The OECD’s mission is to develop intergovernmental consensus on what are the best policies to promote strong economies and social progress. We draw up principles, guidelines or, occasionally, binding rules that our members commit to follow. We interact with scores of countries around the world that wish to benefit from our collective experience and knowledge. We know best practices work, bad practices do not.
Our approach has unique merits. OECD countries are all democracies founded on the rule of law, but also on trust. Recently, we have seen the damage that flows from a breach of such trust. Once lost, rebuilding trust is a long and hard road.
The erosion of trust is harming the global economy in several ways. Take the Doha Development Agenda, the multilateral trade round that stalled in Cancún in September. It may sound simplistic to attribute this failure to a breakdown of trust, yet many members of the World Trade Organization no longer seem to have faith in the fairness of the multilateral system. This also points to a suspicion of some hidden agendas on all sides, which are the most significant saboteurs of trust.
Another area where a massive, and justified, loss of trust has affected our economies is in corporate governance. The succession of spectacular cases, from Enron to WorldCom, have hurt confidence among investors, in particular people like ourselves who have believed in the integrity of the stock markets and those who influence investment decisions. We have been betrayed. Some have lost a lifetime of savings, and worry about the future because of the actions of a few who failed in their role as trustees.
Restoring market integrity is essential to winning back public confidence and to helping economies grow. The deluge of corporate scandals has motivated OECD ministers to seek a strengthening of the OECD Principles of Corporate Governance, which since 1999 had set the path with regard to shareholder rights, disclosure, transparency, the role of the board of directors, etc. The principles have been used as a basis for numerous national codes and guidelines, including in non-OECD countries.
In the revised corporate governance principles, more emphasis will be placed on the integrity of financial disclosure processes, the role of institutional investors in monitoring management and the impact of regulations and regulatory authorities. The OECD will publish a draft on the Internet in January 2004 with a view to drawing public comment, which could help reinforce this “benchmark” for global corporate governance.
Another critical area where trust has been eroded is science and technology. Public opinion is increasingly sceptical of science and the capacity of governments to deliver safety and security. Look at nuclear power. In my youth, despite the horrors of Hiroshima and Nagasaki at the end of the Second World War, President Eisenhower’s initiative of “atoms for peace” was broadly embraced as the energy of the future. A commentary in the New York Times on 15 August 1955, said that scientists at a major international conference in Geneva had concluded that thanks to nuclear energy, “for the first time, man is assured of virtually unlimited supply of energy”.
Today, despite global warming and rising energy demand, particularly in developing countries, many countries have abandoned the nuclear option. Accidents at Three Mile Island and Chernobyl have badly damaged public and, hence political, confidence in this once so promising technology. The industry’s tendency to secrecy only makes matters worse. Its publications are often discarded as “so much propaganda”. The result? No trust.
Sadly, the public seems to lump all controversial issues involving science into the same basket of suspicion and doubt. Nuclear is one area. Genetic modification of crops is another, particularly in Europe. Failures to deal adequately with concerns in one area cascade quickly into others, with the result that the scientific facts are often lost in a flood of misperception and demagoguery.
How ironic that mistrust should develop during today’s age of information. Knowledge and confidence, not ignorance and fear, are promises the information society should help deliver. But not even the Internet is completely safe. And no new safety gadget will ever be secure enough to persuade people that their e-commerce transactions are fraud-proof or that no virus or hacker will ever penetrate their system.
The lesson is simple: trust pays. We live in a multilateral, networked, world. It requires rules, of course, but as a former lawyer, I can reaffirm that these will never be strong without a system based on principles and values.
In many ways, an increasing reliance on rules and regulations to guide behaviour has lowered sights from what is ethical and appropriate to what we can get away with, even within the rules, as though there were no need for other basic considerations, like ethics. Today, a major business transaction will never be closed on a handshake, but needs lawyers, accountants, and consultants to ensure “due diligence”.
Yes, we need rules. But leaders need to turn to the important, difficult task of restoring principles, ethics and values so that we can rebuild trust.
©OECD Observer No 240/241, December 2003