Compliance Professionalism and Regulatory Community: The Australian Trade Practices Regime

Contemporary state governance relies increasingly on regulatory strate-gies encouraging self-regulation and compliance for corporate regulation.This paper examines the conditions in which such strategies might beeffective by reference to the Australian trade practices regime. The paperargues that regulators will only use compliance strategies effectively when(i) a community of compliance professionals with both professionalintegrity and commercial ‘street’ credibility exists to make compliancecome alive in everyday corporate activities, and (ii) regulators invest inmeta-evaluation of compliance professionals’ activities.

I. COMPLIANCE AND CORPORATE REGULATION

1. Introduction

Despite the dominance of organizational actors in contemporary social life,law is desperately short of doctrines, institutions, and regulatory techniquesthat adequately control corporate entities.1 The corporate veil frequentlydeflects the penetration of legal values into and, indeed, the imposition oflegal sanctions upon the corporate entity. Adversarially-trained lawyersoften facilitate avoidance and evasion of corporate liability through ‘creative

© Blackwell Publishers Ltd 1999, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA

* Law Faculty, The University of New South Wales, Sydney 2052, Australia

I would like to thank Allan Asher and Bill Dee of the Australian Competition and ConsumerCommission for their time and help, the compliance practitioners who were generous enoughto share their experiences with me, and John Braithwaite for comments on a draft of this paper.

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JOURNAL OF LAW AND SOCIETYVOLUME 26, NUMBER 2, JUNE 1999ISSN: 0263–323X, pp. 215–39

Compliance Professionalism and Regulatory Community: The Australian Trade Practices Regime

CHRISTINE PARKER*

1 J. Coffee, ‘No soul to damn: no body to kick: An unscandalised inquiry into the problemof corporate punishment’ (1981) 79 Michigan Law Rev. 386; J. Coleman, ‘Responsibility incorporate action: A sociologist’s view’ in Corporate Governance and Directors’ Liabilities:Legal, Economic and Sociological Analyses on Corporate Social Responsibility eds. K. Hoptand G. Teubner (1985) 69; M. Dan-Cohen, Rights, Persons and Organisations: A Legal Theoryfor Bureaucratic Society (1986) 13; B. Fisse and J. Braithwaite, Corporations, Crime andAccountability (1993).

compliance’ with legal requirements.2 From Stone to Selznick, a commonlyproffered solution to the problem of ensuring that legal values permeate theinternal workings of the corporation is to require large institutions to regu-late themselves in a way that is responsive to social concerns.3 The strategyof using regulatory strategies of self-regulation and compliance to enforcepreventive and proactive engagement by boards, managers, and employeeswith collective public responsibilities is most comprehensively set out inBraithwaite’s corporate criminology.4 Critics of self-regulation, on the otherhand, see deterrence as the most reliable means for legal sanctions to affectcorporate behaviour. They argue that since all corporations have profit-maximization as their main goal, they will always be ‘amoral calculators’who only ever comply with regulatory requirements when the penalties areheavy enough to ensure their calculations come up with the correct answer.5

Incentives for self-regulation must therefore be backed up by publicregulation sufficiently punitive to make sure companies consistently do theirsums right.

In recent years, self-regulatory and compliance-oriented models of corpo-rate regulation have been adopted in areas as varied as occupational healthand safety, equal employment opportunity, environmental regulation,consumer dispute resolution, securities regulation, and antitrust.6 Regulatorsare experimenting by providing incentives to companies that demonstratecommitment to preventive compliance, and companies are increasingly using

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© Blackwell Publishers Ltd 1999

2 D. McBarnet, ‘Legal creativity: Law, capital and legal avoidance’ in Lawyers in a PostmodernWorld: Translation and Transgression, eds. M. Cain and C. Harrington (1994) 73; D.McBarnet and C. Whelan, ‘Creative compliance and the defeat of legal control: The magicof the orphan subsidiary’ in The Human Face of Law, ed. K. Hawkins (1997).

3 C. Stone, Where the Law Ends: The Social Control of Corporate Behaviour (1975); P. Selznick,The Moral Commonwealth (1992) 336 ff. See, also, E. Bardach and R. Kagan, Going by theBook: The Problem of Regulatory Unreasonableness (1982); A. Chayes, ‘The moderncorporation and the rule of law’ in The Corporation in Modern Society, ed. E. Mason (1960)25; J. Sigler and J. Murphy Interactive Corporate Compliance: An Alternative to RegulatoryCompulsion (1988).

4 J. Braithwaite, Crime, Shame and Reintegration (1989); I. Ayres and J. Braithwaite,Responsive Regulation: Transcending the Deregulation Debate (1992); Fisse and Braithwaite,op. cit., n. 1.

5 F. Pearce and S. Tombs, ‘Ideology, hegemony, and empiricism: Compliance theories ofregulation’ (1990) 30 Brit. J. of Criminology 423; F. Pearce and S. Tombs, ‘Hazards, lawand class: Contextualising the regulation of corporate crime’ (1997) 6 Social and Legal Studies79–107; S. Tombs, ‘Stemming the flow of blood? The illusion of self-regulation’ (1992) 3 J.of Human Justice 75.

6 R. Baldwin, ‘Regulation after “command and control”’ in Hawkins, op. cit., n. 2, p. 65; E.Geltman and A. Skroback, ‘Reinventing the EPA to conform with the new Americanenvironmentality’ (1998) 23 Colombia J. of Environmental Law 1; Sigler and Murphy, op.cit., n. 3; M. Sparrow, Imposing Duties: Government’s Changing Approach to Compliance(1994). One of the best known regulatory strategies providing incentives for companies tointroduce compliance programmes is the US Federal Sentencing Guidelines for corporations:see ‘Growing the carrot: Encouraging effective corporate compliance’ (1996) 109 HarvardLaw Rev. 1783.

self-regulatory arrangements such as compliance programmes and regularlegal or compliance audits to ensure they are meeting regulatory standardsbefore regulators take enforcement action.7 The Australian Competition andConsumer Commission (ACCC) is the regulator for Australia’s federalconsumer protection and antitrust regime.8 Through its arguments to thecourts when penalties are being assessed, and its procedures for settling poten-tial enforcement actions, it has played a leading role in encouraging corpora-tions to adopt compliance programmes. Members of the ACCC havesponsored the founding of the Association for Compliance Professionals ofAustralia, and the drafting of a standard on compliance programmes, puttingAustralia to the forefront of developments in worldwide compliance practice.9

Internal corporate compliance is the result of articulating laws andregulatory strategies to internal mechanisms for corporate governance. Inthis paper, I will argue that this connection will occur only when regulatorymessages reach a shared community of compliance, a community such as isbeing formed by the growth of compliance professionalism in Australia.Other commentators have focused on the strategies and demeanours ofexternal regulators in the compliance process.10 This paper focuses on therole played by corporate compliance advisers in constructing corporate citi-zenship from the inside. I will argue that encouraging internal corporatecompliance requires regulators to move beyond compliance-orientedenforcement strategies, and persuasive techniques. Regulators will produceonly a feeble corporate commitment to compliance unless they (i) build thecapacity for corporations to deliberate internally about and implementcompliance programmes by nurturing compliance professionalism, and then(ii) increase corporate accountability by concentrating financial and intel-lectual resources on the ‘meta-evaluation’ of corporate compliance efforts.Following these prescriptions helps constitute a compliance community inwhich corporate citizenship is a real possibility.

Part II of this paper examines the regulatory context for the emergence oftrade practices compliance professionalism in Australia by outlining the tech-niques the ACCC has developed to encourage and enforce industries andcorporations to mobilize self-regulatory programmes for rectifying andpreventing unlawful conduct, and the challenges it faces in making such a

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7 See C. Parker, ‘The Preliminary Report on the State of Regulatory Compliance’ (1998),paper prepared for the OECD Regulatory Reform Project, for data on both these phenom-ena. See, also, Price Waterhouse LLP, 1996 Survey of Corporate Compliance Practices(1997); M. Schwartz, ‘Compliance and business ethics are coming of age in Canada’ (1998)12 Ethikos and Corporate Conduct Q. 7.

8 The ACCC was formerly known as the Trade Practices Commission, and some of its publi-cations cited below will be in that name.

9 AS3806 – Compliance Programmes (1998).10 Ayres and Braithwaite, op. cit., n. 4; J. Braithwaite, To Punish or Persuade: Enforcement

of Coal Mine Safety (1985); P. Grabosky and J. Braithwaite, Of Manners Gentle:Enforcement Strategies of Australian Business Regulatory Agencies (1986); K. Hawkins,Environment and Enforcement: Regulation and the Social Definition of Pollution (1984).

strategy effective. Part III uses interviews with some of Australia’s leadingcorporate trade practices compliance advisers to identify the skills, ethics, andattitudes that constitute compliance professionalism and sustain the creationof regulatory community. Part IV identifies the main challenges facing regu-lators in fostering and monitoring communities of corporate compliance.

2. Methodology

This paper is based on interviews with five former and/or current seniorofficers of the ACCC with significant involvement in compliance issues, andseven trade practices compliance advisers working in private practice aslawyers, consultants, or in-house compliance advisers in Sydney. The workand opinions of these seven compliance advisers represent best practice inAustralian trade practices compliance programme implementation. Theywere chosen by asking members of the ACCC for their opinions aboutleading practitioners, and then asking those who were interviewed for furthersuggestions of people to interview, until saturation was reached. Since thetrade practices compliance community is still fairly small, there was generalagreement that the seven practitioners who were interviewed were those whorepresented best practice. Following a simplified version of Glaser andStrauss’s ‘constant comparative method’, the interview data were dividedinto bites and sorted into categories, constantly comparing each new pieceof information with all the previous bites in each category until all theinformation in the interviews had been accounted for by a category andnothing new was being discovered.11 In the discussion below, the analyticalcategories developed from the interviewees’ descriptions of their practicesare intertwined with sociological descriptive and normative analyses relatingto regulatory strategy, corporate compliance, and compliance profession-alism. In the text that follows, quotations that are not referenced in footnotesare quotations from the interviews with ACCC officers and complianceadvisers. Confidentiality is preserved by not identifying the interviewees.

II. THE REGULATORY CONTEXT FOR TRADE PRACTICESCOMPLIANCE12

In Australia, antitrust and consumer protection regulation are combined inthe federal Trade Practices Act (1974).13 While the content of the Act is an

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11 B. Glaser and A. Strauss, The Discovery of Grounded Theory: Strategies for QualitativeResearch (1967).

12 This section is based on the interviews with the five past and present senior officials of theACCC, and unfootnoted assertions are from the history and perceptions reported in thoseinterviews.

13 Some commentators criticize the Act for being inconsistent in its dual focus on promotionof competition and consumer protection, for example, D. Howarth, ‘Brothers in arms orrivalrous siblings?’ (1995) 20 Alternative Law J. 235.

archetypical example of the law’s attempts to control potential abuses oforganizational power,14 it is in the way the law is enforced that regulatorshave most creatively struggled to meet the challenges of social control in aneconomy dominated by large organizations. During the 1980s, reforms to the Trade Practices Act and a spate of privatizations of previouslygovernment-owned monopolies increased the ACCC’s load of complaintsabout corporate conduct to over 60,000 a year. Like other regulatoryagencies faced with insufficient resources to pursue all potential enforcementactions individually, the ACCC became both more strategic in the cases itchose to investigate and enforce, and more oriented towards the preventionof problems by identifying underlying causes of complaints before theyrecurred.15 Typically of an era in which the virtues of small government werebeing proclaimed,16 and despite criticism that it was already ‘captured andweak’, the ACCC moved towards a major focus on nurturing complianceby fostering industry codes of practice and individual corporate compliancesystems. It backed its focus on compliance by proving its willingness tolaunch big prosecutions and seek quick injunctions against unlawfulconduct.17 As a result, despite its focus on compliance, it is no longer seenas ‘captured and weak’.18

Over time, strategies of compliance-oriented enforcement developed asexpedients have generated a principled rationale. Selznick sees the ‘moralinstitution’ as one that enhances its integrity by governing itself withingeneral standards established by the legislature and courts. Responsibleinstitutions, like responsible individuals, must have ‘an inner commitmentto moral restraint and aspiration’.19 Similarly, senior ACCC staff see theirchallenge as being to prod companies and industries into ‘internalizing’ theirresponses to trade practices law, rather than defensively seeking to avoidliability and pay off regulators with fines or damages. Unlike traditionalregulatory enforcement strategies that leave the corporation modestly veiled,the ACCC’s compliance-oriented strategies seek to penetrate right inside

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14 A. Hopkins, Crime, Law and Business: The Sociological Sources of Australian MonopolyLaw (1978).

15 See Sparrow, op. cit., n. 6.16 See M. Pusey, Economic Rationalism in Canberra: A Nation Building State Changes its Mind

(1991).17 B. Fisse, ‘Corporate compliance programmes: The Trade Practices Act and beyond’ (1989)

17 Australian Business Law Rev. 356; Grabosky and Braithwaite, op. cit., n. 10, p. 91; J.Tamblyn, ‘Progress towards a more responsive trade practices strategy’ in BusinessRegulation and Australia’s Future, eds. P. Grabosky and J. Braithwaite (1993).

18 In fact, far from being ‘captured and weak’, Grabosky and Braithwaite, id. (1986) foundin their comparative study of Australian regulatory agencies published in 1993 that theTrade Practices Commission (as it then was) was the most frequent user of injunctionproceedings against offenders and had secured average penalties of $16,630 with the nexthighest average for a regulatory agency being only $1,654.

19 P. Selznick, The Moral Commonwealth (1992) 345; emphasis in original.

regulatees to transform management systems, operational processes, andorganizational cultures.

1. Threats of enforcement to motivate industry self-regulation

In 1988, the ACCC published a major overview of self-regulation inAustralia, which also set out the principles of good codes of practice.20 Itwas followed by a series of studies of self-regulation in specific industriesand professions.21 Through a process of experimentation, the ACCC foundit could strategically use threats of enforcement action against particularindustries to back up requests to develop effective self-regulation. It alsoused its ability to take enforcement action over matters that were notadequately dealt with by self-regulation to ensure that the self-regulatorycodes worked. This could conserve regulatory resources while solvingconsumer problems. For example, in the fruit juice industry, investigatorsnoted that manufacturers could add water or sugar to drinks labelled ‘100per cent juice’ with little chance of being caught because investigations werescientifically difficult. At five or six cases a year, this had become a serious,but not a major, problem. The ACCC responded by drafting a code ofpractice for fruit-juice manufacturers that included a self-monitoring mech-anism. Each fruit-juice manufacturer had to contribute to a fund whichwould pay for the random testing of members’ juices bought in the market-place. The manager of the scheme would give the manufacturer a chance toput right any problem that was found, before reporting recalcitrant manufac-turers to the ACCC, which had made it clear it was ready to move againstthem in the courts.22

From the beginning, the ACCC was able to use its ordinary enforcementpowers to ensure the quality of self-regulatory codes.23 In 1998, theCommission was given more explicit legislative licence to enforce industryself-regulation. Part IVB of the Trade Practices Act now allows theCommission to register voluntary industry codes so that a contravention

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20 Trade Practices Commission, Self-Regulation in Australian Industry and the Professions:Report by the Trade Practices Commission (1988).

21 For example, Trade Practices Commission, Final Report by the Trade Practices Commissionon the Self-Regulation of Promotion and Advertising of Therapeutic Goods (1992); TradePractices Commission, Study of the Professions: Legal: Final Report (1994).

22 The ACCC has used similar strategies to develop codes in partnership with the AustralianPharmaceutical Manufacturers Association, the Nutritional Foods Association of Australia,the Media Council of Australia (now defunct), the International Air Transport Association,and the Australian Stock Exchange. Some of the codes negotiated between the ACCC,industry and consumers include the Franchising Code of Practice, the Australian Code ofPractice for Computerised Check Out Systems (with the Australian Supermarket Institute),Personal Hygiene Products Industry Code for Environmental Marketing (AustralianChamber of Manufacturers), Code of Conduct for the Environmental Marketing ofConsumer Products (Grocery Manufacturers of Australia). See G. Pearson, ‘The legal effectof some codes of practice’, paper at Australian Law Teachers Association Conference 1995.

23 Tamblyn, op. cit., n. 17, pp. 20–3.

automatically becomes a contravention of the Trade Practices Act as well,and gives the Commission power to mandate an industry code if a voluntaryone is not put in place under the Act.24

2. Settlements that motivate corporate compliance programmes

As early as 1979, the Federal Court had seen the extent to which an indi-vidual corporation had attempted to ensure its own compliance with theAct as an important factor in assessing the amount of criminal and civilpenalties when breaches occurred.25 From the late 1980s into the 1990s,ACCC staff coaxed the courts to go further in ordering companies to rectifydamage done and put in place systems to prevent it happening again. Insettlement discussions, ACCC staff found that they could trade on the factthat companies were willing to do more than was strictly necessary underthe Act to save the costs and scandal of trial. Their boldness allowed themto reach ever further inside corporate governance systems.26

The practice of requiring companies that had breached the Act to imple-ment corporate compliance programmes was first developed to give addedbite to the tiny penalties available under the Act (a maximum of $A100,000in consumer matters, where a criminal standard of proof was applied, and$A250,000 in antitrust matters, with a civil onus of proof). Even when penaltieswere increased in 1993 (up to $A10 million for anti-competitive conduct), thenew penalties were used to reinforce the capacity to require complianceprogrammes. The ACCC was now able to trade on the spectre of such largepenalties to strengthen its compliance requirements in settlement discussions.Also, in 1993, s. 87B was added to the Act making settlement undertakingsenforceable in court.27 Section 87B allows the ACCC to accept an undertakingby a company in settlement of an alleged breach, and the ACCC now uses

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24 Two codes will soon be prescribed under these legislative provisions: The Oil Code and aFranchising Code.

25 Fisse, op. cit., n. 17, p. 357; For example, in Trade Practices Commission v. TNT AustraliaPty Ltd (1995) ATPR para. 41–375, Justice Burchett thought that a most important factorin mitigation would be ‘Whether the company has a corporate culture conducive to compli-ance with the Act, as evidenced by educational programmes and disciplinary or other correc-tive measures in response to an acknowledged contravention’ (at 40, 169). See, also, TPCv. Malleys Ltd (1979) ATPR para. 40–118; Trade Practices Commission v. CSR Limited(1991) ATPR para. 41–076; ACCC v. Australian Safeway Stores and George Weston Foods[1997] 450 FCA.

26 Attempts to guarantee court enforceability of their efforts were not, however, alwayssuccessful. Before 1993 compliance-focused settlements were effectively unenforceable unlessthey were executed as deeds of settlement enforceable in the state Supreme Courts (a mech-anism the Commission found inconvenient and unreliable). In ACCC v. Z-Tek [1997] 871FCA and ACCC v. Office Link [1997] 1265 FCA, the Federal Court refused to enter consentorders mandating enforceable general trade practices compliance programmes. They havesaid that it is only appropriate to order a compliance programme directed at the particularprovision breached.

27 See Trade Practices Commission, Section 87B of the Trade Practices Act: A Guideline onthe Trade Practices Commission’s Use of Enforceable Undertakings (1995).

this power extensively. The undertakings or settlements are kept on a publicregister and, in the event of non-compliance, the ACCC can apply to theFederal Court for enforcement and appropriate orders.28 The ACCC regularlyasks the court to note the s. 87B settlement as part of an order so that thecourt can make appropriate orders and even monitor and enforce it.29

One extraordinary example of the success of the s. 87B procedure was theAMP case settled in 1993. In that case, AMP, one of Australia’s major lifeinsurance and funds management providers, was alleged to have misleadmany small investors about the way the value of their investments in a partic-ular fund had been calculated. While investors believed that only 20 per centof their investment was vulnerable to movement in the value of an underlyingpool of assets, in effect the whole investment could be adjusted to reflectdownward movement. In its s. 87B undertaking to the ACCC, AMP agreednot only to implement a trade practices compliance programme and toimprove its explanation of its policies to investors, but also to pay outinvestors on the basis that what they had believed was in fact correct, andto proactively inform them of their right to receive these payments. Theimplementation of this undertaking cost AMP at least $A50 million andpossibly as much as $A100 million.

Since 1993, there has been a steady growth in the use of s. 87B under-takings, with fifteen in 1993, thirty-four in 1994, sixty-eight in 1995, fifty-eight in 1996, and thirty-seven to mid-1997. While the early undertakingsfocused simply on stopping and preventing the specific objectionableconduct, requiring corrective advertising, and the implementation of ageneral trade practices compliance programme, later and more sophisticatedundertakings can be up to twenty or thirty pages long and specify thestandards for compliance programmes and consumer complaint handlingsystems to be put in place.30 In one case, a company was required to recognizethat the alleged breaches were caused by inequalities in bargaining powerbetween it and its suppliers. In response, it undertook to help the ACCCdraft a dispute resolution code of conduct for disputes between large compa-nies and dependent suppliers or small businesses. It also undertook to changeits own standard contracts to incorporate compliance with this code whenresolving future disputes. Another undertaking included a whole modellicence agreement drafted by a solicitor’s firm for a major company to use

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28 Some are available on the ACCC’s website at <http://www.accc.gov.au/pubreg/87b.html>.29 ACCC v. NW Frozen Food (1996) ATPR 41–515; ACCC v. Pioneer Concrete (1996) ATPR

41–457.30 A basic undertaking includes: (i) a commitment to cease the conduct; (ii) mechanisms for

corrective action such as compensation, reimbursement or corrective advertising; (iii) aprogramme to improve overall compliance with the Act (certain standards for complianceprogrammes have been promulgated by the ACCC); (iv) provision for the order to becomea matter of public record and to be publicized in news media statements; (v) communityservice orders such as development and implementation of industry-wide compliance educa-tion programmes and publication of material dealing with the undertaking in relevant tradejournals. Trade Practices Commission, op. cit., n. 27.

in future standard licensing agreements. Many of these schemes cost as muchas, or more than, the penalties the company may have had to pay.

3. Some limits of compliance-oriented regulatory strategies

The strategy developed by the ACCC closely follows that proposed inBraithwaite’s theoretical corporate criminology. Braithwaite argues generallythat responses to offences (whether individual or corporate) should commu-nicate the wrongfulness and shame of an offence, and maximize the moraleducative functions of punishment, allowing individuals and institutions tointernalize the shame, and be reintegrated into moral communities bydemonstrating their internal commitment to abiding by the law.31 The theoriesof ‘responsive regulation’ and the ‘corporate accountability model’ aredesigned to maximize corporate potential for internal compliance and self-regulation by strategic use of the deterrent value of legal sanctions andregulatory monitoring.32 Ayres and Braithwaite’s pyramid of enforcementstrategies is a schematic representation of the idea that instead of using theirmost drastic regulatory strategies first, regulators should trade on the good-will of those they are regulating, encouraging them to comply voluntarily,using more drastic regulatory measures only when that fails, and reverting toa trusting demeanour when these strategies achieve their goal (see figure 1).33

The resemblance of ACCC strategy to Braithwaite’s theories was notentirely coincidental. The development of the ACCC’s strategy occurredpartially in dialogue with the work of John Braithwaite and his co-authors,especially Brent Fisse. The influence went both ways, with Braithwaite, asan Associate Commissioner of the ACCC from 1985 to 1995, using theknowledge and experience gained from his post, and the insights and expe-riences of his colleagues there, to develop theories which in turn furtherencouraged key players at the ACCC to continue with the responsive regu-latory approach. Empirical studies of the Australian trade practices regime,therefore, provide a unique test of Braithwaite’s models where they began.

By encouraging dialogue, persuasion, and encouragement at its base, thepyramidal paradigm creates the space and the motivation for preventivecompliance to occur without ignoring the deterrence theorists’ criticism thatself-regulation cannot be relied on and that heavy sanctions are necessaryto convince amoral calculators to comply. However, the regulator that seeksto engender adequate internal corporate self-regulation must do more thanmaster the compliance-deterrence dialectics of pyramidal responses to regu-latory wrongdoing.34

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31 Braithwaite, op. cit., n. 4.32 Ayres and Braithwaite, op. cit., n. 4; Fisse and Braithwaite op. cit. n. 1.33 Ayres and Braithwaite, id.34 F. Haines, Corporate Regulation: Beyond ‘Punish or Persuade’ (1997) 219 suggests that the

pyramid paradigm is deceptively simple as a prescription for regulators to follow.

First, strategic compliance-oriented enforcement strategies do not ensurethat regulators’ messages of encouragement of compliance reach an audienceequipped to understand or effectively respond to them. The application ofthe pyramid must eventually lead to the creation of a pool of complianceexpertise in the corporate world, otherwise efforts to respond to regulatorymessages will be ineffectual. The anecdotal evidence suggests that manyAustralian companies had trade practices compliance programmes in placefrom at least the 1970s, but that their quality and effectiveness was very low.

Secondly, in order for journeys up and down the pyramid to be a mean-ingful avenue of engagement between regulator and regulatee, there mustbe some medium through which information can flow and dialogue takeplace. Regulators must receive information about whether self-regulatorycodes and compliance programmes put in place to stave off more harsh sanc-tions are effective and in line with legal standards. Regulatees must under-stand why regulators have taken particular strategic enforcement decisions.They must have enough in common to understand when escalation up thepyramid will fit regulatory goals and when escalation is not necessary.

Thirdly, the problem of ‘creative compliance’ means that regulators andregulatees must share some common commitments to the goals and purposesof regulation, otherwise negotiated corporate responses to potential regulatory

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Licence Revocation

Licence Suspension

Criminal Penalty

Civic Penalty

Warning Letter

Persuasion

Figure 1 An Enforcement Pyramid for Business Regulation(Source: I. Ayres and J. Braithwaite, Responsive Regulation: Transcendingthe Deregulation Debate (1992) 35)

action at the base of the pyramid will merely be shams that impede progressup the pyramid, rather than genuine settlements that make escalation unneces-sary. For example, Edelman’s work suggests that many companies will behighly motivated to preserve legitimacy by responding to external norms andsetting up compliance programmes, but these will not necessarily reflect legalnorms in substance.35 Similarly much empirical research, especially the workof McBarnet and Whelan, shows that corporate lawyers can ensure theirclients comply scrupulously with legal requirements while completely missingits spirit, substance, and foundation.36

To overcome these challenges, Braithwaite’s regulatory theories generallyrely on the assumption that regulatory messages are communicated into aworld of shared bonds and shared understandings in which companies caneffectively respond to regulatory signals, and the parties deliberate effectivelyabout their responses to them, which, in turn, creates shared commitmentsto regulatory goals. In other words, Braithwaite assumes that regulators andregulatees are part of the same ‘community’, that they have continuing rela-tionships and the same basic understanding of the meanings and goals ofregulatory enactments. For example, Ayres and Braithwaite’s theory ofresponsive regulation relies on a tripartite regulatory community made up ofregulators, regulatees, and public interest groups who will deliberate togetherabout the use of regulatory pyramids.37 Fisse and Braithwaite’s corporateaccountability model relies on corporate responsiveness to broad, weak, infor-mal sanctions on the many individuals who can pull the strings of informalcontrol and trigger bonds of responsibility within corporate communities.38

Establishing regulatory community in the commercial world is, however, afragile accomplishment, requiring careful nurture and vigilant care.39 Thefollowing section outlines the results of the ACCC’s attempts to nurture justsuch a community through the vehicle of compliance professionalism.

III. COMPLIANCE PROFESSIONALISM AND REGULATORYCOMMUNITY

1. Regulatory community

Despite its fragility, the creation of regulatory community is a general require-ment for effective regulatory activity, whether following the prescriptions of

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35 L. Edelman, H. Erlanger, and J. Lande, ‘Internal dispute resolution: The transformationof civil rights in the workplace’ (1993) 27 Law and Society Rev. 497.

36 McBarnet and Whelan, op. cit., n. 2. See, also, R. Nader and W. Smith, No Contest:Corporate Lawyers and the Perversion of Justice in America (1996).

37 Ayres and Braithwaite, op. cit., n. 4.38 Fisse and Braithwaite, op. cit., n. 1. See J. Braithwaite, ‘On speaking softly and carrying

sticks: Neglected dimensions of a republican separation of powers’ (1997) 47 University ofToronto Law J. 305, at 333.

39 This may be even more true of small business than large corporations; see Haines, op. cit.,n. 34.

Braithwaite’s compliance-oriented pyramid or not. In her examination ofrules and regulators, Black has argued that whenever regulators use rulesthey must overcome potential problems of over- or under-inclusiveness,indeterminacy, and interpretation in order to be effective.40 Borrowing fromFish, she argues that one important way in which these problems can beaddressed is through ensuring that the context in which the rule is ‘formed,followed, and enforced’ is that of an interpretive community ‘constituted byinstitutional practices which may exist in the form of shared cultures, norms,goals, definitions, [which] can be created through, for example, training andeducation’.41 In her interpretive regulatory communities, Black proposes that‘conversational’ regulation that overcomes many of the inherent limitationsof conventional rule-making such as ‘uncertainty and honest perplexity andthe problem of explicitness’ is possible.42 Interpretive regulatory communities:

could also address the practice of creative compliance and perhaps serve to create whatmay be termed instinctive compliance, in two ways. First through the development ofa tacit knowledge and understanding which can inform the application of the rules;secondly, by overcoming the opportunistic approach to rules which is the basis ofcreative compliance.43

Similarly, Meidinger sees all regulatory action as taking place within regu-latory communities which, in their dialogues and disagreements, constitute,define, and redefine appropriate norms of behaviour:

. . . members of regulatory communities have ongoing relationships with each other. Inthose relationships, they both pursue their own, often inconsistent interests and struggleto define a shared vision of the collective good. Because they live significant parts oftheir lives with each other, members of the community frequently influence each other,act with reference to each other, and desire each other’s respect. Therefore, as well asbeing arenas for the pursuit of pre-existent interests, regulatory communities appear tohave the capacity to be ‘constitutive’ – that is, to be forums in which appropriate indi-vidual and collective behaviour (and interests) are defined and redefined.44

As Black points out, in law, interpretive community for assuring mutualityin the interpretation of rules is often achieved by using legal professionalstrained in judicial rules of interpretation for both the formulation and appli-cation of rules.45 In Australian trade practices and in a variety of other regu-latory regimes, the importance of traditional legal professional interpretivecommunity for rule-making and enforcement is being complemented, indeedto some extent displaced, by compliance professionals who have broadenedthe regulatory community.

A notable feature of the ACCC’s regulatory strategy has been the waythat it has very self-consciously nurtured compliance professionalism in

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40 J. Black, Rules and Regulators (1997) 6.41 id., p. 30, pp. 31–2.42 id., p. 38.43 id., p. 32.44 E. Meidinger, ‘Regulatory culture: A theoretical outline’ (1987) 9 Law and Policy 355, at 365.45 Black, op. cit., n. 40, p. 33.

order to constitute a community with which it can communicate, and trustto take trade practices norms right inside the corporate world. Within theACCC itself, resources have been deployed to educate businesses aboutcompliance and develop the capacity to implement high-quality complianceprogrammes. A Compliance Education Unit was formed to foster compli-ance expertise in industry by developing the Best and Fairest manual, a modelcompliance programme and a set of training modules for companies to usewith managers and staff. The unit was also available to act as complianceconsultants for companies who had entered into s. 87B undertakings orvoluntarily wished to set up a compliance programme. The ComplianceEducation Unit was disbanded in 1997, partially due to potential conflictsof interests,46 but equipping business with compliance expertise remains anACCC priority through units concerned with industry self-regulation,compliance strategies, and liaison with consumers and industry.

The focus is now, however, on equipping external compliance professionals.The Society of Consumer Affairs Professionals in Business was started in 1993with heavy ACCC involvement and subsidy. The Association for ComplianceProfessionals Australia was begun in 1996 in the hope of emulating its success,also under the care of the ACCC. Each association now has over 300members, and has held highly successful annual conferences.

In the Australian trade practices regime, compliance professionals consti-tute a regulatory community much broader than traditional legal profes-sionalism, both in their professional training and backgrounds, and in theirapproach to their task. In the following two sections, I will argue that thefeatures that distinguish the leading advisers I interviewed were their dualcommitments to professional integrity and being commercially streetwise.

2. Professional integrity47

Corporate decisions are often immoral, illegal or just bad, because althoughmany individuals are involved in making them, none feels personal respon-sibility for the ultimate outcome. Psychologists and management theoristshave noted phenomena such as ‘risky shift’, ‘groupthink’ and the ‘Abileneparadox’ in all of which people take greater risks on behalf of their orga-nizations than they would on their own account, act in accord with organi-zational norms even when they clash with their own principles, or go alongwith group decisions against their better judgment in order to avoid

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46 In 1997 the Law Council of Australia (the peak body for the Australian legal profession)complained to the federal Attorney General that the Compliance Education Unit waseffectively forcing s. 87B companies to buy its services and that the ACCC as regulatorshould not be involved in selling consulting services to companies.

47 This section and the following one are based on the interviews with the seven best-practiceAustralian trade practices compliance advisers. Quotations and other statements aboutcompliance professionals that are not footnoted come from these interviews.

conflict.48 When they act on their own behalf, individuals have many intereststhat they pursue in each of their many social roles. Their multiple interestsoften provide alternative standards against which to judge conduct whichin turn generates role conflict or strain that acts as a form of social control.49

Individual actors in corporations, by contrast, are subsumed and socializedby organizational bureaucracies which see them as disposable actors hiredto play one role and to use organizational resources to pursue one corporateinterest by whatever means necessary.50 Hired to act in one role in the organi-zational interest, they lack alternative standards and therefore social controlbecomes more difficult.

Compliance professionals, by contrast, make it their organizational busi-ness to transform and prevent short-sighted organizational processes thatignore external legal and social responsibilities. Some of the complianceprofessionals interviewed had chosen to work in a particular companyspecifically because of its commitment to good corporate citizenship. Othercompliance professionals described the personal commitment and integrityrequired for their job and how it differs from being a lawyer:

You need a fair and just outlook in how a business should be operated. This can’t betaught. There must be an underlying sense of fairness in your character to teach tradepractice compliance, that you shouldn’t be overly opportunistic, smart and technical. Itneeds to be in your character to go looking for fair solutions to problems rather thanjust technical legal ones. A lot of lawyers love to be wiseguys and to hit people over thehead with the technical stuff. But in this work it is not a question of whether somethingis right or wrong in the legal sense but of whether it could be perceived to be right orwrong. In a competitive industry it is to our detriment in the long run if we are seen asa bunch of wiseguys.

Compliance professionals act as communicators and carriers of externalvalues from an alternative regulatory community into the organization’sprocedures, systems, and cultures. They perform their task in two main ways.51

The first is by seeking to educate and train individual employees (in bothmanagement and workforce) to recognize and avoid legal difficulties, and by sanctioning them if they do not do so. The interviewees described compli-ance systems in which employees are required to attend regular trainingprogrammes, including piggybacking on pre-existing induction and develop-ment courses and using compulsory computer-based training courses.Incentives and sanctions motivate compliance by making compliance a factorin annual performance reviews, and dismissing employees for non-compliance.

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48 M. Metzger, ‘Organisations and the law’ (1987) 25 Am. Business Law J. 407; R. Sims, Ethicsand Organizational Decision Making: A Call for Renewal (1994).

49 J. Slovak, ‘The ethics of corporate lawyers: A sociological approach’ (1981) Am. BarFoundation Research J. 753, at 777.

50 id.; see, also, L. May, The Socially Responsive Self: Social Theory and Professional Ethics(1996) on evil socialization by organizational bureaucracies.

51 B. Dee, ‘Characterising conduct as “behavioural” or “procedural”: A new paradigm formore effective compliance and a new corporate compliance ethos’ (1998) 5 Compliance News5. See, also, Coleman, op. cit., n. 1, p. 69, at pp. 75–6.

The second is to design operating procedures and management systemsfor preventing breaches before they occur. For example, the compliancedivision of one insurance company had developed a sophisticated computersystem for checking all documents produced at any level of the companyfor any public purpose for breaches of the Trade Practices Act (such as falseand misleading conduct), or any other relevant company policy.

The evidence suggests that corporate compliance advisers perform theseroles best when they identify with a community of compliance professionalsand regulators that gives them not only a sense of pride in the professionalskills they acquire, but also a sense of professional integrity tied to translatinglegal values into corporate conduct. In her quantitative work on theAustralian affirmative action regime, Valerie Braithwaite found that equalemployment opportunity (EEO) officers were most effective when they werepart of strong professional networks with other EEO officers and with theAffirmative Action Agency.52 In their research on corporate compliance withcivil rights norms, Edelman and her co-authors also found that an importantsource of diffusion of proper due process was the professionalized practicesof personnel officers and the establishment of personnel departments incompanies. The existence of personnel offices, legal departments, and indus-trial relations departments (i) ‘provide a direct channel through which modelsof [employee] rights elaboration can enter the organization from the widerenvironment’ and (ii) ‘create an internal constituency for the elaboration andenforcement of employee rights’.53 Similarly, in his study of a self-regulatoryoccupational health and safety regime, Rees found that corporate safetyprofessionals became a significant source of regulatory ordering and co-operation between labour and management within the corporation.54

In his seminal work on social theory and professional ethics, Larry Maysees personal identity ‘as a web knit from the various identifications andcommitments that one makes with various social groups’.55 Professionalsocialization works by creating affective bonds between professionals as wellas by passing on cognitive skills.56 Thus, an engineer relying on both cogni-tive and affective factors institutionalized in her or his professional identity,and assuming the support of professional colleagues, might blow the whistle

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52 V. Braithwaite, First Steps: Business Reactions to Implementing the Affirmative Act ion Act,A Report to the Affirmative Action Agency (1992); See, also, V. Braithwaite, ‘The Australiangovernment’s affirmative action legislation: Achieving social change through humanresource management’ (1993) 15 Law and Policy 327.

53 F. Dobbin, L. Edelman, J. Meyer, W. R. Scott, and A. Swidler, ‘The expansion of dueprocess in organizations’ in Institutional Patterns and Organizations: Culture andEnvironment, ed. L. Zucker (1988) 71, at 78; see, also, L. Edelman, ‘Legal environmentsand organizational governance: The expansion of due process in the American workplace’(1990) 95 Am. J. of Sociology 1401, at 1410.

54 J. Rees, Reforming the Workplace: A Study of Self-Regulation in Occupational Safety (1988)43–4.

55 May, op. cit., n. 50, p. 13.56 id., p. 63.

on the use of unsafe construction materials in her or his firm, despite short-term organizational interests in doing the job more cheaply. May’s perspec-tive fits well with social psychological research which shows that people needsocial validation of their views (as well as help in problem solving and ideas)in order to retain their commitments.57 Indeed, this psychological researchhas shown that when people identify with a group or accept its values, thentheir sense of self is linked to acting in compliance with group norms includ-ing norms about ethical behaviour.58 This motivation is internal and notbased on judgements of risk in the environment. This is traditionally howprofessions were supposed to work.59

This function of encouraging compliance has sometimes been formalizedin regulatory regimes that co-opt professional actors as gatekeepers bymaking them legally liable for the failures of others if they do nothing toprevent breaches.60 These actors’ professional integrity, reputation and, ulti-mately, livelihood will therefore theoretically lie in assiduously fulfilling theirgatekeeper responsibilities. Compliance professionals aim to permeate theorganization more deeply and thoroughly than professional gatekeepers orwhistle blowers who simply short-circuit attempts at illegal or unethicalconduct.61 Compliance professionals fulfil their duties by preventively ensur-ing that the whole company complies with the law before it is necessary toshut the gate or blow the whistle. As one commentator puts it, compliancework rests on compliance professionals becoming significant political playerswithin the corporations they serve so that they can influence corporate goalsand commitments.62 This might mean maintaining a position where they aresure they can maintain respect for the rule of law by being independent,63 bydeveloping ‘clout’,64 of having the possibility of dotted-line reporting directto the Board audit committee and to the Board of Directors itself, and ofhaving the authority to investigate and intervene at any level of a company.65

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57 Braithwaite, op. cit (1992), n. 52, p. 95.58 T. Tyler and R. Dawes, ‘Fairness in groups: Comparing the self-interest and social identity

perspectives’ in Psychological Perspectives on Justice: Theory and Applications, eds. B.Mellers and J. Baron (1993) 87; T. Tyler, Trust and Democratic Governance (1996).

59 See E. Durkheim, Professional Ethics and Civic Morals (1992, new edn.).60 See Braithwaite, op. cit., n. 38; P. Grabosky, ‘Professional advisers and white collar illegality:

Towards explaining and excusing professional failure’ (1990) 13 University of New SouthWales Law J. 73; T. Halliday, and B. Carruthers, ‘The moral regulation of markets:Professions, privatization and the English Insolvency Act 1986’ (1996) 21 Accounting,Organizations and Society 371.

61 Compliance professionals may exercise gatekeeper and whistle-blower functions at certaintimes.

62 R. Rosen, ‘The inside counsel movement, professional judgment and organizational repre-sentation’ (1989) 64 Indiana Law J. 479, at 503.

63 See Slovak, op. cit., n. 49.64 J. Braithwaite and J. Murphy ‘Clout and internal compliance systems’ (1993) Spring

Corporate Conduct Q. 52.65 See R. Gordon and W. Simon, ‘The redemption of professionalism?’ in Lawyers’ Ideals/

Lawyers’ Practices: Transformations in the American Legal Profession, eds. R. Nelson, D.Trubek, and R. Solomon (1992) 230, at 253.

Seeing compliance professionalism as a matter of transferring regulatorymessages and external values straight into the corporation through themedium of professional integrity is, however, fraught with the possibilitythat the compliance group will be perceived as the ‘ministry for stoppingbusiness’. Indeed, one of the central challenges facing compliance profession-als is how to balance the negative, legalistic, money-spending-not-makingimage of compliance with their loyalty to organizational cultures, goals, andbusiness performance.

3. Being ‘commercially streetwise’

Professional integrity may require carriage of external values and regulatorymessages into the company, but building regulatory community is a two-way process. Compliance professionals must not only have professionalintegrity but business commitment and commercial savvy. As one compli-ance professional in a private company, who had previously been on thestaff of the ACCC, put it,

Our concern is with the letter of the law and with the business. It’s no use complying ifthere’s no business left to comply. We do a balancing act between making sure thecompany complies and there is still a business. Lawyers don’t care about business andthat’s OK because that’s their job. Most aren’t what I would call commercially streetwise.

The work of compliance professionals is not merely one of translation butof harmonization of legal norms with organizational culture, corporategovernance systems, and business goals. This requires the compliance profes-sional to act less ‘in the role of a policeman . . . than an ally in an effort torun the company profitably and legally.’66 All the interviewees contrastedtheir compliance role with the approach traditionally taken by lawyers thatwas too legalistic to be effective. To quote one compliance professional:

Lawyers offer a numeric approach. They start with s. 40 and go onwards through theAct covering everything. It is better to not respect the law but people and jobs . . . Theperception of compliance as a legal issue is a problem. Frequently the lawyer is onlyone-hundredth of the answer. I know one company where the lawyer responsible forcompliance has never even met the marketing manager and that compliance program isgoing to be useless.

According to one compliance lawyer in private practice, his firm took a‘management-oriented approach to legal services’, in contrast to other law firms, by physically working in clients’ offices. In designing trainingprogrammes, compliance professionals spend time in the company learningthe culture and identifying situations that are likely to arise and tailoringtraining to those needs. Manuals that were too ‘lawyerly’ would not work.Instead they advocate manuals that are simple and use cartoons and concreteexamples. To summarize the statements in the interviews, training sessions

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66 A. Beckenstein and H. Gabel, ‘Antitrust compliance: Results of a survey of legal opinion’(1983) 51 Antitrust Law J. 459, at 477.

are not law lectures. They should be interactive discussions of real-life prob-lems and should equip participants to understand the conduct that will getthem into trouble, not legal principles and definitions. Good compliancesystems are about management more than law. They are about competenceand skills analysis, about management system design that might go right backto the basics of the business plan or the operating procedure. Complianceprofessionals and the systems they produce are valuable when ‘embedded’ inthe management, culture, and goals of their organization, because they areas influenced by the organization as by legal values and regulatory goals.67

This then gives compliance professionals a dynamic, two-way role in theregulatory effort. Their task is to fit regulatory goals to organizational normsand thus make compliance strategies come alive – in a way that externalregulators can never achieve alone – by making compliance programmesthat are contextually specific and demonstrate genuine organizationalcommitment from the inside out. Again, the empirical evidence availablesupports the theory that both professional integrity and being ‘commerciallystreetwise’ are necessary for compliance to be effective. In 1993, Makkaiand Valerie Braithwaite tested the hypothesis that professional role orien-tation, values, and autonomy would contribute to greater compliance bycomparing Directors of Nursing’s attitudes with data on the level of theirnursing homes’ compliance with government standards. They compared theDirectors’ levels of professional orientation with their commitment toorganizational values and found, against their hypothesis, that professionalintegrity did not have a significant independent effect on nursing homecompliance. One of their conclusions was that they may have been wrongto draw a sharp distinction between professional and business orientationsin their survey instrument. Directors of Nursing may need strong orien-tations towards both professionalism and business efficiency to be effectiveat improving compliance.68 Compliance professionals need both appropriate‘professional’ values to have the motivation to improve compliance, but alsoa commitment to the organization and its efficiency in order to be able toput those values into action.

This fits nicely with Fiona Haines’s recent work on organizational occu-pational health and safety responses to the deaths of workers.69 She dividedher sample of thirty-seven firms that had experienced the death of a workerinto (i) those who several years after the event had responded ‘virtuously’by re-evaluating organizational safety levels, altering workplaces or workpractices, and re-emphasizing current safety policy; (ii) those who haddisplayed a ‘blinkered’ response limited to isolating and altering those visibleand specific factors that lead to the particular death in question; and (iii) those who displayed no change.70 Her data showed that those which

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67 B. Sharpe, Making Legal Compliance Work (1996).68 T. Makkai and V. Braithwaite, ‘Professionalism, organizations and compliance’ (1993) Law

and Social Inquiry 33, at 55.69 Haines, op. cit., n. 34.70 id., p. 69.

displayed a virtuous response also had a ‘virtuous culture’.71 A virtuousculture was one that ‘seeks to harmonise and “blend” the various demandsit faces, rather than one which dichotomises and forces choices’. The virtuousculture sees ‘safety as integral to organisational activity, while the culturelacking in virtue would tend to push safety into the background in order tofocus on short-term demands’.72 Like the trade practices compliance profes-sionals I have described, Haines’s virtuous managers saw occupationalhealth and safety integrity and business commitment as equally important:

here the ‘good’ manager was one who managed the social goals of the organisation (suchas safety, environmental issues and a consensus approach to industrial relations) intandem with ‘hard-nosed’ business concerns of time, money and productivity. These‘good’ managers understood that the social goals were good for business.73

Compliance professionals who seek to harmonize organizational procedures,cultures, and systems with regulatory goals help constitute exactly the type ofregulatory community which Meidinger identifies as necessary for effectiveregulation. It is a community in which different interests are pursued vis-à-visregulator, regulatee, and affected parties, but shared goals and interpretationsare continually debated, constituted, and redefined.74 Compliance profes-sionals’ dual focus on professional integrity and commercial acumen makesregulatory compliance as two-way communication possible. Compliance-oriented regulatory strategies turn out not to be about passive ‘compliance’,the infiltration of regulatory messages into stable corporate regimes, but aboutcorporate citizenship that requires the active engagement of corporate govern-ments with regulatory norms and of regulatory norms with corporate concernsthrough the agency of the compliance professional. Where then does this leavethe regulator?

IV. THE REGULATOR’S ROLE: ENABLING AND ENNOBLINGCOMPLIANCE PROFESSIONALISM

1. Enabling compliance professionalism: selling compliance commitment tothe top

Makkai and Braithwaite concluded from their study of nursing homes thathigh levels of compliance were more strongly linked to organizational cultureand structure than to the professional orientation of individual actors.75

Indeed, all my interviewees strongly made the point that they were powerless

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71 id., p. 123.72 id., pp. 94, 95.73 id. pp. 100–1.74 Meidinger, op. cit., n. 44.75 Makkai and Braithwaite, op. cit., n. 68.

as compliance advisers unless commitment to compliance came down ‘in arolling force’ from the top of the company. Some had chosen to work withparticular companies only because they felt that those companies alreadyhad a reputation for having an ethical culture in which compliance was taken seriously:

It’s part of the company’s mission statement to be a good corporate citizen of whatevercountry it does business in. This tends to permeate management and if it permeatesmanagement then it will permeate the rest of the organization. I get calls from peopleall the time checking up to see whether it’s OK to do something a certain way. There’snot many companies where that happens. I deliberately chose to work [here] because itwas an ethical corporation and it therefore suited me as an ex-regulator, rather thangoing from regulator to criminal in one day.

This implies that at some point the top management of a company must be‘sold’ on the importance of commitment to compliance. Two of the inter-viewees who acted as external compliance advisers noted how hard it is tosell preventive compliance services to clients who see all legal services as‘grudge purchases’, and are not convinced of the need to spend even moremoney on obedience to legal rules. Compliance professionals therefore aimto ‘sell’ compliance programmes by claiming that they improve businessefficiency and performance. The consumer protection area is particularlyamenable to this sort of sales pitch, since compliance with trade practicesrules easily translates into keeping consumers satisfied with the quality ofservice and products offered to them, as well as avoiding legal penalties andcosts. SOCAP subscribes to the philosophy that what is good for theconsumer is also good for the bottom line. It commissioned a survey ofconsumer complaints handling mechanisms in Australian industry and ofconsumer attitudes towards them. This found that when consumers weresatisfied or more than satisfied with the way their complaints were handled,they were much more likely to repurchase than if they did not complain, orwere dissatisfied or merely ‘mollified’ by the way their complaint washandled.76 Indeed, when complaint handling exceeded consumers’ expec-tations, consumers were more likely to repurchase as if there had never beena problem.77 This created a lot of interest among larger companies inimproving their consumer complaint handling functions.

It is the regulator, however, who must deliver the ultimate ‘sales pitch’ tomanagement by providing clear sanctions for breaches of legal standards.While compliance professionals can sell the efficiency benefits and cost effec-tiveness of a compliance programme, they must have the full attention ofsenior management to do so. The interviewees reported that in their experi-ence the best attention-grabber is the sanction that affects the company itself

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76 TARP, American Express-SOCAP Study of Complaint Handling in Australia: Report One:Consumer Complaint Behaviour in Australia (1995); TARP, American Express-SOCAP Studyof Complaint Handling in Australia: Report Two: A Profile of Enquiry and ComplaintHandling by Australian Business (1995).

77 TARP, Report One, id., p. 18.

or the ‘horror story’ of what happened to a competitor in the same industry.78

Ironically, compliance advisers are themselves deterrence theorists when theneed arises. Even organizations that themselves are naturally inclined tocomply will seek an assurance that less scrupulous competitors will sufferfor non-compliance before investing heavily in the compliance programme.79

In this sense, it is the regulators’ task to enable the whole enterprise of thecompliance professional by strategically invoking a pyramid of sanctions.

2. Ennobling compliance professionalism: ensuring enforcement of self-regulatory standards

Even if a regulator is successful at selling self-regulatory and complianceprogrammes to a substantial proportion of industries and businesses, the chal-lenge of making them accountable to sufficiently high standards remains.Despite over a decade of ACCC attention to promoting compliance, fewmeasures of its success are available. No data are available on the extent towhich Australian companies have implemented trade practices complianceprogrammes, although submissions to the Australian Law Reform Commissionand anecdotal evidence from lawyers suggests that the high profile of theACCC’s activities has led most large companies to implement programmes.80

Judging by data on the implementation of compliance programmes in otherareas, it is however very likely that these programmes have not been developedin small and medium-sized enterprises.81 Nor has the ACCC regularlymonitored the quality of corporate compliance programmes or industry self-regulatory schemes. In particular, the ACCC has not yet made any applicationsto court to enforce a s. 87B undertaking and has no systematic way of monitor-ing compliance with the undertakings. Nor are the circumstances in which self-regulatory industry schemes should be amended or scrapped in favour ofgovernment regulation very clear.

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78 This is not to say that all companies will always respond to sanctions or horror stories.The empirical evidence from a range of areas of compliance show that overall large compa-nies are much more likely to introduce compliance systems than smaller companies: forexample, O. Andersen, ‘The Norwegian internal control system: A tool in corporateenvironmental management?’ (1996) 3 Eco-Management and Auditing 26; N. Gunningham,‘Environmental management systems and community participation: Rethinking chemicalindustry regulation’ (1998) mimeo, Australian Centre for Environmental Law; H. Genn,‘Business responses to the regulation of health and safety in England’ (1993) 15 Law andPolicy 219; G. Wood, ‘Code of Ethics Survey: Results Report’ (1996) mimeo, DeakinUniversity. The compliance advisers in this study are all reporting on what happened inlarge companies where clearly there was already some commitment to compliance evidencedby the fact that a compliance adviser had been hired in the first place.

79 See Pearce and Tombs, op. cit., n. 5, pp. 94–5; M. Levi, Of Rule and Revenue (1988).80 Australian Law Reform Commission, Compliance with the Trade Practices Act 1974 (1994)

15–16.81 See references at n. 78.

The ACCC has, however, developed some standards by which industryself-regulatory schemes and compliance programmes can be judged. In 1991,it published a guideline on good codes of conduct, and in 1996 all the federal,state, and territory consumer ministers adopted a guideline for fair tradingcodes of conduct based upon it.82 More recently, the ACCC has taken advan-tage of the existence of a regulatory community by working with complianceprofessionals and consumer groups to develop further standards. It hasfacilitated the development of a guide to benchmarks for dispute avoidanceand resolution in a ‘round-table’ process between small and large businesses.83

In 1995, it was involved in the development of a Standards Australia (theAustralian body affiliated to the International Standards Organisation)standard on complaints handling.84 The most promising long-term means ofensuring that companies achieve an appropriate standard in compliance wasthe launch of the Australian Standard on Compliance Programmes in 1998.In this case, the ACCC, together with the Association for ComplianceProfessionals of Australia, developed the standard under the processes ofStandards Australia together with representatives from the AustralianInstitute of Criminology, the Consumers’ Federation of Australia, the FederalBureau of Consumer Affairs, and the Public Interest Advocacy Centre.

The ACCC has approved each of these standards by being involved inmaking them, but has left their enforcement to a mix of public and privateinstitutions. The standards may be publicly enforced by the ACCC usingthem in s. 87B undertakings and in arguments before the courts. Ultimately,however, these standards will reach into the corporation only to the extentthat they are privately implemented by compliance advisers who live up tobest professional practice and are ‘enforced’ by independent complianceauditors who are willing to offer accreditation to the standard, as occurswith quality assurance accreditation. While compliance-oriented regulatorystrategies are supposed to give companies and industries responsibility forgoverning themselves according to the highest standards, their efforts muststill be monitored, audited, reviewed, and continuously improved.

Not surprisingly, what little data are available on corporate complianceprogrammes tell us that exactly this is likely to be the weak spot in corporatecompliance programmes. In a survey of United States corporate complianceprogrammes in 1983, Beckenstein and Gabel found that audits were under-utilized.85 Similarly, in a 1991 study of the compliance efforts of more than700 United States companies, Kaplan found that 45 per cent had no ethics

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82 Trade Practices Commission, Guide to Codes of Conduct (1991). Commonwealth, State andTerritory Consumer Affairs Agencies, Fair Trading Codes of Conduct: Why Have Them,How to Prepare Them (1996). See, also, Department of Industry, Science and Tourism,Benchmarks for Customer Dispute Resolution Schemes (1997).

83 Australian Competition and Consumer Commission, Benchmarks for Dispute Avoidance andResolution: A Guide (1997).

84 AS 4269 – Complaints Handling.85 Beckenstein and Gabel, op. cit., n. 66.

auditing systems.86 Indeed, in my own interviews I found that the develop-ment of audits and measures of the effectiveness of programmes was some-thing compliance professionals are only just beginning to think about.Regulators are also likely to be unskilled and lacking in resources to evaluatethe effectiveness of compliance and self-regulation in a host of highly specificcontexts. I have already argued that the ACCC seems to be weak in thisarea, despite its demonstrated commitment to developing standards. Indeed,if regulators seek to take it upon themselves to monitor and evaluate everycompliance or self-regulatory programme individually, they will reproducethe resource-intensive, inflexible strategies they were trying to avoid byencouraging compliance initiatives in the first place.

To avoid these problems, regulators must engage in a more creativeprocess of meta-evaluation of companies’ own evaluation processes. Thiswill allow them to check that their trust in compliance is not being misplacedand to identify those most at risk of non- or low-quality compliance. Thekey to meta-evaluation is to enforce requirements for companies to gothrough their own processes of audit, review, and continuous improvement.The companies must report on the development and implementation of theseprocesses. Coleman has suggested that companies could hire private, inde-pendent professionals to perform functional audits of their compliance andethics to uncover irregularities and open the firm to scrutiny.87 He arguesthat if these audits were done by an external independent firm and appro-priately reported to regulators and/or the public, they could replace manyregulatory activities of government agencies. In Australia, a car insurancecompany, AAMI, has voluntarily introduced just such a scheme of publish-ing an annual independent audit of its performance in meeting the objectivesof its ‘consumer charter’.88

Coleman’s view is over-optimistic, but regulators could shift from tryingto discover and punish every individual act of non-compliance to enforcingthe implementation of effective systems for preventing non-compliance, atleast in those large companies that do have the capacity to implement compli-ance systems. For most small and medium-sized companies, discovering andpunishing non-compliance by public bodies is likely to remain significantdue to their incapacity to implement compliance systems. A number of regu-lators in different areas are currently experimenting with ‘tiered’ regulatoryenforcement strategies. Companies that can demonstrate they have imple-mented effective compliance systems that are independently audited andshown to produce the outcomes they promise are inspected or investigatedless often and treated less adversarially as long as they keep regularly

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86 J. Kaplan, ‘The corporate sentencing guidelines: Making compliance programmes “effec-tive”’ (1991) 1 Corporate Conduct Q. 1.

87 Coleman, op. cit., n. 51, p. 84.88 S. Smith, ‘Consumer charters: The next dimension in consumer protection?’ (1997) 22

Alternative Law J. 138.

reporting and auditing their compliance management systems and producingcompliance.89 A number of environmental regulators are also experimentingwith giving firms with audited environmental management systems who haveno history of non-compliance more flexible development permits.90 Thosecompanies without compliance systems are targeted for expenditure ofinspection, investigation and enforcement resources.

Such meta-evaluation is already implicit in some of the ACCC’s practices.For example, recent s. 87B undertakings require the companies to report theirown progress or to have their progress audited and reported to the ACCCat certain intervals. This makes the compliance programme self-executing andgives the regulator the roles of (i) enforcing the audit process and (ii) of meta-evaluating the evaluation process conducted by the company itself. If thecompany does not report any self-evaluation process, or if its self-evaluationis inadequate, then the regulator escalates up the pyramid to enforce theprocess or, in more serious cases, abandons the use of compliance strategiesfor that particular company or industry altogether. This leaves the regulatorfree to encourage and enforce processes of deep learning in those companiesthat are committed to compliance.91 It flags as risky those that are not commit-ted, and tells the regulator that escalation up the pyramid may be necessary.Paradoxically, even in evaluation, the regulator must rely on regulatorycommunity because compliance professionals must develop measures ofeffectiveness that are then meta-evaluated. If corporate compliance profes-sionals cannot come up with satisfactory self-evaluative measures, then regu-lators will simply not trust them to implement compliance programmes.

V. CONCLUSION

Whenever regulators use compliance strategies they both presuppose andcreate opportunities for the emergence of internal corporate actors with theskills, ethics and commitments to advise and persuade company managersand employees on how to comply with the law. Many of these actors will becorporate lawyers (either internal or external) and compliance staff in internalcompliance units. I have shown how, in the case of the Australian tradepractices regime, the ACCC has purposely nurtured private professionalbodies of compliance and consumer complaint handling professionals to carrycompliance expertise into the commercial world. These are people with whom

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89 For example, the United States EPA’s Project XL, see Geltman and Skroback, op. cit., n.6; Investment Management Regulatory Organisation, Regulatory Plan 1996–1997 (1997).

90 For example, see M. Aalders and T. Wilthagen, ‘Moving beyond command-and-control:Reflexivity in the regulation of occupational health and safety and the environment’ (1997)19 Law and Policy 415; Environment Protection Authority, A Question of Trust: AccreditedLicensee Concept. A Discussion Paper (1993).

91 C. Argyris, ‘Litigation mentality and organizational learning’ in The Legalistic Organization,eds. S. Sitkin and R. Bies (1994) 347.

the ACCC builds a strong sense of ‘regulatory community’. The professionowes its existence to the enabling work of the regulator in utilizing pyramidsof enforcement strategies that motivate self-regulatory and complianceinitiatives. The regulator relies on these professionals to make complianceprogrammes come alive and reach appropriate standards inside the company.Both my interviews and other empirical evidence lead to the conclusion thatcompliance professionals do their job best when they demonstrate both strongprofessional integrity and strong commitment to being commercially street-wise by seeking to harmonize regulatory goals and organizational norms.This gives companies the ability to respond appropriately to regulatorymessages and extends regulators’ reach inside corporations and industries.

Regulatory community between regulators and compliance professionalsmuddies the distinction between public regulation of corporate conduct andprivate self-regulation. Regulatory community helps create a professionalidentity in compliance professionals that itself increases public democraticcontrol of corporations through corporate self-regulation. In doing so,compliance professionals dramatically increase the possibility for real corpo-rate citizenship through active responsiveness to social and legal respon-sibilities, rather than mere passive compliance. Compliance strategies runthe great risk of engendering ‘creative compliance’ that appears to complybut avoids the goals and intent of the law. In contrast, compliance profes-sionals who are imbued in both regulatory communities and organizationalstructures can help to harmonize organizational goals with regulatory normsand give legal norms force by orienting them to organizational realities.Compliance advisers form strands of a regulatory web that reaches rightinside the corporation to change its culture itself. The challenge for regu-lators is to regulate and legitimate the standards practiced by complianceprofessionals themselves. Again, regulators must rely on a regulatorycommunity in which regulators, compliance professionals, and other affectedparties together work out standards for compliance, with regulators main-taining the crucial task of meta-evaluation of compliance professionals’measures of their own progress in meeting them.

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Compliance Professionalism and Regulatory Community: The Australian Trade Practices Regime

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