 10 people, mainly business, who were primarily interested in having a report that said that self-regulation was wonderful'.

In a paper to a conference last year, she marshalled a series of arguments for increased disciplines on firms to provide customer benefits.1 She chose One Tel as an example of a firm that clearly needed pressures from external sanctions in order to fulfil its proper obligations to consumers. This is ironic because a former colleague at the ACA, Mara Bun, after she left the organization for a merchant bank, was punting One Tel shares right up until the telco's collapse.

Ms Sylvan promoted self-regulation as a desirable approach but maintained that the approval of these codes was being given far too easy a ride. She makes the case for something stronger than self-regulation in what she calls uncontestable areas of the market. Fair enough to hold monopolies to a higher order of responsibility, but she adopted an odd definition of uncontestable when she cited several telephone suppliers, the banks as well as superannuation businesses as examples. None of these, whatever their strengths and weaknesses, ever dreamt they were in uncontestable markets!

The self-regulatory code of the Australian Communications Industry Forum (ACIF) came in for some particularly forceful criticism. That code, she claimed, was dominated by Telstra and features deal-making, 'and not, as should be the case, clear hard blackletter legal consumer protection. That's why there arc such appalling and onerous terms in your mobile phone contracts for instance'. With this statement she illustrated her confusion between a self-regulatory code and full-blooded law. And by taking mobile phones as her example she selected a market area which is highly competitive, with demonstrable consumer acceptance, and certainly not dominated by Telstra. The ACIF Code falls under the oversight of the Australian Communications Authority and has a provision she would normally welcome in that it encompasses all the industry's firms, whether or not they are members.

A code Ms Sylvan rated particularly highly is administered by ACFOA, a peak body for foreign aid organizations. She said, 'The absolutely critical factor in the ACFOA code is that, by definition, it covers the whole industry because the government will not grant money to an overseas aid organization which isn't signatory to the code.' Arguably, the involuntary nature of the ACFOA code disqualifies it as a self-regulatory code under the normal definition applied. That apart, as a disciplinary agency it has proven to have severe shortcomings. Ms Sylvan acknowledged as its weakness that it only has one sanction-dismissal. And, as the IPA has demonstrated, it will not use that sanction. Thus, Union Aid Abroad retained the ACFOA Seal of Approval even though it was using funds illegally in Indonesia to campaign for the independence of West Papua.