The 2018 Australian Royal Commission into Banking and other financial services has revealed how good people are blind to the ethical conflicts systemically embedded in our most powerful institutions.
Evidence of systemic ethical blindness and/or irresponsibility is that the Chief Executive Officers of the largest banks in the country supported holding of the Royal Commission “to restore public faith”in the banks. But evidence from the Royal Commission created public outrage from the revealed misconduct, cover-ups, denials and malfeasance. Either the responsible CEO’s were not aware of such conduct and/or they did not know it was wrong.
Cultural denial of what is right and what is wrong
The problem of knowing what is right and what is wrong has been compounded by the double speak describing unethical conflicts of interest that are systematically imbedded in Australian institutions. They are described as “good governance” or “best practice”!
The depth and breadth of the unconscionable conflicts of interest in the Australian business culture is illustrated by the membership of Australian Securities Exchange (ASX) Corporate Governance Council. It has twenty member bodies. They include the professional bodies representing lawyers, auditors, directors and regulators.
A basic requirement of sound business practice is to know with whom you are dealing. Lenders and financial advisers also need to know the circumstances of their clients. However, the ASX denies either type of data to be revealed to any prospective investor, securities trader, short seller, hedge fund, superannuation fund, foreign speculator, persons with inside information on the securities being traded including directors and major shareholders of the company whose shares are being traded. The pricing of shares can very much depend upon the identity of the buyer or seller. When share trading began in coffee houses people would know each other. “Sunlight” trading was the normal way of doing business.
The Australian Securities and Investment Commission (ASIC) is irresponsible in licensing the ASX to operate a public exchange that allows its member brokers and other insiders to trade covertly against the interest of their clients. It is ingenious for the ASX to claim privacy considerations should protect their private convert profits arising from their ASIC licence to operate a public exchange.
In 1971 the author was a member of an investment syndicate that held shares and contracts to purchases 55% of the issued shares of Antimony Nickel NL. The Directors of the company also claimed ownership of 55% of the shares! Most of the excess 10% of the shares sold “short” by speculators, who did not own shares, were members of the Stock Exchange Committee who made the rules of how shares could be traded. To avoid personal losses they changed the rules.
Removing covert capitalism
Since 1971, the ASX has become profoundly conflicted by trading its own shares on its own exchange. While only 4,336 US firms were publicly traded in 2017, the number of firms that traded their own shares exceeded this number from possessing employee share ownership plans. The National Association of Securities Dealers Automated Quotations (NASDAQ) is the second largest exchange in the world by market capitalisation has no physical location. The Internet makes it practical for any firm to publicly trade its own shares. An ethical ASIC could licence self-regulating ethical firms to trade their own shares on the basis that sunlight trading was established.
Sunlight share trading would allow directors of firms to learn, to whom they are accountable. The public would in turn learn the identities of the ultimate owners and/or controllers of securities who were not holding their directors to account. The author was required to provide such disclosure to the US regulator about his investment syndicate in 1974. This arose when he was organising a public offer to acquire the shares of a US publicly traded company that owned six seats on the New York Stock Exchange.
Sunlight share trading by any firm would eliminate the need for stock exchanges to exist. This would eliminate substantial transaction costs. It would greatly improve the efficiency of the securities industry as well as exposing unethical transactions.
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