Striking a balance – Peter Shergold and Graeme Samuel discuss independent vs departmental regulators

balancing scales
  • Published Date: 21 July 2020

As well as being good managers and leaders, good regulators need to maintain their integrity and earn the trust of the public, governments and their duty holders, while keeping their independence.

They need to be able to read shifting political winds, without ever becoming a weathervane at the mercy of politicians.

At a recent webinar for the ANZSOG/National Regulators Community of Practice, two of Australia’s regulatory policy heavyweights – Graeme Samuel, former chair of the Australian Competition and Consumer Commission, and Peter Shergold, former secretary of the Department of the Prime Minister and Cabinet – debated whether regulators were best located inside or outside government departments and how best to maintain critical dimensions of independence.

The webinar, chaired by former Victorian Secretary and consultant Fran Thorn, allowed attendees to put questions to the pair and to vote on issues such as the importance of regulators being statutorily independent.

Watch - Inside/Outside: the pros and cons of the independent versus the departmental regulator

Professor Samuel said that enforcement regulation must be independent of government and this independence avoided the ‘Trumpian’ problem of politically charged or arbitrary prosecutions, which could lead to perceptions of corruption.

Administrative regulation however, particularly of ongoing activities, was different.

“In some cases, it will be part of the regulator’s job to carry out the mandate of the government so the expectation can’t be of full independence. The important thing is to have government or parliament make it clear that this is what is expected,” he said.

But he said regulators needed to push back against any unwarranted interference from parliamentarians.

“If you are not careful parliamentarians can push you into a position of capture that again impedes the sole pursuit of the public interest, which is really what you should be focusing on,” he said.

Professor Shergold said that while regulators did not necessarily need statutory independence to do their job well – and could sometimes have more influence within a department – the public was more comfortable with ‘arm’s length’ regulation.

“Why do governments and why do citizens want regulators? I think they usually want them to be absolutely convinced that in our system of democratic governance, the authority of the executive is being wielded with integrity,” he said.

“Regulators needed to be clear on what their functions are and look at what the legislation says their job is, whether it’s enforcement, education, providing advice or other activities.

“Know which powers you’re using, and know the difference between them,” he said.

Professor Shergold, who is now Chancellor at the University of Western Sydney, said regulators needed to strike a balance - having the trust and confidence of those being regulated, but without having been captured by them.

He used the example of the foundation of the university regulator, the Tertiary Education and Quality Standards Agency.

“In the first year of TEQSA’s existence, the pushback from universities was extreme in terms of, ‘ the burden of administration is being imposed on us here, it’s simply too great, and we can’t see much that is being added',” he said.

He was then asked to be the chair of the TEQSA advisory committee, in an attempt to reset its relationship with the university sector and said he believed he had been able to improve the relationship while rigorous regulation was maintained.

“I don’t believe the sector has ended up less regulated than would have been the case. What you have is a sector that can see the benefit of TEQSA’s regulatory role. So, I don’t think every time you just inflexibly apply the statutory powers you have,” he said.

Knowing the politics but keeping your integrity

All three speakers stressed the need for regulators to understand the political environment they worked in and the changes in public opinion, while retaining their integrity.

Dr Shergold said that financial regulators the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority had been criticised for light touch regulation in the wake of the Hayne Royal Commission into the financial services industry and had changed the way they operated as a result of the ‘political winds’

“If they want to maintain their influence, not just be independent, they need to have a sense of that political environment.”

Professor Samuel said that regulators often did not have the powers they needed to do what populist politicians and media demanded of them

“Try as I might over eight years I could never convince the public that the ACCC had no power to deal with the pricing of petrol, other than to ensure there was no collusion or cartel operations occurring,” he said.

“But there was always public, political and media pressure to tackle alleged overcharging.”

He said that regulators could be to blame for this, by using rhetoric to create the impression they were doing something about a problem or using public statements to ‘shame’ companies.

“The media wants you to act as an independent regulator, as long as that means doing exactly what they want. The danger with that is that you can do things which damage the institution in the long-term.”

Dr Shergold said that independence was vital to maintaining public trust.

“Citizens on the whole want less and less regulation, except when you get an outbreak of salmonella, a terrorist attack or a plane crash, and everyone asks where was the regulator?

“There has been a decline in trust in democratic principles and politicians, particularly amongst young people, and it is a crucial role of an impartial public service and independent regulators to maintain and restore confidence in the way our democratic governance works.”

Mr Samuel said that, as well as the skills required of other public sector leaders – the ability to manage, communicate and set an institutional culture - good regulators needed an ironclad sense of integrity.

“You can come under huge pressure, particularly when doing things that involve high profile people, but you must do everything with the public interest foremost.”

He said that resisting pressure required acting independently at all times – even if it meant refusing lunch invitations or photo opportunities with ministers.

Mr Samuel said that regulators were often interested in the ‘psychic income’ that came with such a powerful position.

“This comes in two parts, the sense that you are doing something that is really vital and in the public interest, and the second – the bad part – that you enjoy the feeling you’ve got power and you can get people to do things. That can be a very bad thing, and once it goes too far you can sacrifice personal and institutional integrity,” he said.

One of the biggest constraints on regulators is the issue of how they are funded, with a lack of resources often leading to compromises.

Dr Shergold said that financial independence was important for regulators and could help them avoid regulatory capture and have an extra degree of independence from government.

Mr Samuel said that regulators should be upfront about a lack of resources if it was affecting their ability to do their job effectively.

“I don’t mean that you go out there and make a media release. But if it comes up in Senate estimates or whatever, you say: ‘I just can’t do all this, I haven’t got the money’.”

Find more information on the National Regulators Community of Practice and previous webinars.