Acting in the public interest â a framework for analysis - ICAEW
Acting in the public interest â a framework for analysis - ICAEW
Acting in the public interest â a framework for analysis - ICAEW
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ACTING IN THE PUBLIC INTEREST:A FRAMEWORK FOR ANALYSISMARKET FOUNDATIONS INITIATIVEBusINEss WITH CONfidENCEicaew.com/marketfoundations
<strong>ICAEW</strong> and thought leadership<strong>ICAEW</strong>’s remit is based on its 1880 and 1948 Royal Charters which <strong>in</strong> effect established thata <strong>public</strong> <strong>in</strong>terest perspective will be applied <strong>in</strong> its work.As a world-lead<strong>in</strong>g professional body, <strong>ICAEW</strong> provides leadership and practical support to over138,000 members <strong>in</strong> more than 160 countries, work<strong>in</strong>g with governments, regulators and<strong>in</strong>dustry to ensure <strong>the</strong> highest standards are ma<strong>in</strong>ta<strong>in</strong>ed.<strong>ICAEW</strong> Chartered Accountants can be found <strong>in</strong> all sectors of <strong>the</strong> economy, have a wide range ofexpertise and work to <strong>the</strong> highest technical and ethical standards. Breadth and reach underp<strong>in</strong><strong>ICAEW</strong>’s power to convene, br<strong>in</strong>g<strong>in</strong>g toge<strong>the</strong>r those with a relevant <strong>in</strong>terest to discuss mattersof common concern and identify how we can make a valued contribution.<strong>ICAEW</strong>’s thought leadership work <strong>in</strong>volves evidence ga<strong>the</strong>r<strong>in</strong>g, <strong>for</strong>ensic <strong>analysis</strong> and <strong>the</strong>development of practical policy proposals and professional guidance aimed at improv<strong>in</strong>g howmarkets work. The Market Foundations programme is seek<strong>in</strong>g to utilise <strong>the</strong>se skills to analyseand challenge some of <strong>the</strong> assumptions and structures surround<strong>in</strong>g <strong>the</strong> basic build<strong>in</strong>g blockson which market transactions are based.We welcome views and comments on this report and <strong>the</strong> o<strong>the</strong>r <strong>the</strong>mes of <strong>the</strong> MarketFoundations programme. To contact us, please email marketfoundations@icaew.com.For more <strong>in</strong><strong>for</strong>mation on Market Foundations and to download reports, visit icaew.com/marketfoundations.© <strong>ICAEW</strong> 2012All rights reserved. If you want to reproduce or redistribute any of <strong>the</strong> material <strong>in</strong> this<strong>public</strong>ation, you should first get <strong>ICAEW</strong>’s permission <strong>in</strong> writ<strong>in</strong>g. <strong>ICAEW</strong> will not be liable <strong>for</strong> anyreliance you place on <strong>the</strong> <strong>in</strong><strong>for</strong>mation <strong>in</strong> this <strong>public</strong>ation. You should seek <strong>in</strong>dependent advice.ISBN: 978-0-85760-630-3
ACTING IN THE PUBLIC INTEREST:A FRAMEWORK FOR ANALYSIS
TABLE OF PANELSPanel 2.1: Examples of usages of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest 10Panel 2.2: Example of def<strong>in</strong>ition of <strong>public</strong> <strong>in</strong>terest from a specific perspective 11Panel 2.3: Examples of professional references to <strong>the</strong> <strong>public</strong> <strong>in</strong>terest 13Panel 2.4: <strong>ICAEW</strong> and its <strong>public</strong> <strong>in</strong>terest role 13Panel 3.1: <strong>ICAEW</strong> and address<strong>in</strong>g conflicts of <strong>in</strong>terest 21Panel 3.2: Examples of self-<strong>in</strong>terest motivation 21Panel 3.3: Cont<strong>in</strong>gent valuation model 23Panel 3.4: Examples of oversight <strong>in</strong> <strong>the</strong> accountancy profession 25Panel 4.1: <strong>ICAEW</strong> and <strong>public</strong> <strong>in</strong>terest matters 30Panel 5.1: Charities and <strong>public</strong> benefit 34Panel 5.2: <strong>ICAEW</strong> and <strong>the</strong> relevant <strong>public</strong> 35Panel 6.1: Historical perspective on <strong>public</strong> op<strong>in</strong>ion 38Panel 6.2: The need <strong>for</strong> more £5 notes 41Panel 6.3: Weisbrod’s <strong>public</strong> <strong>in</strong>terest ratio 42Panel 6.4: <strong>ICAEW</strong> and ascerta<strong>in</strong><strong>in</strong>g relevant op<strong>in</strong>ion 42Panel 6.5: Eastern and Western philosophies 43Panel 7.1: <strong>Act<strong>in</strong>g</strong> <strong>in</strong> one’s own <strong>in</strong>terests 46Panel 7.2: Examples of <strong>in</strong>advertent collective harm 47Panel 7.3: <strong>ICAEW</strong> and externalities 49Panel 7.4: Example of guidel<strong>in</strong>es to deal with <strong>the</strong> future 49Panel 7.5: Management of national debt: differences of op<strong>in</strong>ion 50Panel 7.6: <strong>ICAEW</strong> and clarity of values 51Panel 8.1: Utility calculation example 55Panel 8.2: Examples of <strong>in</strong>commensurability 56Panel 8.3: UK competition policy and <strong>the</strong> <strong>public</strong> <strong>in</strong>terest 56Panel 8.4: Pareto allocation 58Panel 9.1: Traffic lights 64Panel 9.2: <strong>ICAEW</strong> approach to implementation 64Panel 9.3: Existence of government 65Panel 9.4: <strong>ICAEW</strong>’s remit and authority 66Panel 9.5: <strong>ICAEW</strong> and support 67Table of panels03
Our <strong>framework</strong> is based around <strong>the</strong> key issues that need to be addressed by those who arefac<strong>in</strong>g <strong>the</strong> challenge of justify<strong>in</strong>g actions as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. The <strong>framework</strong> coversa number of stages:• justification of credentials <strong>for</strong> <strong>the</strong> right to <strong>in</strong>voke <strong>the</strong> <strong>public</strong> <strong>in</strong>terest;• identification of whe<strong>the</strong>r a matter is actually a <strong>public</strong> <strong>in</strong>terest matter;• consideration of who <strong>the</strong> relevant <strong>public</strong> are, what <strong>the</strong>y want and whe<strong>the</strong>r <strong>the</strong>ir wantscontrast with needs or o<strong>the</strong>r constra<strong>in</strong>ts;• aggregation of sometimes conflict<strong>in</strong>g <strong>in</strong>put and result<strong>in</strong>g decision; and• implementation of <strong>the</strong> desired action.This report is relevant to <strong>the</strong> accountancy profession and more broadly. It considers allcircumstances <strong>in</strong> which organisations seek to change people’s actions through laws, regulationsor o<strong>the</strong>r methods of persuasion. In this context <strong>the</strong> <strong>framework</strong> should be useful to anyone asa tool <strong>for</strong> challenge and relevant to any of <strong>the</strong> wide range of actions that are asserted to be <strong>in</strong><strong>the</strong> <strong>public</strong> <strong>in</strong>terest. However, <strong>the</strong> <strong>framework</strong> also has a role <strong>for</strong> <strong>in</strong>dividuals consider<strong>in</strong>g an actionsuch as disclosure of a matter that would o<strong>the</strong>rwise be confidential, <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. In somecircumstances, transparency requirements will be lower <strong>for</strong> an <strong>in</strong>dividual undertak<strong>in</strong>g his or herown action than <strong>for</strong> an organisation advocat<strong>in</strong>g change <strong>in</strong> o<strong>the</strong>rs’ behaviour, but scepticismabout motive is still appropriate and <strong>the</strong> same pr<strong>in</strong>ciples and questions can be applied.The true measure of whe<strong>the</strong>r someone is act<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest lies <strong>in</strong> <strong>the</strong> confidence ofthose affected, not those mak<strong>in</strong>g <strong>the</strong> pronouncements. There<strong>for</strong>e <strong>the</strong> need <strong>for</strong> those assert<strong>in</strong>gthat <strong>the</strong>y are act<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest to consider actual and perceived threats to fitnessto decide, and <strong>the</strong> application of relevant safeguards, will apply throughout <strong>the</strong> process. Theway a <strong>public</strong> <strong>in</strong>terest action is determ<strong>in</strong>ed, and seen to be determ<strong>in</strong>ed, and <strong>the</strong> <strong>public</strong> <strong>in</strong>terestappropriateness of <strong>the</strong> solution, will <strong>in</strong>fluence <strong>the</strong> acceptance of <strong>the</strong> measure. This will <strong>in</strong> duecourse affect <strong>the</strong> reputation of those implement<strong>in</strong>g <strong>the</strong> action and that, <strong>in</strong> turn, will help withfuture acceptance and implementation.1.4 The <strong>framework</strong>The stages <strong>in</strong> <strong>the</strong> <strong>framework</strong> <strong>in</strong>teract and <strong>the</strong> whole process is iterative. The diagram belowand <strong>the</strong> summaries that follow it set out <strong>the</strong> seven key areas to be considered <strong>in</strong> mak<strong>in</strong>g <strong>the</strong>assessment:Figure 1: Public <strong>in</strong>terest <strong>framework</strong>Credentials <strong>for</strong><strong>in</strong>vok<strong>in</strong>g <strong>the</strong><strong>public</strong> <strong>in</strong>terestImplementationApplicability of<strong>the</strong> <strong>public</strong><strong>in</strong>terestAggregation anddecision<strong>Act<strong>in</strong>g</strong> <strong>in</strong><strong>the</strong> <strong>public</strong><strong>in</strong>terestThe relevant<strong>public</strong>Constra<strong>in</strong>ts towantsThe relevant<strong>public</strong>’s wantsSummary: a <strong>public</strong> <strong>in</strong>terest <strong>framework</strong>05
The relevant <strong>public</strong>’s wantsHav<strong>in</strong>g determ<strong>in</strong>ed who comprises <strong>the</strong> relevant <strong>public</strong>, <strong>the</strong> proponent of <strong>the</strong> <strong>public</strong> <strong>in</strong>terestaction’s first consideration <strong>in</strong> determ<strong>in</strong><strong>in</strong>g what is <strong>in</strong> <strong>the</strong>ir <strong>in</strong>terest should be what <strong>the</strong>ir wantsare and whe<strong>the</strong>r <strong>the</strong> action is consistent with those. In some circumstances fundamental valuesmay be <strong>the</strong> start<strong>in</strong>g po<strong>in</strong>t but popular op<strong>in</strong>ion must be relevant. However, determ<strong>in</strong>ation ofop<strong>in</strong>ion is not easy. First, by its nature, <strong>the</strong> relevant <strong>public</strong> <strong>in</strong> a <strong>public</strong> <strong>in</strong>terest matter will bebroadly based. Second, what people want is complicated: it usually revolves around happ<strong>in</strong>ess,which is a subjective notion built around a whole series of factors that often conflict with eacho<strong>the</strong>r, those of o<strong>the</strong>r people and those of o<strong>the</strong>r cultures. Wants <strong>the</strong>re<strong>for</strong>e tend to conflict. Third,<strong>in</strong>terests can co<strong>in</strong>cide with those of o<strong>the</strong>rs and <strong>in</strong>terest groups will be created. Inevitably somewill have a <strong>public</strong> <strong>in</strong>terest perspective and some not. Some are more articulate or o<strong>the</strong>rwisebetter at mak<strong>in</strong>g <strong>the</strong>mselves heard than o<strong>the</strong>rs and expressed op<strong>in</strong>ion will not necessarily be<strong>the</strong> same as actual op<strong>in</strong>ion.Hav<strong>in</strong>g sought out representative op<strong>in</strong>ion from <strong>the</strong> relevant <strong>public</strong>, it can be helpful to apply asense check. A rational imputation of wants will consider: what would we expect <strong>the</strong> relevant<strong>public</strong> to want stand<strong>in</strong>g <strong>in</strong> <strong>the</strong>ir shoes? Intelligence and creativity have an important role toplay <strong>in</strong> mak<strong>in</strong>g <strong>the</strong> assessment too. Sometimes it may be difficult or impossible to ga<strong>the</strong>rop<strong>in</strong>ion and a <strong>the</strong>oretical assessment will be <strong>the</strong> only option. This does impose a greaterburden of proof of ability and right to decide, as <strong>the</strong> assessment will <strong>in</strong>evitably be challengedby those with different views.Constra<strong>in</strong>ts to wantsThe relevant <strong>public</strong>’s wants may be <strong>in</strong>compatible with a <strong>public</strong> <strong>in</strong>terest outcome <strong>for</strong> a numberof reasons. The overall impact of <strong>in</strong>dividual wants may be a sub-optimal outcome through <strong>the</strong>effect of one person’s activities directly affect<strong>in</strong>g ano<strong>the</strong>r’s, or through what <strong>the</strong> <strong>public</strong> th<strong>in</strong>k<strong>the</strong>y want be<strong>in</strong>g distorted by <strong>in</strong>complete or wrong <strong>in</strong><strong>for</strong>mation. Common goods and servicesand o<strong>the</strong>r externalities and <strong>public</strong> goods result <strong>in</strong> a different marg<strong>in</strong>al cost-benefit to <strong>in</strong>dividualsthan to society as a whole, especially tak<strong>in</strong>g qualitative issues <strong>in</strong>to account. Over-rid<strong>in</strong>g valuesmay arise, <strong>for</strong> example, from seek<strong>in</strong>g to lead a change <strong>in</strong> attitudes. F<strong>in</strong>ally, when trad<strong>in</strong>g currentaga<strong>in</strong>st future effects, people tend to discount <strong>the</strong> latter very heavily <strong>in</strong> <strong>the</strong>ir m<strong>in</strong>ds.As a result, <strong>the</strong> relevant <strong>public</strong>’s wants may need to be adjusted. However, <strong>the</strong> assertion that‘we know better’ is rightly open to challenge and <strong>the</strong>re will be an onus on those assert<strong>in</strong>g anaction to be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest to expla<strong>in</strong> why <strong>the</strong>y know better.Aggregation and decisionThose determ<strong>in</strong><strong>in</strong>g a <strong>public</strong> <strong>in</strong>terest action need to apply, and be seen to be apply, judgementto <strong>in</strong><strong>for</strong>mation ga<strong>the</strong>red about <strong>in</strong>dividual wants. There may be a series of measurement issuesto overcome, <strong>in</strong>clud<strong>in</strong>g: quantification; <strong>in</strong>teraction; weight<strong>in</strong>g; and how to maximise <strong>the</strong> endresult when <strong>the</strong>re may be several acceptable solutions.A logical approach is needed to determ<strong>in</strong>e what outcome would be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, or <strong>in</strong><strong>in</strong>stances where <strong>the</strong>re is a range of potentially positive outcomes, what would be most <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest. A decision based on a rational basis of calculation will assist transparency butis easier said than done. Use of <strong>in</strong><strong>for</strong>med <strong>in</strong>tuition and impact <strong>analysis</strong> of costs, benefits andprobabilities may be relevant, although this will at least partially depend on <strong>the</strong> nature of thosedeterm<strong>in</strong><strong>in</strong>g a <strong>public</strong> <strong>in</strong>terest action.ImplementationIf a proposed <strong>public</strong> policy action is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, it follows that it is <strong>in</strong> <strong>the</strong> <strong>public</strong><strong>in</strong>terest <strong>for</strong> that action to be implemented, and implemented effectively. This requires postdecisionaction by those charged with implementation, follow<strong>in</strong>g consideration of how bestto do it. That <strong>in</strong> turn depends on three key aspects. First, how will those affected actually beexpected to react to <strong>the</strong> changes be<strong>in</strong>g implemented, given human nature? Is it even clear(especially <strong>in</strong> an <strong>in</strong>ternational context) what <strong>the</strong> ‘right’ th<strong>in</strong>g to do is? Many <strong>public</strong> policy<strong>in</strong>itiatives have foundered because <strong>the</strong>y are based on perceptions of how people should react,ra<strong>the</strong>r than how <strong>the</strong>y actually do behave. Second, are those affected able to be assured that<strong>the</strong> advocate of <strong>the</strong> action can be trusted to make a decision <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest? This isconsidered under <strong>the</strong> first element of <strong>the</strong> <strong>framework</strong> but is also relevant here as people’sperception of motives will affect that reaction. Third, practicalities: what remit and authoritydoes <strong>the</strong> advocate have, and what education, <strong>public</strong>ity and support tools will be available?Summary: a <strong>public</strong> <strong>in</strong>terest <strong>framework</strong>07
The answers to <strong>the</strong>se questions will all <strong>in</strong><strong>for</strong>m <strong>the</strong> decision on <strong>the</strong> relative degrees withwhich persuasion is balanced with outright requirements. Reaction needs to be anticipated <strong>in</strong>assess<strong>in</strong>g <strong>the</strong> various comb<strong>in</strong>ations of ‘carrot, stick or sermon’ that may be needed.1.5 FeedbackThis report is issued as much to stimulate debate to evolve <strong>the</strong> <strong>framework</strong> fur<strong>the</strong>r as topropose solutions: <strong>ICAEW</strong> welcomes comments on <strong>the</strong> <strong>analysis</strong> <strong>in</strong> this report and <strong>the</strong> proposed<strong>framework</strong>. In particular, readers are <strong>in</strong>vited to give <strong>the</strong>ir op<strong>in</strong>ions on <strong>the</strong> set of assertionssummarised at <strong>the</strong> end of <strong>the</strong> report. Comments will be taken <strong>in</strong>to account <strong>in</strong> decid<strong>in</strong>g on<strong>ICAEW</strong>’s future work <strong>in</strong> this area.08 Summary: a <strong>public</strong> <strong>in</strong>terest <strong>framework</strong>
2. INTRODUCTIONPeople use <strong>the</strong> phrase ‘<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’ to justify a wide rangeof policy proposals and actions. However, it is often unclear what <strong>the</strong>ymean by this and what o<strong>the</strong>rs are supposed to make of <strong>the</strong> claim.What issues are <strong>in</strong>volved <strong>in</strong> us<strong>in</strong>g and apply<strong>in</strong>g <strong>the</strong> concept of <strong>the</strong><strong>public</strong> <strong>in</strong>terest?How has <strong>the</strong> concept evolved?How is <strong>the</strong> concept relevant to professions?Credentials <strong>for</strong><strong>in</strong>vok<strong>in</strong>g <strong>the</strong><strong>public</strong> <strong>in</strong>terestImplementationApplicability of<strong>the</strong> <strong>public</strong><strong>in</strong>terestAggregation anddecision<strong>Act<strong>in</strong>g</strong> <strong>in</strong><strong>the</strong> <strong>public</strong><strong>in</strong>terestThe relevant<strong>public</strong>Constra<strong>in</strong>ts towantsThe relevant<strong>public</strong>’s wantsPage footer09
2. INTRODUCTION2.1 Concepts of <strong>the</strong> <strong>public</strong> <strong>in</strong>terestThere are at least two concepts of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest:• One concept applies <strong>the</strong> words literally: <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is thus anyth<strong>in</strong>g of <strong>in</strong>terest to<strong>the</strong> <strong>public</strong>. However, matters that are <strong>for</strong> <strong>the</strong> <strong>public</strong> benefit are not necessarily <strong>the</strong> sameth<strong>in</strong>g as matters which <strong>the</strong> <strong>public</strong> f<strong>in</strong>ds <strong>in</strong>terest<strong>in</strong>g. We do not regard <strong>the</strong> degree to whicha matter is thought ‘<strong>in</strong>terest<strong>in</strong>g’ as <strong>in</strong>dicative of someth<strong>in</strong>g be<strong>in</strong>g a <strong>public</strong> <strong>in</strong>terest matterand do not dwell on this concept.• Instead we focus primarily <strong>in</strong> this report on a different usage of <strong>the</strong> concept – whengovernments, regulators and o<strong>the</strong>rs <strong>in</strong>tervene <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest <strong>in</strong> <strong>the</strong> course of peoplego<strong>in</strong>g about <strong>the</strong>ir own bus<strong>in</strong>ess <strong>in</strong> <strong>the</strong>ir own <strong>in</strong>terest. Freedom to act <strong>in</strong> accordance withone’s own wishes is a key <strong>public</strong> want and <strong>in</strong>terference with that needs a clear justification.<strong>Act<strong>in</strong>g</strong>, or appear<strong>in</strong>g to act, <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is not a general requirement <strong>for</strong> all or <strong>in</strong>deedmost actions by <strong>in</strong>dividuals or organisations, However, some are required to do so as a result of<strong>the</strong>ir remit and o<strong>the</strong>rs choose to do so through, <strong>for</strong> example, a sense of duty, or as a means ofenhanc<strong>in</strong>g <strong>the</strong>ir reputation and <strong>in</strong>fluence. As a result, <strong>the</strong> phrase ’<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’ is usedby governments, politicians, regulators, lobby groups, professional bodies, journalists, activists,bus<strong>in</strong>esses <strong>in</strong> <strong>the</strong> <strong>public</strong> eye, academics and o<strong>the</strong>rs to justify a wide range of policy proposalsand actions that affect more than a small circle of people. In addition <strong>in</strong>dividuals will sometimesover-ride normal convention (<strong>for</strong> example confidentiality of private deal<strong>in</strong>gs) because <strong>the</strong>ybelieve that over-ride to be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.<strong>ICAEW</strong> is one of <strong>the</strong> professional bodies <strong>in</strong> that list, both <strong>in</strong> its own conduct and <strong>in</strong>tentions and<strong>in</strong> its representations to governments and o<strong>the</strong>r regulators. An understand<strong>in</strong>g of <strong>the</strong> conceptand how it is used is <strong>the</strong>re<strong>for</strong>e critical to <strong>ICAEW</strong> directly, as well as to governments, o<strong>the</strong>rregulators and o<strong>the</strong>rs advocat<strong>in</strong>g an action <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, and to <strong>the</strong> <strong>public</strong> whose<strong>in</strong>terest is taken to be promoted by so many <strong>in</strong> <strong>the</strong>ir name.2.2 Usage of <strong>the</strong> <strong>public</strong> <strong>in</strong>terestA brief trawl of <strong>the</strong> <strong>in</strong>ternet via a website search eng<strong>in</strong>e picks up numerous references to actionor <strong>in</strong>action be<strong>in</strong>g justified ‘<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’.Panel 2.1: Examples of usages of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest• ‘Not <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’ to release picture of pub killer’. 1• ‘The primary objective of <strong>the</strong> Subord<strong>in</strong>ate Legislation Act 1992 is to reduce <strong>the</strong> burden ofregulation on <strong>the</strong> Tasmanian community. The Act aims to ensure that only effective, efficientand necessary subord<strong>in</strong>ate legislation is made and that, <strong>in</strong> cases where it imposes a costor burden on <strong>the</strong> Tasmanian community, it is justified as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’. 2• ‘Preventive detention of a person <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is justified and courts cannot <strong>in</strong>terferewith it unless <strong>the</strong>re are “exceptional” circumstances, <strong>the</strong> Supreme Court has said’. 3• ‘Not <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest to reopen <strong>the</strong> dispute between Western Cape Judge-President…and <strong>the</strong> judges of <strong>the</strong> Constitutional Court’. 4• ‘Sector consolidation may be aga<strong>in</strong>st <strong>the</strong> <strong>public</strong> <strong>in</strong>terest <strong>in</strong> many circumstances’. 5• ‘The High Court on Sunday ordered law en<strong>for</strong>cers not to requisition private vehiclesexcept <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’. 61Eastern Daily Press, ‘Not <strong>in</strong> <strong>the</strong> Public Interest’.2Tasmania Department of Treasury and F<strong>in</strong>ance, ‘Subord<strong>in</strong>ate Legislation Act 1992’.3The Times of India, ‘ Preventive Detention <strong>in</strong> Public Interest is Justified: SC’.4Bus<strong>in</strong>ess Day, ‘Hlophe Rerun ‘Not <strong>in</strong> <strong>the</strong> Public Interest’, says JSC’.5Gosl<strong>in</strong>g, The Rise of <strong>the</strong> Public Services Industry.6Dhaka Mirror, ‘HC Forbids Vehicle Requisition Except <strong>in</strong> Public Interest’.10Introduction
These examples alone cover such diverse areas as privacy, regulation, security, legal proceed<strong>in</strong>gs,competition, and government powers.But, <strong>for</strong> all its usage, do we know what people mean when <strong>the</strong>y talk about ‘<strong>the</strong> <strong>public</strong> <strong>in</strong>terest’?Do <strong>the</strong>y know what <strong>the</strong>y mean? Do <strong>the</strong>y have enough knowledge to decide what action is best<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest? Is it just a smokescreen to justify self-<strong>in</strong>terest? How can a presumptionthat this is <strong>the</strong> case be countered?<strong>ICAEW</strong>’s Market Foundations thought leadership programme looks at conditions necessary <strong>for</strong>market efficiency, <strong>in</strong> which <strong>in</strong>dividuals, as buyers and sellers, make <strong>the</strong>ir own decisions and goabout <strong>the</strong>ir own affairs. Sometimes <strong>in</strong>tervention is necessary to achieve specific requirements bysociety, to correct faults <strong>in</strong> markets, and to create an <strong>in</strong>frastructure where none would o<strong>the</strong>rwiseexist. 7 One of <strong>the</strong> key conditions necessary <strong>for</strong> markets to be effective is trust and this extendsto those <strong>in</strong>terven<strong>in</strong>g <strong>in</strong> markets <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. This report builds on academic and o<strong>the</strong>rwrit<strong>in</strong>gs on <strong>the</strong> subject, and seeks to promote debate on <strong>the</strong> use of a notion used to justify somuch, enhanc<strong>in</strong>g confidence <strong>in</strong> markets and elsewhere: not all of society operates with<strong>in</strong> marketstructures at all times, but <strong>the</strong> <strong>public</strong> <strong>in</strong>terest as a concept is no less important <strong>in</strong> non-market areas.While <strong>the</strong> report looks at <strong>public</strong> <strong>in</strong>terest from a general perspective, <strong>the</strong>re is a discussion of <strong>the</strong>position of <strong>the</strong> accountancy profession, and <strong>ICAEW</strong> <strong>in</strong> particular, <strong>in</strong> a number of chapters, byway of illustration.Terms o<strong>the</strong>r than ‘<strong>the</strong> <strong>public</strong> <strong>in</strong>terest’ can be used, largely <strong>in</strong>terchangeably. Examples <strong>in</strong>clude<strong>public</strong> welfare, <strong>the</strong> <strong>public</strong> good, and <strong>the</strong> common good – <strong>the</strong> latter <strong>in</strong> <strong>the</strong> sense of <strong>the</strong> <strong>public</strong>hav<strong>in</strong>g a common purpose, ra<strong>the</strong>r than goods to which <strong>the</strong>re is common access. 8 While we use<strong>the</strong> <strong>public</strong> <strong>in</strong>terest throughout, <strong>the</strong> same issues apply to use of <strong>the</strong>se o<strong>the</strong>r terms.There are a number of areas where more work would be useful: this is a wide-rang<strong>in</strong>g topic andthis report looks at many of <strong>the</strong> areas covered at a relatively high level.2.3 Application of <strong>the</strong> <strong>public</strong> <strong>in</strong>terestWe do not seek to produce a detailed def<strong>in</strong>ition of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. Where <strong>the</strong>re are specificdef<strong>in</strong>itions used, <strong>the</strong>y tend to be <strong>for</strong> a very particular purpose o<strong>the</strong>r than determ<strong>in</strong><strong>in</strong>g whe<strong>the</strong>ran action is or is not <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.Panel 2.2: Example of def<strong>in</strong>ition of <strong>public</strong> <strong>in</strong>terest from a specific perspectiveA policy position paper by <strong>the</strong> International Federation of Accountants (IFAC) takes a broadlyutilitarian approach to <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, def<strong>in</strong><strong>in</strong>g it as ‘<strong>the</strong> net benefits derived <strong>for</strong>, andprocedural rigour employed on behalf of, all society <strong>in</strong> relation to any action, decision orpolicy’. 9 Throughout <strong>the</strong> rest of our report we refer to <strong>the</strong> need <strong>for</strong> transparent process butregard that as a means to an end ra<strong>the</strong>r than part of <strong>the</strong> end <strong>in</strong> itself. There<strong>for</strong>e we would not<strong>in</strong>clude ‘procedural rigour’ with<strong>in</strong> a def<strong>in</strong>ition. However, as IFAC observes <strong>in</strong> its paper, <strong>the</strong>sources used <strong>in</strong> determ<strong>in</strong><strong>in</strong>g <strong>the</strong> def<strong>in</strong>ition <strong>in</strong>cluded ‘IFAC’s own body of documents, whichultimately govern <strong>the</strong> mission of <strong>the</strong> organization. These reflect IFAC’s orientation on mattersconcern<strong>in</strong>g regulation, governance, and <strong>the</strong> marketplace <strong>for</strong> account<strong>in</strong>g and audit.’ 10 In o<strong>the</strong>rwords, <strong>the</strong> def<strong>in</strong>ition reflects IFAC’s own perspective, as, among o<strong>the</strong>r th<strong>in</strong>gs, a standard-setter.As discussed through <strong>the</strong> rest of this report, <strong>the</strong> range of variables is great and we suggest that<strong>the</strong> <strong>public</strong> <strong>in</strong>terest is heavily context driven (even with<strong>in</strong> an organisation such as <strong>ICAEW</strong>) and afixed detailed def<strong>in</strong>ition would be unable to keep up with future developments. An example ofa similar view from <strong>the</strong> UK government is a comment <strong>in</strong> <strong>the</strong> consultation paper accompany<strong>in</strong>g<strong>the</strong> draft Defamation Bill 2011: ‘… <strong>in</strong> view of <strong>the</strong> very wide range of matters which are of <strong>public</strong><strong>in</strong>terest and <strong>the</strong> sensitivity of this to factual circumstances, attempt<strong>in</strong>g to def<strong>in</strong>e it [<strong>the</strong> <strong>public</strong><strong>in</strong>terest] <strong>in</strong> statute would be fraught with problems.’ 11More relevant than a detailed def<strong>in</strong>ition, <strong>in</strong> our view, is <strong>the</strong> outcome: that actions asserted to be<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest are, and can be, assessed as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. This can take time:a measure aimed at long-term benefit will need to be assessed over <strong>the</strong> long term. However,<strong>for</strong> people or organisations to assert that <strong>the</strong>y act <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is of little value: <strong>in</strong>deedit can be dangerous to <strong>the</strong>ir reputation if <strong>the</strong>y make such an assertion but fail to deliver. It is farmore important and of more last<strong>in</strong>g value that o<strong>the</strong>rs can see that <strong>the</strong>y actually do act <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest.7www.icaew.com/marketfoundations.8Lewis, ‘The Common Good <strong>in</strong> Classical Political Philosophy’.9International Federation of Accountants, Policy Position Paper 5: A Def<strong>in</strong>ition of <strong>the</strong> Public Interest.10Ibid.11M<strong>in</strong>istry of Justice, ‘Draft Defamation Bill’.Introduction11
Accord<strong>in</strong>gly, this report addresses how <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is applied and, how it is perceived tobe applied too.2.4 The problemThe <strong>public</strong> <strong>in</strong>terest is an abstract notion. Advocat<strong>in</strong>g someth<strong>in</strong>g as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest<strong>in</strong>volves sett<strong>in</strong>g oneself up <strong>in</strong> judgement as to whe<strong>the</strong>r an action or requirement to changebehaviour will benefit <strong>the</strong> <strong>public</strong> overall – a far greater set of people than can be <strong>in</strong>teracted withdirectly. It <strong>in</strong>volves <strong>in</strong>terference <strong>in</strong> people’s ability to go about <strong>the</strong>ir bus<strong>in</strong>ess, or sometimes,as a positive policy decision, non-<strong>in</strong>terference <strong>in</strong> <strong>the</strong> face of alternative actions.While levels of trust <strong>in</strong> o<strong>the</strong>rs vary from country to country, 12 <strong>in</strong>ternational surveys have confirmedthat people <strong>in</strong> general have become significantly less trust<strong>in</strong>g over <strong>the</strong> past 50 years. 13 Webelieve that people are likely to presume that those advocat<strong>in</strong>g an action ‘<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’are act<strong>in</strong>g <strong>in</strong> <strong>the</strong>ir own <strong>in</strong>terests and that <strong>the</strong> advocates will need to demonstrate that this is not<strong>the</strong> case.In <strong>the</strong> next chapters we <strong>the</strong>re<strong>for</strong>e argue that those seek<strong>in</strong>g to advocate an action as be<strong>in</strong>g<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest need to balance compet<strong>in</strong>g popular preferences, cost benefit analyses,op<strong>in</strong>ion polls, constitutional requirements and underly<strong>in</strong>g values. 14 They will also need toweight op<strong>in</strong>ions <strong>for</strong> <strong>the</strong> degree to which people actually have, or should have, an <strong>in</strong>terest <strong>in</strong><strong>the</strong> issue. Hav<strong>in</strong>g made <strong>the</strong>se considerations, <strong>the</strong>y will need to demonstrate that <strong>the</strong>y havedone this objectively, competently and proportionately. This <strong>in</strong>cludes <strong>in</strong>dividuals consider<strong>in</strong>gan action – such as disclosure of a matter that would o<strong>the</strong>rwise be confidential, <strong>in</strong> <strong>the</strong> <strong>public</strong><strong>in</strong>terest. Pr<strong>in</strong>ciples of proportionality suggest that disclosure requirements would be lower <strong>for</strong>an <strong>in</strong>dividual undertak<strong>in</strong>g his or her own action than <strong>for</strong> an organisation advocat<strong>in</strong>g change <strong>in</strong>o<strong>the</strong>rs’ behaviour, but scepticism about motive is still appropriate and <strong>the</strong> same pr<strong>in</strong>ciples andquestions can be applied.2.5 A <strong>framework</strong>We set out a <strong>framework</strong> based around <strong>the</strong> key issues that need to be addressed by anyoneadvocat<strong>in</strong>g and justify<strong>in</strong>g actions as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. Although <strong>in</strong> some areas wefocus, as a professional account<strong>in</strong>g body, on matters close to home, <strong>the</strong> <strong>framework</strong> is widelydrawn and should provide a useful tool <strong>for</strong> anyone advocat<strong>in</strong>g or challeng<strong>in</strong>g <strong>public</strong> <strong>in</strong>terestactions. This can be a wide range of people: as illustrated <strong>in</strong> Panel 2.1, ‘<strong>the</strong> <strong>public</strong> <strong>in</strong>terest’ isused <strong>for</strong> many purposes.The true measure of whe<strong>the</strong>r someone is act<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest lies <strong>in</strong> <strong>the</strong> confidence ofthose with a legitimate <strong>in</strong>terest <strong>in</strong> <strong>the</strong> matter, not those mak<strong>in</strong>g <strong>the</strong> pronouncements. There<strong>for</strong>e,<strong>the</strong> need <strong>for</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest advocate to consider actual and perceived threats to fitnessto decide, and <strong>the</strong> application of relevant safeguards, will apply throughout <strong>the</strong> process. Theway a <strong>public</strong> <strong>in</strong>terest action is determ<strong>in</strong>ed, and seen to be determ<strong>in</strong>ed, and <strong>the</strong> <strong>public</strong> <strong>in</strong>terestappropriateness of <strong>the</strong> solution, will <strong>in</strong>fluence <strong>the</strong> acceptance of <strong>the</strong> measure. This will <strong>in</strong> duecourse affect <strong>the</strong> reputation of <strong>the</strong> advocate of <strong>the</strong> action. This <strong>in</strong> turn will help with futureacceptance and implementation. Thus, <strong>the</strong> stages <strong>in</strong> <strong>the</strong> <strong>framework</strong> <strong>in</strong>teract and <strong>the</strong> wholeprocess is iterative. The key areas to consider when us<strong>in</strong>g <strong>the</strong> <strong>public</strong> <strong>in</strong>terest as a justification,can be summarised <strong>in</strong> <strong>the</strong> diagram <strong>in</strong> Section 1.4 and at <strong>the</strong> beg<strong>in</strong>n<strong>in</strong>g of each chapter.2.6 Professional <strong>public</strong> <strong>in</strong>terest responsibilityAn exposition by Lord Benson on <strong>the</strong> attributes of a profession suggests that <strong>the</strong>se need to<strong>in</strong>clude:• control by a professional govern<strong>in</strong>g body;• standards of education;• ethical and professional rules and standards;• a <strong>public</strong> benefit outlook to <strong>the</strong> rules and standards;• discipl<strong>in</strong>ary action;• reservation of work to those with adequate tra<strong>in</strong><strong>in</strong>g, standards and discipl<strong>in</strong>es whereneeded <strong>for</strong> <strong>public</strong> protection;12Diez Medrano, ‘Interpersonal Trust’.13BBC News, ‘Hormones May Fuel Market Crisis’.14Lewis, ‘In Pursuit of <strong>the</strong> Public Interest’.12Introduction
• transparency to assist <strong>in</strong> fair and open competition;• <strong>in</strong>dependence of thought and outlook; and• leadership <strong>in</strong> <strong>the</strong> profession’s field of learn<strong>in</strong>g. 15A fur<strong>the</strong>r <strong>analysis</strong> has summarised <strong>the</strong>se as, broadly, cover<strong>in</strong>g: systematic <strong>the</strong>ory; authority;community sanction; ethical codes; and culture. 16There are potential <strong>public</strong> <strong>in</strong>terest aspects to all of <strong>the</strong>se but <strong>the</strong> degree to which underly<strong>in</strong>gprofessional behaviour is or is not ethical underp<strong>in</strong>s <strong>the</strong> outcome of all of <strong>the</strong>m. This is sometimesreflected <strong>in</strong> discussions on <strong>the</strong> <strong>public</strong> <strong>in</strong>terest <strong>in</strong> professional codes of ethics. For example, <strong>the</strong>notion of a <strong>public</strong> <strong>in</strong>terest responsibility <strong>for</strong> <strong>the</strong> accountancy profession is accepted widely.The Code of Ethics of <strong>the</strong> International Ethics Standards Board <strong>for</strong> Accountants (IESBA) notes:‘A dist<strong>in</strong>guish<strong>in</strong>g mark of <strong>the</strong> accountancy profession is its acceptance of <strong>the</strong> responsibility toact <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. There<strong>for</strong>e a professional accountant’s responsibility is not exclusivelyto satisfy <strong>the</strong> needs of an <strong>in</strong>dividual accountant or employer.’ 17It does not take long to f<strong>in</strong>d codes or standards of conduct <strong>in</strong> non-accountancy professionalbodies pledg<strong>in</strong>g similar allegiance to <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.Panel 2.3: Examples of professional references to <strong>the</strong> <strong>public</strong> <strong>in</strong>terest• ‘A practitioner shall … regard <strong>the</strong> practitioner’s duty to <strong>public</strong> welfare as paramount’; 18• ‘The purposes of <strong>the</strong> Association are … to apply <strong>the</strong> knowledge and experience of <strong>the</strong>profession to <strong>the</strong> promotion of <strong>the</strong> <strong>public</strong> good…’; 19• ‘…<strong>the</strong> <strong>public</strong> <strong>in</strong>terests and <strong>the</strong> ma<strong>in</strong>tenance of professional standards must be <strong>the</strong> primaryconsideration’. 20Why do professions accept a <strong>public</strong> <strong>in</strong>terest responsibility and make such a great play of it?In many m<strong>in</strong>ds it will be to disguise <strong>the</strong> restrictive nature of professions: ‘all professions area conspiracy aga<strong>in</strong>st <strong>the</strong> laity’. 21 It is certa<strong>in</strong>ly used to justify <strong>the</strong> privileges that attach to <strong>the</strong>profession and unifies <strong>the</strong> members <strong>in</strong> <strong>the</strong> protection of reputational capital – a profession’sstrongest sell<strong>in</strong>g po<strong>in</strong>t. 22 Indeed many would argue that this duty and <strong>the</strong> behaviouralstandards that go with it are what dist<strong>in</strong>guish a profession from a trade. The need <strong>for</strong> standardsthat are ‘higher than <strong>the</strong> law requires’ also reflects <strong>the</strong> <strong>in</strong><strong>for</strong>mation asymmetry and difficulty<strong>in</strong> judg<strong>in</strong>g <strong>the</strong> quality of <strong>the</strong> end product, that is <strong>in</strong> <strong>the</strong> nature of much professional work. 23Panel 2.4: <strong>ICAEW</strong> and its <strong>public</strong> <strong>in</strong>terest role<strong>ICAEW</strong>’s connection with <strong>the</strong> <strong>public</strong> <strong>in</strong>terest can be traced specifically to its foundation. Theaccountancy profession <strong>in</strong> <strong>the</strong> UK arose <strong>in</strong>itially as a result of <strong>the</strong> need <strong>for</strong> people to deal with<strong>the</strong> aftermath of unsuccessful jo<strong>in</strong>t stock companies <strong>in</strong> <strong>the</strong> n<strong>in</strong>eteenth century. In particular,<strong>the</strong> Jo<strong>in</strong>t Stock Act 1844, Companies Act 1862 and <strong>the</strong> Bankruptcy Act 1869 meant that <strong>the</strong>work of <strong>the</strong> accountant would have to be relied upon by many people: ‘it is of <strong>the</strong> utmostimportance that <strong>the</strong> trustee whom <strong>the</strong>y [<strong>the</strong> creditors] are authorised to call <strong>in</strong> aid should,if an accountant, be a person of <strong>in</strong>tegrity, and belong to some recognised body <strong>in</strong> whom<strong>the</strong> creditors can place confidence.’ 24 Use of <strong>the</strong> title ‘accountant’ <strong>the</strong>n as now <strong>in</strong> <strong>the</strong> UK,was not protected by law and <strong>the</strong>re had been much concern expressed that, <strong>for</strong> example,accountancy was ‘a field where abuses and extravagances are far from <strong>in</strong>frequent’ 25 or‘<strong>the</strong>re is no o<strong>the</strong>r profession which can so speedily metamorphose fraudulent bankrupts <strong>in</strong>torespectable members of <strong>the</strong> community.’ 26The prov<strong>in</strong>cial societies of accountants that ultimately comb<strong>in</strong>ed to <strong>for</strong>m <strong>ICAEW</strong> wereestablished to allow people us<strong>in</strong>g <strong>the</strong> services of accountants, to be able to have confidence<strong>in</strong> <strong>the</strong> <strong>in</strong>tegrity and ability of <strong>the</strong> accountants <strong>the</strong>y chose.15Hansard (Lords)16From Schmidt, ‘What is a Profession’, discuss<strong>in</strong>g Lubell on Greenwood.17<strong>ICAEW</strong>, Code of Ethics.18Professional Eng<strong>in</strong>eers Ontario, Code of Ethics.19American Bar Association, Constitution.20Sri Lanka Library Association, Code of Professional Conduct.21Shaw, The Doctor’s Dilemma.22Neu and Green, Truth or Profit? The Ethics and Bus<strong>in</strong>ess of Public Account<strong>in</strong>g.23Cowton, ‘Account<strong>in</strong>g and <strong>the</strong> Ethics Challenge: Re-member<strong>in</strong>g <strong>the</strong> professional body’.24‘Liverpool Mercury’, 1870, quoted <strong>in</strong> Walker, Towards <strong>the</strong> ‘Great Desideratum’: The Unification of <strong>the</strong> Account<strong>in</strong>g Bodies <strong>in</strong> England,1870-1880.25‘The Accountant’, 1877, quoted <strong>in</strong> Margerison, The Mak<strong>in</strong>g of a Profession.26‘Manchester Guardian’, 1870, quoted <strong>in</strong> Walker, Towards <strong>the</strong> ‘Great Desideratum’: The Unification of <strong>the</strong> Account<strong>in</strong>g Bodies <strong>in</strong> England,1870-1880.Introduction13
Panel 2.4: <strong>ICAEW</strong> and its <strong>public</strong> <strong>in</strong>terest role (cont<strong>in</strong>ued)For example, <strong>the</strong> objects of <strong>the</strong> Society of Accountants were reported as ‘to promote, <strong>in</strong>every way, <strong>the</strong> complete acquisition of those branches of knowledge which are essential to<strong>the</strong> practice of an accountant; to decide upon matters of professional usage or courtesy; toadvance generally <strong>the</strong> efficiency and character of members of <strong>the</strong> profession, and to guardthose vast <strong>public</strong> <strong>in</strong>terests which are now annually committed to <strong>the</strong> skill and honour of <strong>the</strong>accountant.’ 27 In this context <strong>the</strong> ‘vast <strong>public</strong> <strong>in</strong>terests’ were directly related to <strong>the</strong> found<strong>in</strong>gpurpose – giv<strong>in</strong>g people <strong>the</strong> means to be able to have confidence <strong>in</strong> <strong>the</strong> <strong>in</strong>tegrity and abilityof <strong>the</strong>ir accountants. This was an early example of ‘<strong>public</strong> <strong>in</strong>terest’ be<strong>in</strong>g used <strong>in</strong> a narrow,context-specific manner.<strong>ICAEW</strong>’s 1880 Charter, granted at <strong>the</strong> time of <strong>the</strong> <strong>in</strong>itial merger of a number of <strong>the</strong>sesocieties, picked up this thread, stat<strong>in</strong>g: ‘That <strong>the</strong> said societies were not established <strong>for</strong> <strong>the</strong>purposes of ga<strong>in</strong> nor do <strong>the</strong> members <strong>the</strong>reof derive or seek any pecuniary profit from <strong>the</strong>irmembership but <strong>the</strong> societies aim at <strong>the</strong> elevation of <strong>the</strong> profession of <strong>public</strong> accountants asa whole and <strong>the</strong> promotion of <strong>the</strong>ir efficiency and usefulness by compell<strong>in</strong>g <strong>the</strong> observanceof strict rules of conduct as a condition of membership and by sett<strong>in</strong>g up a high standard ofprofessional and general education and knowledge and o<strong>the</strong>rwise…..[it] would also be <strong>for</strong><strong>the</strong> <strong>public</strong> benefit if <strong>the</strong> members <strong>the</strong>reof were <strong>in</strong>corporated as one body as besides o<strong>the</strong>radvantages such <strong>in</strong>corporation would … tend to gradually raise [<strong>the</strong> profession’s] characterand thus to secure <strong>for</strong> <strong>the</strong> community <strong>the</strong> existence of a class of persons well qualified to beemployed <strong>in</strong> <strong>the</strong> responsible and difficult duties often devolv<strong>in</strong>g on Public Accountants.’ 28The 1948 Supplemental Charter, which among o<strong>the</strong>r th<strong>in</strong>gs extended <strong>ICAEW</strong>’s operationbeyond <strong>public</strong> practice <strong>in</strong>to <strong>in</strong>dustry and commerce, expressed similar sentiments, albeitus<strong>in</strong>g slightly different term<strong>in</strong>ology: ‘That <strong>the</strong> Institute be<strong>in</strong>g desirous of fur<strong>the</strong>r<strong>in</strong>g <strong>the</strong>a<strong>for</strong>esaid objects and of serv<strong>in</strong>g <strong>the</strong> <strong>public</strong> <strong>in</strong>terest desires that … a new Royal Charter shouldbe granted to <strong>the</strong> Institute supplemental to <strong>the</strong> Orig<strong>in</strong>al Charter…’ and ‘The pr<strong>in</strong>cipal objectsof <strong>the</strong> Institute are:(i)to advance <strong>the</strong> <strong>the</strong>ory and practice of accountancy, f<strong>in</strong>ance, bus<strong>in</strong>ess and commerce <strong>in</strong>all <strong>the</strong>ir aspects, <strong>in</strong>clud<strong>in</strong>g <strong>in</strong> particular audit<strong>in</strong>g, f<strong>in</strong>ancial management and taxation;(ii) to recruit, educate and tra<strong>in</strong> a body of members skilled <strong>in</strong> <strong>the</strong>se arts;(iii) to preserve at all times <strong>the</strong> professional <strong>in</strong>dependence of accountants <strong>in</strong> whatevercapacities <strong>the</strong>y may be serv<strong>in</strong>g;(iv) to ma<strong>in</strong>ta<strong>in</strong> high standards of practice and professional conduct by all its members; and(v) to do all such th<strong>in</strong>gs as may advance <strong>the</strong> profession of accountancy <strong>in</strong> relation to <strong>public</strong>practice, <strong>in</strong>dustry, commerce and <strong>the</strong> <strong>public</strong> service.’ 29Given that professional accountants, whe<strong>the</strong>r <strong>in</strong> bus<strong>in</strong>ess, <strong>public</strong> practice or <strong>the</strong> <strong>public</strong> sector,are heavily <strong>in</strong>volved <strong>in</strong> <strong>the</strong> economic allocation of resources, <strong>the</strong> accountancy professionrema<strong>in</strong>s someth<strong>in</strong>g <strong>in</strong> which <strong>the</strong> <strong>public</strong> is, or at least should be, <strong>in</strong>terested. We believe that itis right and proper to read <strong>the</strong> Charters as accept<strong>in</strong>g that a <strong>public</strong> <strong>in</strong>terest perspective shouldbe adopted as part of <strong>the</strong> consideration <strong>for</strong> <strong>ICAEW</strong>’s cont<strong>in</strong>u<strong>in</strong>g status.2.7 The existence of a <strong>public</strong> <strong>in</strong>terestIt is useful <strong>in</strong>itially to consider <strong>the</strong> arguments from some as to whe<strong>the</strong>r <strong>the</strong> concept of <strong>the</strong><strong>public</strong> <strong>in</strong>terest exists at all.One <strong>analysis</strong> of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest holds that <strong>the</strong>re are four different <strong>public</strong> <strong>in</strong>terest <strong>the</strong>ories:• normative (<strong>public</strong> <strong>in</strong>terest can be determ<strong>in</strong>ed based on an ethical standard);• abolitionist (which can be summarised as ‘<strong>the</strong>re are just <strong>in</strong>dividuals’);• process (<strong>public</strong> <strong>in</strong>terest is determ<strong>in</strong>ed from <strong>the</strong> outcome of, <strong>for</strong> example, predeterm<strong>in</strong>eddue process or calculations such as ’<strong>the</strong> sum of <strong>in</strong>terests’); and• consensualist (what is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is determ<strong>in</strong>ed by debate lead<strong>in</strong>g to agreement). 30There is a view that <strong>the</strong> whole concept is ‘slippery, value-laden and vacuous’. 31 There is alsoa view that society cannot be considered to be a separate entity (<strong>the</strong> ‘abolitionist’ <strong>the</strong>ory):27Solicitors’ Journal, 1872, quoted <strong>in</strong> Walker, ibid.28<strong>ICAEW</strong>, Royal Charter.29<strong>ICAEW</strong>, Supplemental Charter.30Cochran,’ Political Science and <strong>the</strong> Public Interest’.31Schubert, quoted <strong>in</strong> The Accountancy Foundation Review Board, Protect<strong>in</strong>g <strong>the</strong> Public Interest.14Introduction
‘There is no such th<strong>in</strong>g as society, <strong>the</strong>re are <strong>in</strong>dividual men and women, and <strong>the</strong>re are families.’ 32Re<strong>in</strong><strong>for</strong>c<strong>in</strong>g this is <strong>the</strong> argument that notions such as ‘good’ and ‘value’ (relevant to <strong>the</strong>‘normative’ <strong>the</strong>ory) can only perta<strong>in</strong> to liv<strong>in</strong>g organisms (ie, <strong>in</strong>dividual people) ra<strong>the</strong>r thansome disembodied aggregate of relationships. Where ‘common good’ is regarded as someth<strong>in</strong>gdifferent to <strong>in</strong>dividual good, that can mean ‘<strong>the</strong> good of some tak<strong>in</strong>g precedence over <strong>the</strong>good of o<strong>the</strong>rs, <strong>the</strong> latter be<strong>in</strong>g treated as sacrificial animals’. 33However, assert<strong>in</strong>g that <strong>the</strong>re is no such th<strong>in</strong>g as society, or even that <strong>the</strong>re should not bea concept of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest separate from <strong>the</strong> <strong>in</strong>terest of <strong>in</strong>dividuals, is not <strong>the</strong> same asassert<strong>in</strong>g that <strong>the</strong>re is no such th<strong>in</strong>g as <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. Even those concerned that anynotion of social responsibility would actually underm<strong>in</strong>e <strong>the</strong> operation of free societies generallyaccept that this is not <strong>the</strong> same as advocat<strong>in</strong>g a complete free <strong>for</strong> all: <strong>for</strong> example companydirectors <strong>in</strong> many countries have a fiduciary duty to shareholders but also need to complywith <strong>the</strong> rule of law (<strong>in</strong>clud<strong>in</strong>g ‘ethical custom’). 34 What is legal is not always <strong>the</strong> same as whatis ‘right’ , but <strong>the</strong> ‘rule of law’ is a wider concept than merely hav<strong>in</strong>g legal authority to takeaction. 35 There is a recurr<strong>in</strong>g notion <strong>in</strong> writ<strong>in</strong>gs of even those attracted to laissez-faire, thatit is <strong>in</strong> <strong>the</strong> <strong>in</strong>terest of <strong>in</strong>dividuals <strong>for</strong> <strong>the</strong>re to be a <strong>for</strong>m of structure to protect <strong>the</strong> ability of<strong>in</strong>dividuals to be <strong>in</strong>dividual. In our view, though different people and cultures will come upwith different outcomes, as a concept <strong>the</strong>re is a clear perspective of a collective good that canbe applied, that is different from that of a number of <strong>in</strong>dividuals.Thus we do not subscribe to <strong>the</strong> abolitionist <strong>the</strong>ory as such, though it is a useful rem<strong>in</strong>derthat <strong>the</strong>re is a <strong>public</strong> <strong>in</strong>terest <strong>in</strong> people be<strong>in</strong>g able to go about <strong>the</strong>ir bus<strong>in</strong>ess. In o<strong>the</strong>r words,non-<strong>in</strong>terference might well be <strong>the</strong> <strong>public</strong> <strong>in</strong>terest outcome. Where <strong>the</strong>re is a case <strong>for</strong> an action,values, process and op<strong>in</strong>ion all have a role to play <strong>in</strong> determ<strong>in</strong><strong>in</strong>g a <strong>public</strong> <strong>in</strong>terest action, so<strong>the</strong> pragmatic solution would comb<strong>in</strong>e all of <strong>the</strong> above <strong>the</strong>ories.2.8 Historical perspective on <strong>the</strong> <strong>public</strong> <strong>in</strong>terestConsider<strong>in</strong>g <strong>the</strong> concept from a historical perspective shows a gradual evolution of what <strong>the</strong>notion <strong>in</strong>volves.2.8.1 The term ‘<strong>the</strong> <strong>public</strong> <strong>in</strong>terest’Although <strong>the</strong> concept has been considered <strong>for</strong> thousands of years (see below), <strong>the</strong> phrase‘<strong>the</strong> <strong>public</strong> <strong>in</strong>terest’ seems to have come <strong>in</strong>to use dur<strong>in</strong>g <strong>the</strong> seventeenth century. The Frenchsatirist Regnier is said to have argued <strong>in</strong> 1609 that <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is someth<strong>in</strong>g governments<strong>in</strong>voke to justify unjust or illegal action, though he actually used <strong>the</strong> phrase ‘raison d’état’. 36In England, <strong>the</strong> 1624 Statute of Monopolies, while considered to be discuss<strong>in</strong>g <strong>public</strong><strong>in</strong>terest matters <strong>in</strong> concept, used <strong>the</strong> phrase (<strong>for</strong> patents not <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest) ‘generally<strong>in</strong>convenient’. 37 Similar references of be<strong>in</strong>g ‘<strong>in</strong>convenient to <strong>the</strong> Commonwealth’ appear <strong>in</strong>patent letters at <strong>the</strong> same time. 38 However, by around 1670, <strong>the</strong> Lord Chief Justice of <strong>the</strong> K<strong>in</strong>g’sBench of England was referr<strong>in</strong>g, <strong>in</strong> an essay on access to ports, to wharves be<strong>in</strong>g ‘affected witha <strong>public</strong> <strong>in</strong>terest’. 392.8.2 Evolution of act<strong>in</strong>g with <strong>the</strong> people <strong>in</strong> m<strong>in</strong>dThe notion of act<strong>in</strong>g with <strong>the</strong> <strong>in</strong>terests of <strong>the</strong> people <strong>in</strong> m<strong>in</strong>d existed long be<strong>for</strong>e that, but ithas evolved – chang<strong>in</strong>g but build<strong>in</strong>g on past ideas, as society has evolved.In times of absolute dynastic rule where <strong>the</strong> <strong>in</strong>terests of <strong>the</strong> ruler were paramount, act<strong>in</strong>g <strong>in</strong><strong>the</strong> <strong>in</strong>terests of <strong>the</strong> people was, perhaps, a pragmatic measure to m<strong>in</strong>imise trouble. Cyrus <strong>the</strong>Great of Persia, rul<strong>in</strong>g some 2,600 years ago, is asserted by <strong>the</strong> ancient Greeks to have believedthat a ruler should ‘understand how to govern people so <strong>the</strong>y might have all <strong>the</strong> necessities oflife <strong>in</strong> abundance and might all become what <strong>the</strong>y ought to be’. 40 The implicit rationale <strong>for</strong> thiswas to achieve approval, and <strong>the</strong>reby stability, and make rul<strong>in</strong>g an empire that much easier:‘after Cyrus died, his sons immediately quarrelled, cities and nations immediately revolted, andall th<strong>in</strong>gs turned to <strong>the</strong> worse’. 41 Confucius, around <strong>the</strong> same time, (considered fur<strong>the</strong>r below <strong>in</strong>Panel 6.5) sought to build stability through us<strong>in</strong>g morality as <strong>the</strong> basis of law.32Margaret Thatcher, quoted <strong>in</strong> Partridge, ‘Conscience of a Progressive’.33Rand, quoted <strong>in</strong> Partridge, ibid.34Friedman, quoted <strong>in</strong> Champl<strong>in</strong> and Knoedler, ‘Corporations, Workers and <strong>the</strong> Public Interest’, Plender, ‘Friedman and CSR’.35Hayek, The Road to Serfdom.36Saul, Voltaire’s Bastards: The Dictatorship of Reason <strong>in</strong> <strong>the</strong> West.37Dent, ‘Generally Inconvenient: The 1624 Statute of Monopolies as Political Compromise’.38Lord Hunt, quoted <strong>in</strong> Dent, ibid.39McAllister, ‘Lord Hale and Bus<strong>in</strong>ess Affected with a Public Interest’ referr<strong>in</strong>g to Hargraves ‘Collection of Tracts’ of 1787.40Xenephon, Cyropedia although note this is said to be a fictionalised account of Cyrus’ life41Ibid.Introduction15
The Mediterranean re<strong>public</strong>s needed a more complex notion of society and those whoadm<strong>in</strong>istered it. Plato, around two hundred years after Cyrus, argued that <strong>public</strong> officials shouldplace <strong>the</strong> <strong>in</strong>terests of society above <strong>the</strong>ir own 42 and Aristotle noted that society comprisedcommunities which come toge<strong>the</strong>r <strong>for</strong> <strong>the</strong> sake of some good: effectively <strong>the</strong> well-be<strong>in</strong>g of<strong>the</strong> citizens. 43 Cicero picked up on <strong>the</strong> stoic <strong>the</strong>sis of <strong>the</strong> common or shared good and moralconsensus. 44 The Romans even had a notion that <strong>the</strong> ‘populus’ could exist as a dist<strong>in</strong>ct legalentity able to make decisions with a s<strong>in</strong>gle voice. 45The later <strong>in</strong>fluences of Islam and Christianity added fur<strong>the</strong>r ideas of what outlook to take.There were potential conflicts between reason, based on human knowledge and logic, andreligious revelation, <strong>in</strong> which values were presented as a given. In <strong>the</strong> Islamic world <strong>the</strong> Ashariteview generally came to prevail, <strong>in</strong> which reason should be subord<strong>in</strong>ate to <strong>the</strong> Quran and <strong>the</strong>Sunna. 46 In Europe, Christian beliefs were comb<strong>in</strong>ed with those of Plato and Aristotle. Romanstoicism was moderated by Christian thought, August<strong>in</strong>e believ<strong>in</strong>g that <strong>the</strong> state should applymercy as a moral example. Aqu<strong>in</strong>as considered that laws should be: grounded <strong>in</strong> reason;<strong>in</strong>tended to foster <strong>the</strong> common good (‘bonum commune’); made by <strong>the</strong> whole people or <strong>the</strong>ir‘vice-regent’; and duly promulgated. Scholastics comb<strong>in</strong>ed reason and revelation, but arguedthat duties, pr<strong>in</strong>ciples and div<strong>in</strong>e order prevail over rights, obedience and political rule. 47Stability rema<strong>in</strong>ed a core aim. In Europe a mercantilist paternalism evolved which ensuredstability through giv<strong>in</strong>g certa<strong>in</strong> protections <strong>for</strong> <strong>the</strong> greater <strong>public</strong> through, <strong>for</strong> example,apprenticeships, sett<strong>in</strong>g of wage rates, control of prices and quality of staples, and use ofcommon lands. 48None of <strong>the</strong>se early philosophies are argu<strong>in</strong>g <strong>for</strong> <strong>in</strong>dividual rights: more a common good,determ<strong>in</strong>ed by leaders, albeit perhaps based on a generally accepted <strong>framework</strong>. Frederick <strong>the</strong>Great, ruler of Prussia from 1740 to 1786, set this out <strong>in</strong> a basic <strong>the</strong>ory of politics, <strong>in</strong>clud<strong>in</strong>g:‘The sovereign is <strong>the</strong> first servant of <strong>the</strong> state…one demands that he work efficiently <strong>for</strong> <strong>the</strong>good of <strong>the</strong> state…a pr<strong>in</strong>ce who governs personally…can guide all matters towards <strong>the</strong> endwhich he has set <strong>for</strong> himself.’ 49Society rema<strong>in</strong>ed relatively simple and rural well <strong>in</strong>to <strong>the</strong> n<strong>in</strong>eteenth century, even <strong>in</strong> <strong>the</strong>United K<strong>in</strong>gdom, so <strong>the</strong> paternalist model survived with it albeit, <strong>in</strong> England at least, that: <strong>the</strong>protestant re<strong>for</strong>mation and <strong>the</strong> English Commonwealth resulted <strong>in</strong> <strong>the</strong> <strong>in</strong>fluence of <strong>the</strong> stateeclips<strong>in</strong>g that of <strong>the</strong> church; and certa<strong>in</strong> accepted obligations such as <strong>the</strong> poor laws, weregradually replaced by specific legal requirements. 50The paternalist model gradually came under pressure from <strong>the</strong> ‘enlightenment’ and <strong>the</strong><strong>in</strong>dustrial revolution. The <strong>for</strong>mer was a late seventeenth and eighteenth century movement<strong>in</strong>volv<strong>in</strong>g th<strong>in</strong>k<strong>in</strong>g that, among o<strong>the</strong>r th<strong>in</strong>gs, promoted <strong>in</strong>dividual rights (eg, Grotius), <strong>in</strong>dividualmotivation (eg, Mandeville), scientific method (eg, Bacon) and rationalism (eg, Descartes).2.8.3 The Victorian eraThe <strong>in</strong>dustrial revolution <strong>in</strong> <strong>the</strong> United K<strong>in</strong>gdom resulted <strong>in</strong> significant changes from <strong>the</strong>perspective of act<strong>in</strong>g <strong>for</strong> <strong>the</strong> <strong>public</strong> good. Industrialisation created an <strong>in</strong>creased demand<strong>for</strong> capital and an urbanised work<strong>for</strong>ce. The <strong>for</strong>mer popularised jo<strong>in</strong>t stock companies withownership and management divorced. These were arguably <strong>the</strong> first large non-establishmentstructures and opened <strong>the</strong> way to a more pluralist society. 51 This and <strong>the</strong> move <strong>in</strong>to townsreplaced <strong>the</strong> land-based society with a more rootless one based on money, free of <strong>in</strong>gra<strong>in</strong>edduties. Mercantilism effectively gave way to capitalism, which drew on enlightenment notionsof <strong>in</strong>creased <strong>in</strong>dividualism and self-<strong>in</strong>terest and notions of progress and political representation.In essence, <strong>the</strong> <strong>in</strong>dustrial revolution saw ‘<strong>the</strong> substitution of competition <strong>for</strong> <strong>the</strong> medievalregulations which had previously controlled <strong>the</strong> production and distribution of wealth’. 52The result<strong>in</strong>g laissez-faire environment of Victorian Brita<strong>in</strong> could be argued to have doneaway with <strong>the</strong> notion of a <strong>public</strong> <strong>in</strong>terest, o<strong>the</strong>r than compliance with <strong>the</strong> rule of law.However, it became apparent that <strong>the</strong>re needed to be <strong>in</strong>terventions <strong>in</strong> markets.42Chapman and O’Toole, ‘The Role of <strong>the</strong> Civil Service: a traditional view <strong>in</strong> a period of change’.43Barnes, The Complete Works of Aristotle.44Rad<strong>for</strong>d, A Study <strong>in</strong> <strong>the</strong> Orig<strong>in</strong>s of Re<strong>public</strong>an Philosophy, discuss<strong>in</strong>g Cicero.45Sk<strong>in</strong>ner, The Foundations of Modern Political Thought: Volume 2: The Age of <strong>the</strong> Re<strong>for</strong>mation.46Aslan, No God but God.47Schall, At <strong>the</strong> Limits of Political Philosophy, Koetsier, Natural Law and Calv<strong>in</strong>ist Political Theory, Keys, Agu<strong>in</strong>as, Aristotle, and <strong>the</strong> Promiseof <strong>the</strong> Common Good.48Roberts, Paternalism <strong>in</strong> Early Victorian England, Mulholland, ‘21st Century Socialism: What <strong>the</strong> Victorians did <strong>for</strong> us’.49Quoted <strong>in</strong> Mosse, ‘Frederick II, Political Testament’.50Roberts, Paternalism <strong>in</strong> Early Victorian England.51Drucker, ‘The New Pluralism’.52Toynbee, quoted <strong>in</strong> Mulholland, ‘21st Century Socialism: What <strong>the</strong> Victorians did <strong>for</strong> us’.16Introduction
These resulted <strong>in</strong>, <strong>for</strong> example:• roads – roads were needed <strong>for</strong> <strong>the</strong> economy but turnpike trusts could not af<strong>for</strong>d toma<strong>in</strong>ta<strong>in</strong> <strong>the</strong>m and <strong>the</strong> last ones ended around <strong>the</strong> time of <strong>the</strong> 1888 Local GovernmentAct. Gradually local and later national authorities took up construction and ma<strong>in</strong>tenance;• railways – high <strong>in</strong>frastructure <strong>in</strong>vestment costs and competition led to expensive duplication<strong>in</strong> some areas and monopolies <strong>in</strong> o<strong>the</strong>rs: <strong>the</strong> 1873 and 1888 Railway and Canal Traffic Actssought more regulation of collaboration agreements and carriage rates;• <strong>the</strong> telegraph – too much <strong>in</strong>frastructure was needed <strong>for</strong> private companies to complete afull network and <strong>the</strong> result was a nationalisation <strong>in</strong>to <strong>the</strong> Post Office <strong>in</strong> 1870;• utilities – water and gas supply were largely municipalised <strong>in</strong> <strong>the</strong> late 1800s to provide <strong>the</strong>high <strong>in</strong>vestment required to ensure adequate health and supply standards;• hous<strong>in</strong>g – <strong>the</strong> government passed various acts to address <strong>the</strong> worst areas of hous<strong>in</strong>g unfit<strong>for</strong> habitation or to improve or demolish exist<strong>in</strong>g houses, <strong>in</strong>clud<strong>in</strong>g <strong>for</strong> example <strong>the</strong> 1890Hous<strong>in</strong>g of <strong>the</strong> Work<strong>in</strong>g Classes Act;• education – <strong>the</strong> 1870 Elementary Education Act established a <strong>framework</strong> to require basiceducation, as a work<strong>for</strong>ce was needed capable of rema<strong>in</strong><strong>in</strong>g at <strong>the</strong> <strong>for</strong>efront of technology;and• civic amenities – local authorities <strong>in</strong>creas<strong>in</strong>gly developed civic enhancements as <strong>public</strong>goods, build<strong>in</strong>g on civic pride and <strong>the</strong> need <strong>for</strong> improved conditions. 53Thus <strong>the</strong> protection of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest changed from be<strong>in</strong>g, at least notionally, someth<strong>in</strong>g<strong>in</strong>tr<strong>in</strong>sically built <strong>in</strong> to underly<strong>in</strong>g duties and values, to someth<strong>in</strong>g need<strong>in</strong>g to be addressed by<strong>in</strong>tervention <strong>in</strong> <strong>the</strong> <strong>the</strong>oretically free market state: ‘protected laissez-faire’.We can summarise <strong>the</strong> purpose of Victorian-era <strong>in</strong>terventions markets as be<strong>in</strong>g to:• ensure certa<strong>in</strong> m<strong>in</strong>imum liv<strong>in</strong>g standards; or• create ‘goods’ that <strong>the</strong> <strong>public</strong> desired but would not pay <strong>for</strong> directly; or• create an <strong>in</strong>frastructure considered necessary <strong>in</strong> a wider context to enhance <strong>the</strong> economy.These limited <strong>in</strong>terventions, among o<strong>the</strong>r th<strong>in</strong>gs, sought to provide a stable plat<strong>for</strong>m <strong>for</strong> peopleto go about <strong>the</strong>ir bus<strong>in</strong>ess.The role of <strong>public</strong> op<strong>in</strong>ion <strong>in</strong> directly <strong>in</strong>fluenc<strong>in</strong>g or fram<strong>in</strong>g <strong>public</strong> <strong>in</strong>terest actions is discussed<strong>in</strong> Panel 6.1.2.9 Chapter summaryIn most societies <strong>the</strong>re is a basic presumption that people should be able to go about <strong>the</strong>ir ownbus<strong>in</strong>ess <strong>in</strong> <strong>the</strong>ir own <strong>in</strong>terests. In <strong>the</strong> course of this <strong>the</strong>y will <strong>in</strong>teract with o<strong>the</strong>r people and<strong>in</strong>fluence and be <strong>in</strong>fluenced by <strong>the</strong>ir activities. However, <strong>the</strong>re is a fur<strong>the</strong>r <strong>in</strong>fluence on people’sactivities: when governments, regulators and o<strong>the</strong>rs seek to <strong>in</strong>tervene <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.The <strong>public</strong> <strong>in</strong>terest is an abstract notion and this chapter looks at its historical development.Advocat<strong>in</strong>g someth<strong>in</strong>g as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest <strong>in</strong>volves sett<strong>in</strong>g oneself up <strong>in</strong> judgementas to whe<strong>the</strong>r an action or requirement to change behaviour will benefit <strong>the</strong> <strong>public</strong> overall – afar greater set of people than can be <strong>in</strong>teracted with directly. It <strong>in</strong>volves <strong>in</strong>terference <strong>in</strong> people’sability to go about <strong>the</strong>ir bus<strong>in</strong>ess or sometimes, as a positive policy decision, non-<strong>in</strong>terference<strong>in</strong> <strong>the</strong> face of alternative measures.This requires justification by advocates of an action, that <strong>the</strong>y have an ability and right todecide what is <strong>for</strong> <strong>the</strong> greater good, <strong>in</strong> <strong>the</strong> face of a natural suspicion that those propos<strong>in</strong>g <strong>the</strong>action are actually act<strong>in</strong>g <strong>in</strong> <strong>the</strong>ir own <strong>in</strong>terests. In this context this chapter also considered whyprofessional bodies accept a <strong>public</strong> <strong>in</strong>terest responsibility.O<strong>the</strong>r terms can be used, largely <strong>in</strong>terchangeably. Examples <strong>in</strong>clude <strong>public</strong> benefit, <strong>the</strong> <strong>public</strong>good, and <strong>the</strong> common good. While we use <strong>the</strong> <strong>public</strong> <strong>in</strong>terest throughout, <strong>the</strong> same issuesapply to use of <strong>the</strong>se o<strong>the</strong>r terms.We do not seek to establish a detailed def<strong>in</strong>ition of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. There is an <strong>in</strong>f<strong>in</strong>itelywide set of <strong>in</strong>dividual circumstances, which detailed def<strong>in</strong>itions are unlikely to be able to copewith, without un<strong>in</strong>tended consequences.53Based on Mulholland, ibid.Introduction17
We set out a <strong>framework</strong> <strong>for</strong> discussion, based around <strong>the</strong> key questions that need to beaddressed by those advocat<strong>in</strong>g or challeng<strong>in</strong>g <strong>public</strong> <strong>in</strong>terest actions. Our considerations donot just focus on <strong>the</strong> accountancy profession: <strong>the</strong> <strong>framework</strong> should be useful <strong>for</strong> anyone asa tool of challenge and relevant to any of <strong>the</strong> wide range of actions that purport to be <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest. It can be used by those propos<strong>in</strong>g an action as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, aspart of <strong>the</strong> decision mak<strong>in</strong>g process or as a sense check on <strong>the</strong> outcome of that process.The true measure of whe<strong>the</strong>r someone is act<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest lies <strong>in</strong> <strong>the</strong> confidenceof <strong>the</strong> relevant <strong>public</strong>, not those mak<strong>in</strong>g <strong>the</strong> pronouncements. There<strong>for</strong>e <strong>the</strong> need <strong>for</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest advocate to consider actual and perceived threats to fitness to decide, and <strong>the</strong>application of relevant safeguards, will apply throughout <strong>the</strong> process. The way a <strong>public</strong> <strong>in</strong>terestaction is determ<strong>in</strong>ed, and seen to be determ<strong>in</strong>ed, and <strong>the</strong> <strong>public</strong> <strong>in</strong>terest appropriateness of<strong>the</strong> solution, will <strong>in</strong>fluence <strong>the</strong> acceptance of <strong>the</strong> measure. This will <strong>in</strong> due course affect <strong>the</strong>reputation of <strong>the</strong> advocate of <strong>the</strong> action. This <strong>in</strong> turn will help with future acceptance andimplementation. Thus, <strong>the</strong> stages <strong>in</strong> <strong>the</strong> <strong>framework</strong> <strong>in</strong>teract and <strong>the</strong> whole process is iterative.18Introduction
3. CREDENTIALS FOR INVOKINGTHE PUBLIC INTERESTPerception as to whe<strong>the</strong>r someone can be trusted to be act<strong>in</strong>g <strong>in</strong><strong>the</strong> <strong>public</strong> <strong>in</strong>terest is vital.The general <strong>public</strong> <strong>in</strong> many societies <strong>in</strong>creas<strong>in</strong>gly mistrusts those <strong>in</strong>authority. What contributes to that mistrust and what can be doneabout it?Credentials <strong>for</strong><strong>in</strong>vok<strong>in</strong>g <strong>the</strong><strong>public</strong> <strong>in</strong>terestImplementationApplicability of<strong>the</strong> <strong>public</strong><strong>in</strong>terestAggregation anddecision<strong>Act<strong>in</strong>g</strong> <strong>in</strong><strong>the</strong> <strong>public</strong><strong>in</strong>terestThe relevant<strong>public</strong>Constra<strong>in</strong>ts towantsThe relevant<strong>public</strong>’s wants
3. CREDENTIALS FOR INVOKINGTHE PUBLIC INTEREST3.1 The importance of trustA <strong>public</strong> <strong>in</strong>terest action, by its nature, will be likely to have a have a wide impact and <strong>the</strong>re<strong>for</strong>ewe believe <strong>the</strong> existence of credentials to <strong>in</strong>voke <strong>the</strong> <strong>public</strong> <strong>in</strong>terest argument is important.The perception of those potentially affected as to whe<strong>the</strong>r someone can be trusted to be act<strong>in</strong>g<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is vital. As noted previously, we believe <strong>the</strong> op<strong>in</strong>ions of relevant o<strong>the</strong>rsare far more of a validation than <strong>the</strong> op<strong>in</strong>ions of those who assert that <strong>the</strong>y are act<strong>in</strong>g <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest. Those o<strong>the</strong>rs will only believe <strong>the</strong> assertion if <strong>the</strong>y have trust. To have trust <strong>in</strong>someone, at least <strong>for</strong> <strong>the</strong> purposes of this report, is to have faith that a statement <strong>the</strong>y havemade will hold to be <strong>the</strong> case, without <strong>the</strong> evidence to back that up. The more any evidencethat exists po<strong>in</strong>ts towards an abuse of that trust, <strong>the</strong> more likelihood <strong>the</strong>re is of a suspicion offur<strong>the</strong>r abuse go<strong>in</strong>g <strong>for</strong>ward and <strong>the</strong> more evidence is needed to counteract that.The motivation of those affected to comply, or at least not seek legal redress, will also beimpacted by whe<strong>the</strong>r <strong>the</strong>y trust <strong>the</strong> motives and/or capability of <strong>the</strong> orig<strong>in</strong>ator of <strong>the</strong> actionthat is said to be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. Such trust can change over time even without actionsby <strong>the</strong> orig<strong>in</strong>ator: some actions are designed with long-term benefit <strong>in</strong> m<strong>in</strong>d; o<strong>the</strong>rs reveal <strong>the</strong>irreal impact only after some time.3.2 Actual and perceived threats to trust3.2.1 Past actions and conflicts of <strong>in</strong>terest: reasons to be mistrustedA key factor to consider <strong>in</strong> mak<strong>in</strong>g <strong>the</strong> decision as to what action will be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest,will be whe<strong>the</strong>r <strong>the</strong>re are any particular factors that might cause o<strong>the</strong>rs to doubt its efficacy.The general <strong>public</strong> <strong>in</strong> many societies has an <strong>in</strong>creas<strong>in</strong>g presumption of mistrust <strong>in</strong> authority.In addition, regulators or o<strong>the</strong>r proponents of a <strong>public</strong> <strong>in</strong>terest action may be <strong>the</strong> subject ofa specific scepticism about <strong>the</strong>ir motives, as a result of past events. This may be caused by,<strong>for</strong> example:• past failure to prevent a problem seen to be with<strong>in</strong> its purview, through poor judgement,<strong>in</strong>effectiveness or a tendency to appease o<strong>the</strong>rs. This has been suggested of a number off<strong>in</strong>ancial services regulators, <strong>in</strong> <strong>the</strong> light of <strong>the</strong> recent bank<strong>in</strong>g crisis;• past behaviour seen to be <strong>in</strong>consistent, hypocritical or Machiavellian. An <strong>in</strong>stance of thisis <strong>the</strong> recent UK MPs’ expenses scandal;• fear of corruption, <strong>for</strong> <strong>in</strong>stance as a result of bribes from lobbyists; and• potential conflicts of <strong>in</strong>terest. Instances of this would be professional bodies argu<strong>in</strong>g <strong>for</strong>a ‘closed shop’ or regulators empire-build<strong>in</strong>g to justify <strong>the</strong>ir existence.The personal prejudices and circumstances of those mak<strong>in</strong>g <strong>the</strong> decision may conflict withthose of <strong>the</strong> relevant <strong>public</strong>. For example, people build<strong>in</strong>g up <strong>in</strong>vestments as a pension fundwill be <strong>in</strong>terested <strong>in</strong> long-term <strong>in</strong>vestment per<strong>for</strong>mance. The fund manager, on <strong>the</strong> o<strong>the</strong>r hand,is often remunerated on short-term per<strong>for</strong>mance or on league table positions, which tend toconcentrate on short-term per<strong>for</strong>mance.Many organisations deal with <strong>the</strong> issue by prohibit<strong>in</strong>g conflicts of <strong>in</strong>terest although whe<strong>the</strong>rthis is always realistic is debatable. An alternative approach recognises that <strong>the</strong>y will exist <strong>in</strong> reallife but <strong>the</strong>y must be managed to ensure that <strong>the</strong> outcome is not subverted by what shouldbe irrelevant personal circumstances. Safeguards need to be established by <strong>the</strong> advocate of<strong>the</strong> action, such as <strong>for</strong> example, a review by someone not <strong>in</strong> a conflict position. This ‘pr<strong>in</strong>ciplesbased threats and safeguards approach’ discussed fur<strong>the</strong>r below <strong>in</strong> <strong>the</strong> context of self-assessmentand build<strong>in</strong>g trust, is that taken by <strong>the</strong> <strong>ICAEW</strong> Code of Ethics. 5454<strong>ICAEW</strong>, Code of Ethics.20Credentials <strong>for</strong> <strong>in</strong>vok<strong>in</strong>g <strong>the</strong> <strong>public</strong> <strong>in</strong>terest
Panel 3.1: <strong>ICAEW</strong> and address<strong>in</strong>g conflicts of <strong>in</strong>terest<strong>ICAEW</strong> and o<strong>the</strong>r codes of ethics <strong>in</strong>clude guidance on how professional accountants<strong>the</strong>mselves should deal with a number of types of conflicts, <strong>in</strong>clud<strong>in</strong>g conflicts between <strong>the</strong><strong>in</strong>terests of various parties, and a conflict of values: that is conflict between <strong>the</strong> requirementsof different fundamental pr<strong>in</strong>ciples. An <strong>in</strong>stance of <strong>the</strong> latter is <strong>the</strong> UK competition policyexample referred to <strong>in</strong> Panel 8.3.What is less transparent, and most pert<strong>in</strong>ent to <strong>the</strong> consideration <strong>in</strong> this chapter, is howrelevant standard-setters and professional bodies deal with potential conflicts <strong>in</strong> <strong>the</strong> sett<strong>in</strong>g ofstandards and professional requirements. At <strong>ICAEW</strong>, major policy issues affect<strong>in</strong>g <strong>the</strong> <strong>public</strong><strong>in</strong>terest are usually made tak<strong>in</strong>g <strong>in</strong>to account, depend<strong>in</strong>g on <strong>the</strong> scale of <strong>the</strong> matter and/or whe<strong>the</strong>r <strong>the</strong>re is a major change <strong>in</strong> policy, relevant committees or boards represent<strong>in</strong>gmembers (and <strong>in</strong> some cases o<strong>the</strong>rs) and <strong>the</strong> ma<strong>in</strong> Council. However, such structures are notalways fully representational <strong>in</strong> <strong>the</strong> sense that, say, a democratic proportional representationprocess might be. It is important, <strong>the</strong>re<strong>for</strong>e, to consider how different <strong>in</strong>terests are prioritisedand reconciled. The development of impact <strong>analysis</strong> and <strong>public</strong>is<strong>in</strong>g feedback on responses,considered fur<strong>the</strong>r below, is part of this process.3.2.2 Self-<strong>in</strong>terest of those mak<strong>in</strong>g <strong>the</strong> decision: <strong>public</strong> choice <strong>the</strong>oryThe motives and/or self-perceived <strong>in</strong>fallibility of those who assert that <strong>the</strong>y are act<strong>in</strong>g <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest is a key consideration as <strong>the</strong>y can lead to abuse of trust.Panel 3.2: Examples of self-<strong>in</strong>terest motivation• Government was once described as ‘an <strong>in</strong>stitution which prevents <strong>in</strong>justice o<strong>the</strong>r thansuch as it commits itself’. 55• ‘Public service is my motto’ was stated by no less a <strong>public</strong> benefactor than Al Capone,who argued – conveniently ignor<strong>in</strong>g <strong>the</strong> murders and o<strong>the</strong>r side effects – that hisProhibition-bust<strong>in</strong>g activities gave <strong>the</strong> <strong>public</strong> what <strong>the</strong>y wanted, so he must be act<strong>in</strong>g<strong>in</strong> <strong>the</strong>ir <strong>in</strong>terests. 56Public choice <strong>the</strong>ory po<strong>in</strong>ts out that <strong>the</strong> general self-<strong>in</strong>terest <strong>in</strong>centives from <strong>the</strong> market placecont<strong>in</strong>ue to apply to people <strong>in</strong> <strong>the</strong> <strong>public</strong> and regulatory sectors: <strong>the</strong>y may seek to act <strong>in</strong> <strong>the</strong>general <strong>in</strong>terest but do not suddenly become political eunuchs. 57 Thus politicians and regulatorswill be susceptible to expand<strong>in</strong>g <strong>the</strong>ir own doma<strong>in</strong> and lobby<strong>in</strong>g from <strong>in</strong>terested parties withsometh<strong>in</strong>g to offer <strong>in</strong> return. 58In practice <strong>the</strong> decision maker may weight decisions <strong>in</strong> favour of those <strong>in</strong> <strong>the</strong> best position toaffect <strong>the</strong> decision makers’ own <strong>in</strong>terests. This can be <strong>in</strong> a negative sense – <strong>the</strong> weight<strong>in</strong>g factorassigned would be based on <strong>the</strong> ability of <strong>the</strong> <strong>in</strong>dividual to retaliate aga<strong>in</strong>st <strong>the</strong> decision makerand o<strong>the</strong>rs, and <strong>the</strong> likelihood that he/she would do so. 59 Or, it can be <strong>in</strong> a positive sense, from<strong>the</strong> decision maker’s perspective, <strong>in</strong> terms of what <strong>the</strong> decision maker wants. For example Stigler’s‘economic <strong>the</strong>ory of regulation’ argues that demand <strong>for</strong> legislation comes from those (usually<strong>in</strong>terest groups) who would benefit from it. 60 Supply comes, ultimately, from <strong>the</strong> <strong>in</strong>cumbentgovernment which is seek<strong>in</strong>g to maximise political support, as <strong>the</strong> government’s aim is to stay<strong>in</strong> office. It follows that regulation arises not so much <strong>in</strong> <strong>the</strong> presence of market imperfections,but where a coercive group is able to offer <strong>the</strong> decision maker someth<strong>in</strong>g worthwhile.A fur<strong>the</strong>r illustration of <strong>the</strong> cont<strong>in</strong>u<strong>in</strong>g need <strong>for</strong> vigilance is provided by research which<strong>in</strong>dicates that observed phenomena support <strong>the</strong> supposition that politicians tend to act <strong>in</strong><strong>the</strong>ir own <strong>in</strong>terests ra<strong>the</strong>r than <strong>the</strong> <strong>in</strong>terests of <strong>the</strong> wider <strong>public</strong>. It looked <strong>in</strong>to account<strong>in</strong>gstandards development <strong>in</strong> <strong>the</strong> US and concluded that <strong>the</strong> account<strong>in</strong>g <strong>the</strong>ories used to justify<strong>the</strong> standards as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest usually follow <strong>the</strong> decision on <strong>the</strong> account<strong>in</strong>g,ra<strong>the</strong>r than <strong>the</strong> o<strong>the</strong>r way around. In o<strong>the</strong>r words <strong>the</strong> <strong>the</strong>ory does not drive <strong>the</strong> standardsbut is <strong>the</strong> result of political <strong>in</strong>tervention to provide a <strong>public</strong> <strong>in</strong>terest excuse. 61This may be as a result of subconscious bias – <strong>the</strong>re is research <strong>in</strong>, <strong>in</strong>ter alia, audit<strong>in</strong>g, show<strong>in</strong>gthat given <strong>the</strong> same <strong>in</strong><strong>for</strong>mation, people will reach different conclusions subconsciouslyfavour<strong>in</strong>g <strong>the</strong>ir own <strong>in</strong>terests. 6255Gellner, Plough, Sword and Book quot<strong>in</strong>g Ibn Khaldun.56Time, ‘Crime: Glum Gorilla’.57From Buchanan, ‘Public Choice: Politics Without Romance’ referr<strong>in</strong>g to Tulloch.58Engelen, ‘Th<strong>in</strong>k<strong>in</strong>g Th<strong>in</strong>gs Through: The Value and Limitations of James Buchanan’s Public Choice Theory ‘, Buchanan, ibid.59Desk<strong>in</strong>s, ‘On <strong>the</strong> Nature of <strong>the</strong> Public Interest’.60From Tanguay, Lanoie and Moreau, ‘Environmental policy, <strong>public</strong> <strong>in</strong>terest and political market’.61Watts and Zimmerman, ‘The Demand <strong>for</strong> and Supply of Account<strong>in</strong>g Theories: The Market <strong>for</strong> Excuses’.62Bazerman, Lowenste<strong>in</strong> and Moore, ‘Why Good Accountants Do Bad Audits’.Credentials <strong>for</strong> <strong>in</strong>vok<strong>in</strong>g <strong>the</strong> <strong>public</strong> <strong>in</strong>terest21
By and large producers operate <strong>in</strong> smaller, more focused and <strong>in</strong>fluential groups than consumers.As ‘<strong>the</strong> law of dim<strong>in</strong>ish<strong>in</strong>g returns relates to group size’ 63 it follows that producer protection,or at least protection of those with well organised <strong>in</strong>terest groups (considered fur<strong>the</strong>r below)will prevail over <strong>the</strong> consumer’s <strong>in</strong>terest. Research on environmental policy <strong>in</strong> a numberof countries, albeit limited <strong>in</strong> nature, has given support to Stigler’s <strong>the</strong>ory, suggest<strong>in</strong>g thatelectoral concerns have a significant <strong>in</strong>fluence on environmental policy. 643.2.3 ErrorsIn addition to mak<strong>in</strong>g <strong>the</strong> ‘wrong’ decision as a result of self-<strong>in</strong>terest, we can all make mistakes,and that applies even to those who seek to serve <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. For example, some haveargued that US account<strong>in</strong>g standard-setters have moved away from conservatism towardsmark-to-market account<strong>in</strong>g, without consider<strong>in</strong>g how managers could and would react, partlylead<strong>in</strong>g to Enron’s illusory profits. 65 There cont<strong>in</strong>ue to be arguments about whe<strong>the</strong>r this <strong>for</strong>m ofaccount<strong>in</strong>g contributed to <strong>the</strong> 2008 bank<strong>in</strong>g crisis or not. 66Even when not apply<strong>in</strong>g a consequentialist approach, <strong>in</strong> which, <strong>in</strong> essence, <strong>the</strong> end justifies <strong>the</strong>means, consideration of <strong>the</strong> expected, and later <strong>the</strong> actual, impact is <strong>in</strong><strong>for</strong>mative and conduciveto good decisions.Learn<strong>in</strong>g, and be<strong>in</strong>g seen to learn, from experience is an important part of expla<strong>in</strong><strong>in</strong>g andjustify<strong>in</strong>g a decision. Past errors, new <strong>in</strong><strong>for</strong>mation or changes <strong>in</strong> values can contribute to a needto change views.3.3 A threats and safeguards approachWe have put <strong>for</strong>ward a hypo<strong>the</strong>sis that those advocat<strong>in</strong>g an action ‘<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’should assume that <strong>the</strong>y are be<strong>in</strong>g presumed to be act<strong>in</strong>g <strong>in</strong> <strong>the</strong>ir own <strong>in</strong>terests and will needto seek to demonstrate that this is not <strong>the</strong> case. We have noted above that <strong>the</strong>re can be avariety of specific or general causes why people might particularly have cause to doubt <strong>the</strong><strong>public</strong> <strong>in</strong>terest argument. There can also, depend<strong>in</strong>g on <strong>for</strong> example remit and authority, bedifferent reasons why <strong>the</strong> <strong>public</strong> <strong>in</strong>terest needs to be <strong>in</strong>voked <strong>in</strong> <strong>the</strong> first place.We referred above to an approach adopted <strong>in</strong> many professional accountancy codes of ethics,known as <strong>the</strong> pr<strong>in</strong>ciples based threats and safeguards approach. In essence, a <strong>framework</strong> isprovided to allow <strong>the</strong> professionals to determ<strong>in</strong>e likely potential threats to compliance with <strong>the</strong>ethical pr<strong>in</strong>ciples and what safeguards can be applied to address <strong>the</strong>se. If <strong>the</strong>re are no effectivesafeguards, <strong>the</strong> work should not be undertaken.A similar approach can be followed here with advocates of <strong>public</strong> <strong>in</strong>terest measures consider<strong>in</strong>gthreats and safeguards by ask<strong>in</strong>g <strong>the</strong>mselves a number of key questions.First, when analys<strong>in</strong>g threats to belief by <strong>the</strong> relevant <strong>public</strong> that our action is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest:1. Is our remit and authority consistent with what is be<strong>in</strong>g proposed?2. Are <strong>the</strong>re specific past or present circumstances which could cause doubt about our motives?3. Is <strong>the</strong>re anyth<strong>in</strong>g that would compromise objectivity?Second, when consider<strong>in</strong>g what safeguards might be applied to counter suggestions of self-<strong>in</strong>terest:4. Have lessons been learned from past specific events that suggested <strong>the</strong> <strong>public</strong> <strong>in</strong>terestwas not be<strong>in</strong>g pursued? What changes have been, or can be, made to counter <strong>the</strong>se – <strong>for</strong>example different procedures, personnel, changed remit, <strong>in</strong>dependent oversight? Have<strong>the</strong>se been expla<strong>in</strong>ed?5. Have we been clear about <strong>the</strong> consequences <strong>for</strong> us and those associated with us of <strong>the</strong>action proposed, favourable or o<strong>the</strong>rwise?6. Have we followed a reasonable and transparent process <strong>in</strong> mak<strong>in</strong>g <strong>the</strong> decision on what is<strong>the</strong> best <strong>public</strong> <strong>in</strong>terest outcome and how to implement it?7. As an important sense check on <strong>the</strong> process, do we really understand our rationale <strong>for</strong>decid<strong>in</strong>g what action we favour and why it is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest? Can we expla<strong>in</strong> itand why it is relevant and proportional to frequency and impact of <strong>the</strong> issue <strong>in</strong> question– proportionality becom<strong>in</strong>g particularly important <strong>in</strong> societies where <strong>the</strong> extent of<strong>in</strong>tervention and regulation is often questioned?63Pelzman, quoted <strong>in</strong> Tanguay, Lanoie and Moreau, ‘Environmental policy, <strong>public</strong> <strong>in</strong>terest and political market’.64Tanguay, Lanoie and Moreau, ibid.65Watts, ‘What has <strong>the</strong> Invisible Hand Achieved?’66For example, The Guardian, ‘Bank of England official calls <strong>for</strong> bespoke account<strong>in</strong>g standards <strong>for</strong> banks’.22Credentials <strong>for</strong> <strong>in</strong>vok<strong>in</strong>g <strong>the</strong> <strong>public</strong> <strong>in</strong>terest
<strong>ICAEW</strong>, as part of a campaign <strong>for</strong> better regulation, commissioned a review of economicliterature on regulation, which noted a number of concerns about <strong>the</strong> effects of regulationon economic efficiency. 67 This highlights <strong>the</strong> need <strong>for</strong> safeguards such as impact <strong>analysis</strong>,engagement with relevant people and on-go<strong>in</strong>g monitor<strong>in</strong>g and evaluation.3.4 Safeguards3.4.1 Impact <strong>analysis</strong>One method of assess<strong>in</strong>g that all relevant factors have been weighed up, and demonstrat<strong>in</strong>gthat this has been done, is impact <strong>analysis</strong> (or effects <strong>analysis</strong> 68 ), of which a subset is also knownas cost benefit <strong>analysis</strong>. Governments and o<strong>the</strong>r regulators seek <strong>in</strong>creas<strong>in</strong>gly to apply this whenconsider<strong>in</strong>g changes <strong>in</strong> laws and regulations. It is not a recent phenomenon, cropp<strong>in</strong>g up <strong>for</strong>example <strong>in</strong> <strong>the</strong> US Flood Control Act of 1936 which asserted a responsibility to act where ‘<strong>the</strong>benefits to whomsoever <strong>the</strong>y may accrue are <strong>in</strong> excess of <strong>the</strong> estimated costs…’ 69It is <strong>in</strong> pr<strong>in</strong>ciple a variant on utility <strong>the</strong>ory, follow<strong>in</strong>g <strong>the</strong> same logic of assess<strong>in</strong>g <strong>the</strong> positive ornegative value of an action to those affected. It <strong>the</strong>re<strong>for</strong>e suffers many of <strong>the</strong> same problems,<strong>for</strong> example:• <strong>the</strong> tendency to quantify disregards or pays <strong>in</strong>sufficient attention to effects whosemagnitude is not well understood and overemphasises effects more readily expressed <strong>in</strong>monetary amounts; and• cost quantification is often provided by those responsible <strong>for</strong> implementation, who<strong>the</strong>re<strong>for</strong>e have an <strong>in</strong>terest <strong>in</strong> exaggerat<strong>in</strong>g <strong>the</strong> costs. 70The scope of what can be <strong>in</strong>cluded <strong>in</strong> costs and benefits (<strong>for</strong> example <strong>the</strong> extent to which<strong>in</strong>direct costs and benefits should be <strong>in</strong>cluded) is also susceptible to be<strong>in</strong>g eng<strong>in</strong>eered,depend<strong>in</strong>g on whe<strong>the</strong>r those per<strong>for</strong>m<strong>in</strong>g <strong>the</strong> assessment are subjectively supportive of, oropposed to, <strong>the</strong> measure. 71Panel 3.3: Cont<strong>in</strong>gent valuation modelSome of <strong>the</strong> issues described above can be dealt with by us<strong>in</strong>g a cont<strong>in</strong>gent valuation model(CVM). Such models ask about people’s will<strong>in</strong>gness to pay <strong>for</strong>, or will<strong>in</strong>gness to accept, aproposed measure, ‘cont<strong>in</strong>gent’ on <strong>the</strong>ir be<strong>in</strong>g <strong>in</strong> <strong>the</strong> real situation. Thus, <strong>for</strong> example, <strong>the</strong>results to <strong>the</strong> question ‘how much would you pay to receive a certa<strong>in</strong> non-monetary benefit?’can quantify people’s perception, at least, of <strong>the</strong> value of that benefit.CVM copes with proposals and actions beyond historical experience, allows <strong>for</strong> supply anddemand uncerta<strong>in</strong>ty, and allows <strong>for</strong> passive use values - <strong>the</strong> satisfaction that someth<strong>in</strong>g merelyexists, or is be<strong>in</strong>g preserved <strong>for</strong> o<strong>the</strong>rs <strong>in</strong> <strong>the</strong> future. However, it does have disadvantages.These <strong>in</strong>clude, <strong>for</strong> example: <strong>the</strong> hypo<strong>the</strong>tical will<strong>in</strong>gness to pay overstates real will<strong>in</strong>gness –people tend to assume hypo<strong>the</strong>tical events will happen <strong>in</strong> <strong>the</strong> future; a tendency <strong>for</strong> will<strong>in</strong>gnessto accept exceed<strong>in</strong>g will<strong>in</strong>gness to pay; 72 and a distortive effect if benefits cannot be restrictedto those who pay – <strong>the</strong> ‘free rider’ problem which depresses will<strong>in</strong>gness to pay.Generally recognised national measures such as Gross Domestic Product suffer similar problemswith over-emphasis on monetary measures, 73 so valuation of costs and benefits is not easy, evenat a country level.In practice a more simplistic approach tends to be followed, often consider<strong>in</strong>g only oneoption – ‘should we do this or not?’, ra<strong>the</strong>r than ‘which of several possibilities is best?’ – andsimplify<strong>in</strong>g <strong>the</strong> non-quantifiable benefits and costs where <strong>in</strong><strong>for</strong>mation is difficult to come by.For example, it has been observed that <strong>in</strong> studies of <strong>the</strong> effects of air pollution, <strong>the</strong> outcomemeasure has largely been limited to mortality, <strong>for</strong> lack of easily available <strong>in</strong><strong>for</strong>mation onassociated non-fatal illnesses. 74Impact <strong>analysis</strong> also tends to look at ga<strong>in</strong>s and losses on a composite basis ra<strong>the</strong>r than <strong>in</strong> termsof <strong>the</strong> effects on <strong>in</strong>dividuals. Aga<strong>in</strong>, <strong>the</strong> same issues arise that have been considered previously,<strong>for</strong> example:67Centre <strong>for</strong> Economics and Bus<strong>in</strong>ess Research, Regulation <strong>in</strong> <strong>the</strong> Market Place: An Economic Literature Review, <strong>for</strong> <strong>ICAEW</strong>.68EFRAG, Consider<strong>in</strong>g <strong>the</strong> Effects of Account<strong>in</strong>g Standards.69Persky, ‘Retrospectives: Cost-Benefit Analysis and <strong>the</strong> Classical Creed’.70Boden, ‘Cost-Benefit Analysis: Caveat Emptor’.71The Economist, ‘The Rule of More’.72Whitehead and Blomquist, ‘The Use of Cont<strong>in</strong>gent Valuation <strong>in</strong> Benefit – Cost Analysis’.73Considered fur<strong>the</strong>r <strong>in</strong> Section 7.2.2.74Boden, ‘Cost-Benefit Analysis: Caveat Emptor’.Credentials <strong>for</strong> <strong>in</strong>vok<strong>in</strong>g <strong>the</strong> <strong>public</strong> <strong>in</strong>terest23
<strong>the</strong> UK government set up a ‘Committee on Standards <strong>in</strong> Public Life’ to make recommendationsto ensure ‘<strong>the</strong> highest standards of propriety <strong>in</strong> <strong>public</strong> life’. The Committee cont<strong>in</strong>ues tooperate but is most noted <strong>for</strong> sett<strong>in</strong>g out a set of pr<strong>in</strong>ciples, known as <strong>the</strong> ‘Nolan Pr<strong>in</strong>ciples’,requir<strong>in</strong>g selflessness, <strong>in</strong>tegrity, objectivity, accountability, openness, honesty and leadership. 80The Committee benchmarks <strong>the</strong>se pr<strong>in</strong>ciples aga<strong>in</strong>st standards of conduct <strong>in</strong> <strong>the</strong> <strong>public</strong> sector,<strong>in</strong> essence act<strong>in</strong>g as a surrogate <strong>for</strong> <strong>the</strong> market.3.4.3 Oversight of <strong>the</strong> decision-mak<strong>in</strong>g processFor regulatory bodies and o<strong>the</strong>r proponents of <strong>public</strong> <strong>in</strong>terest actions, accountability to <strong>the</strong><strong>public</strong> via <strong>the</strong> ballot box, even if considered a reliable process, is not usually an option. Soan alternative assessment mechanism is needed. A <strong>for</strong>m of oversight body will often be <strong>the</strong>solution. It has been suggested, <strong>for</strong> example, that self-regulatory bodies can be more efficientthan, say, governments as <strong>the</strong>y have more relevant <strong>in</strong><strong>for</strong>mation, but <strong>the</strong>y also have less ofan <strong>in</strong>centive to take regulation seriously. The best solution <strong>in</strong> such circumstances might besupervised self-regulation, where <strong>the</strong> external oversight body ensures audit and accountability. 81However, oversight itself can have problems. Without actual and apparent <strong>in</strong>dependence on<strong>the</strong> part of those operat<strong>in</strong>g <strong>the</strong> oversight it has no credibility as a means of <strong>public</strong> oversight.However, too much <strong>in</strong>dependence runs o<strong>the</strong>r risks. An <strong>in</strong>vestigation <strong>in</strong>to behaviour <strong>in</strong>boardroom oversight <strong>in</strong>dicated that hav<strong>in</strong>g too many <strong>in</strong>dependent elements <strong>in</strong> <strong>the</strong> nonexecutivefunction can:• result <strong>in</strong> a breakdown of trust with those be<strong>in</strong>g overseen, lead<strong>in</strong>g to reducedcommunication;• divert executive time to ‘<strong>in</strong>fluenc<strong>in</strong>g activities’; and• lead to <strong>the</strong> <strong>in</strong>dependents mak<strong>in</strong>g decisions based on heuristic thought tied to readilyavailable <strong>in</strong><strong>for</strong>mation. Insider expertise becomes underutilised. 82There are o<strong>the</strong>r concerns:• such bodies can seldom be truly representative <strong>in</strong> <strong>the</strong> sense that a parliament elected byuniversal franchise can be. This means that <strong>in</strong>dividuals <strong>in</strong>volved will be act<strong>in</strong>g on behalf of<strong>the</strong> relevant <strong>public</strong>, ra<strong>the</strong>r than represent<strong>in</strong>g it. Where that <strong>public</strong> <strong>in</strong>cludes elements withdifferent perspectives (<strong>for</strong> example an <strong>in</strong>ternational <strong>public</strong>) it is important to ensure thatthose perspectives are not completely omitted.• <strong>the</strong> oversight process may become treated as an end <strong>in</strong> itself, with concern <strong>for</strong> due processcompliance distract<strong>in</strong>g attention from <strong>the</strong> underly<strong>in</strong>g purpose of ensur<strong>in</strong>g that decisionsare <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. The accountability of <strong>the</strong> overseer itself needs to be consideredcarefully to ensure that someone can apply a sense check to <strong>the</strong> outcome of <strong>the</strong> process –someth<strong>in</strong>g that this <strong>framework</strong> can assist with.Panel 3.4: Examples of oversight <strong>in</strong> <strong>the</strong> accountancy professionIFACIFAC was set up by an <strong>in</strong>ternational group of accountancy bodies to, among o<strong>the</strong>r th<strong>in</strong>gs,create <strong>in</strong>ternational standards <strong>in</strong> key areas of ethics, audit and professional education. However,<strong>the</strong>re were <strong>in</strong>evitable concerns that <strong>the</strong> <strong>in</strong>volvement of professional bodies might not result<strong>in</strong> <strong>the</strong> standard sett<strong>in</strong>g be<strong>in</strong>g <strong>in</strong>dependent, so, follow<strong>in</strong>g a 2003 review of governancearrangements, <strong>in</strong> 2005 a new oversight arrangement was set up which created <strong>the</strong> PublicInterest Oversight Board (PIOB).PIOB consists of <strong>in</strong>dividuals from regulatory, academic and o<strong>the</strong>r environments who are<strong>in</strong>dependent of <strong>the</strong> accountancy profession. The <strong>in</strong>tent is that by provid<strong>in</strong>g <strong>in</strong>dependentoversight, <strong>the</strong> PIOB works to elim<strong>in</strong>ate <strong>the</strong> perceived conflict of <strong>in</strong>terest caused by <strong>the</strong>profession sett<strong>in</strong>g its own standards, while ensur<strong>in</strong>g that accountability, transparency, andresponsiveness to stakeholder needs are present throughout <strong>the</strong> entire process of standardsett<strong>in</strong>g. 8380Committee on Standards <strong>in</strong> Public Life, The Seven Pr<strong>in</strong>ciples of Public Life.81Kay, The Truth About Markets.82Langevoort, ‘The Human Nature of Corporate Boards: Law, Norms and <strong>the</strong> Un<strong>in</strong>tended Consequences of Independence andAccountability’.83www.ipiob.orgCredentials <strong>for</strong> <strong>in</strong>vok<strong>in</strong>g <strong>the</strong> <strong>public</strong> <strong>in</strong>terest25
Panel 3.4: Examples of oversight <strong>in</strong> <strong>the</strong> accountancy profession (cont<strong>in</strong>ued)<strong>ICAEW</strong><strong>ICAEW</strong>’s model is just that discussed above: supervised self-regulation. The accountancyprofession <strong>in</strong> <strong>the</strong> UK undertakes much of its own regulation, but is subject to <strong>in</strong>dependentoversight of that regulation by <strong>the</strong> F<strong>in</strong>ancial Report<strong>in</strong>g Council (FRC). The compositions of <strong>the</strong>various functions that comprise <strong>the</strong> FRC, and <strong>the</strong> fund<strong>in</strong>g of <strong>the</strong> operation, are set to ensurethat <strong>the</strong>re is good <strong>in</strong>put from <strong>the</strong> profession, but that it does not have a majority decisionmak<strong>in</strong>gability.With<strong>in</strong> <strong>ICAEW</strong>, a system of expert committees oversees <strong>ICAEW</strong>’s output and consultationson positions taken. The <strong>in</strong>put from <strong>the</strong>se seeks to ensure that our views on matters can facechallenge from outside stakeholders and reflect chang<strong>in</strong>g thought and external developments.For example, <strong>in</strong> <strong>the</strong> 1920s <strong>ICAEW</strong> strongly argued that ‘secret reserves’ were ‘<strong>in</strong> certa<strong>in</strong> casesdesirable and <strong>in</strong> many cases essential’ and that <strong>in</strong>clud<strong>in</strong>g profit and loss accounts <strong>in</strong> statutoryaccounts was likely to ‘do more harm than good’. 84 This reflected views at <strong>the</strong> time thattransparency was not given a high priority by society. However, society’s views have changed,and so has <strong>ICAEW</strong>’s stance, to presume <strong>in</strong> favour of disclosure.3.4.4 Undertak<strong>in</strong>gs to apply safeguardsPublicised undertak<strong>in</strong>gs to apply all or some of <strong>the</strong> safeguards referred to above can help tocreate ex-ante trust <strong>in</strong> <strong>the</strong>ir own right. However, it is important that <strong>the</strong>y are followed through.If seen to be noth<strong>in</strong>g but a <strong>public</strong> relations exercise, such undertak<strong>in</strong>gs would harm trust morethan if no undertak<strong>in</strong>g were given <strong>in</strong> <strong>the</strong> first place.3.5 Chapter summaryTrust <strong>in</strong> those mak<strong>in</strong>g assertions that <strong>the</strong>y are act<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is vital, as avalidation, as a motivation to comply, and, ultimately, to reduce <strong>the</strong> need <strong>for</strong> evidence tosupport <strong>the</strong> assertion.People <strong>in</strong> many societies today are generally distrustful of <strong>the</strong> motives of those <strong>in</strong> authority.Indeed <strong>public</strong> choice <strong>the</strong>ory provides academic evidence to support a presumption that use of<strong>the</strong> <strong>public</strong> <strong>in</strong>terest is a smokescreen to disguise self-<strong>in</strong>terested action, whe<strong>the</strong>r deliberately orsubconsciously. It is helpful <strong>the</strong>re<strong>for</strong>e <strong>for</strong> those propos<strong>in</strong>g a <strong>public</strong> <strong>in</strong>terest action to pre-emptdoubt by consider<strong>in</strong>g what <strong>the</strong> key threats to trust by <strong>the</strong> relevant <strong>public</strong> might be (eg, conflictsof <strong>in</strong>terest) or <strong>for</strong> that matter threats to mak<strong>in</strong>g <strong>the</strong> right decision (eg, past mistakes).Safeguards to be applied by <strong>the</strong> proponent of a <strong>public</strong> <strong>in</strong>terest action will generally <strong>in</strong>cludemeasures to improve process and accountability. They could <strong>in</strong>clude, <strong>for</strong> example:• transparency of process;• impact <strong>analysis</strong>;• feedback enabl<strong>in</strong>g learn<strong>in</strong>g from past errors;• sense check<strong>in</strong>g; and• oversight.Publicised undertak<strong>in</strong>gs to apply all or some of <strong>the</strong>se can help <strong>in</strong> <strong>the</strong>ir own right, provided <strong>the</strong>yare followed through.The proposed <strong>framework</strong> could act as part of <strong>the</strong> safeguard process itself, or as part of a sensecheck to ensure that <strong>the</strong> process has not produced a perverse end result.84Lee and Parker, The Evolution of Corporate F<strong>in</strong>ancial Reports.26Credentials <strong>for</strong> <strong>in</strong>vok<strong>in</strong>g <strong>the</strong> <strong>public</strong> <strong>in</strong>terest
4. APPLICABILITY OF THE PUBLIC INTERESTThose who advocate an action as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest need toconsider and balance a complex set of factors. They also need to beable to demonstrate that <strong>the</strong> action actually is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.What makes an issue a <strong>public</strong> <strong>in</strong>terest matter? Should it be a <strong>public</strong><strong>in</strong>terest matter?Credentials <strong>for</strong><strong>in</strong>vok<strong>in</strong>g <strong>the</strong><strong>public</strong> <strong>in</strong>terestImplementationApplicability of<strong>the</strong> <strong>public</strong><strong>in</strong>terestAggregation anddecision<strong>Act<strong>in</strong>g</strong> <strong>in</strong><strong>the</strong> <strong>public</strong><strong>in</strong>terestThe relevant<strong>public</strong>Constra<strong>in</strong>ts towantsThe relevant<strong>public</strong>’s wants
4. APPLICABILITY OF THE PUBLIC INTEREST4.1 Whe<strong>the</strong>r <strong>the</strong> matter needs to be a <strong>public</strong> <strong>in</strong>terest issueThe use of <strong>the</strong> concept of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest as justification will present a challenge. Itshould be used only where it needs to be used and where it can be supported by address<strong>in</strong>gsatisfactorily <strong>the</strong> matters raised <strong>in</strong> this <strong>framework</strong>.Most decisions that people make <strong>in</strong> <strong>the</strong>ir lives are not decisions that need to be consideredas ‘<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’. They will be <strong>for</strong> <strong>the</strong>ir own benefit or <strong>the</strong> benefit of a set of peopleto whom <strong>the</strong>y have obligations, examples be<strong>in</strong>g colleagues, friends, family, employers,shareholders, or constituents.We argue <strong>in</strong> <strong>the</strong> rest of this report that <strong>for</strong> an advocate to assess and <strong>the</strong>n put <strong>for</strong>ward that anaction is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest <strong>in</strong>volves consideration and balanc<strong>in</strong>g of a complex set of factors.It also imposes an onus to demonstrate that <strong>the</strong> action actually is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. If thisproves not to be <strong>the</strong> case and <strong>the</strong> rationale is not supportable, reputation – or, perhaps <strong>in</strong> <strong>the</strong>case of an <strong>in</strong>dividual overrid<strong>in</strong>g confidentiality, legal protection, will suffer. If <strong>the</strong> concept isused unnecessarily, it can appear self-righteous.4.2 What <strong>the</strong> purpose and justification are <strong>in</strong> <strong>in</strong>vok<strong>in</strong>g <strong>the</strong> <strong>public</strong><strong>in</strong>terestAn organisation’s remit may mandate <strong>public</strong> <strong>in</strong>terest actions, but <strong>in</strong> terms of expla<strong>in</strong><strong>in</strong>g thatsometh<strong>in</strong>g is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, <strong>the</strong> rationale will generally be that:• <strong>the</strong> matter is considered to be one which merits a <strong>public</strong> <strong>in</strong>terest consideration;• <strong>the</strong> <strong>public</strong>, or relevant sections of <strong>the</strong> <strong>public</strong>, or those who act on <strong>the</strong>ir behalf, need to buy<strong>in</strong> to <strong>the</strong> argument: trust is slowly ga<strong>in</strong>ed but rapidly lost.There are a number of reasons why this might be seen as important to those responsible <strong>for</strong> a<strong>public</strong> <strong>in</strong>terest action:• to improve <strong>the</strong> chances of a policy be<strong>in</strong>g implemented (considered later);• to persuade, if <strong>the</strong> power and responsibility to implement lie elsewhere;• to justify or defend, if <strong>the</strong> power lies ‘<strong>in</strong>-house’ but <strong>the</strong>re is a responsibility to account <strong>for</strong><strong>the</strong> actions; and/or• to obta<strong>in</strong> feedback <strong>for</strong> <strong>in</strong>ternal use: <strong>the</strong> views of o<strong>the</strong>rs <strong>in</strong> assert<strong>in</strong>g that someone is act<strong>in</strong>g<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest are more important than those of <strong>the</strong> <strong>in</strong>dividual(s) or organisationconcerned. It is <strong>the</strong>re<strong>for</strong>e important to reflect on what could be done better and seen to bedone better.It is important to consider whe<strong>the</strong>r <strong>the</strong> likely debate would be about what is <strong>in</strong> <strong>the</strong> <strong>public</strong><strong>in</strong>terest: it may be about different expectations of what is likely to happen <strong>in</strong> <strong>the</strong> future. Anillustration of this is given <strong>in</strong> Panel 7.5.4.3 Whe<strong>the</strong>r it can be said to impact upon, and be <strong>for</strong> <strong>the</strong> benefitof, <strong>the</strong> <strong>public</strong> at largeSometh<strong>in</strong>g that is a <strong>public</strong> <strong>in</strong>terest matter will, by its very nature, <strong>in</strong>volve a wide section of <strong>the</strong><strong>public</strong>, whe<strong>the</strong>r <strong>the</strong>y like it or not: a wider element than can be dealt with by direct one-to-onediscussion.For example, <strong>the</strong>re might be a proposal <strong>for</strong> a village to build a community hall. It followsthat it is <strong>for</strong> <strong>the</strong> benefit of <strong>the</strong> village as a whole, ra<strong>the</strong>r than <strong>in</strong>dividuals directly, <strong>for</strong> all of <strong>the</strong><strong>in</strong>dividuals <strong>in</strong> <strong>the</strong> village to get <strong>in</strong>volved <strong>in</strong> fund rais<strong>in</strong>g. However, it can hardly be considered28Applicability of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest
to be a <strong>public</strong> <strong>in</strong>terest matter: first, most of <strong>the</strong> <strong>public</strong> is excluded from <strong>the</strong> matter by scope;second, those affected can be <strong>in</strong>teracted with directly; and third, people are ultimately entitlednot to co-operate, although <strong>the</strong>y may not be popular. As noted <strong>in</strong> Panel 5.1, it would pass<strong>the</strong> charitable <strong>public</strong> benefit test, but that is approach<strong>in</strong>g it from <strong>the</strong> perspective of whe<strong>the</strong>rcharitable status is permissible, not what <strong>the</strong> best way is to argue <strong>for</strong> <strong>the</strong> existence of <strong>the</strong> hall.By contrast, proposals that affect, say, air quality or corruption <strong>in</strong> government must be <strong>public</strong><strong>in</strong>terest matters: <strong>the</strong>y will affect at <strong>the</strong> very least a large proportion of <strong>the</strong> populace, whocannot all be spoken with directly, and who do not have a right of opt-out, regardless of <strong>the</strong>circumstances.4.3.1 Disclosure <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terestThe UK’s National Union of Journalists’ Ethics Council and <strong>the</strong> UK Press Compla<strong>in</strong>tsCommission, <strong>in</strong> its Editors’ Code, have drawn up detailed def<strong>in</strong>itions of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, usedto justify overrides of a presumption of privacy. Both of <strong>the</strong>se <strong>in</strong>clude (among o<strong>the</strong>r th<strong>in</strong>gs) <strong>the</strong>phrase ‘There is a <strong>public</strong> <strong>in</strong>terest <strong>in</strong> <strong>the</strong> freedom of expression itself.’ 85However, <strong>the</strong> concern, as with o<strong>the</strong>r areas, is that <strong>public</strong> <strong>in</strong>terest is be<strong>in</strong>g used as a justification<strong>for</strong> self-<strong>in</strong>terest – which <strong>in</strong> this case would be that <strong>public</strong>ity sells newspapers and advancesjournalists’ careers. Courts have often been required to <strong>in</strong>tervene and <strong>in</strong> English law a significantamount of case law has been built up about press coverage and <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. This has<strong>in</strong>cluded, <strong>for</strong> example, <strong>the</strong> relatively recent Reynolds v Times Newspapers and Jameel andO<strong>the</strong>rs v Wall Street Journal Europe cases. These both considered qualified privilege, which is apotential <strong>public</strong> <strong>in</strong>terest defence aga<strong>in</strong>st defamation allegations, and seeks to balance freedomof expression with <strong>the</strong> right to reputation.Underly<strong>in</strong>g qualified privilege is what was summarised <strong>in</strong> <strong>the</strong> Reynolds case as ‘whe<strong>the</strong>r <strong>the</strong><strong>public</strong> was entitled to know <strong>the</strong> particular <strong>in</strong><strong>for</strong>mation.’ The Jameel case positioned <strong>the</strong> level ofentitlement as somewhere between prurient <strong>in</strong>terest and necessity. 86The Reynolds case established a number of factors to consider when determ<strong>in</strong><strong>in</strong>g whe<strong>the</strong>r‘qualified privilege’ applied – that is, when <strong>the</strong> <strong>public</strong> <strong>in</strong>terest can be applied as a defenceaga<strong>in</strong>st defamation actions. These have now largely been <strong>in</strong>cluded <strong>in</strong> <strong>the</strong> UK’s draft DefamationBill 2011 87 and cover:• nature and context of <strong>public</strong>ation;• seriousness of imputation;• extent to which matter is of <strong>public</strong> <strong>in</strong>terest;• <strong>in</strong><strong>for</strong>mation known be<strong>for</strong>e <strong>public</strong>ation and anyth<strong>in</strong>g known about its reliability;• extent of claimants’ views be<strong>for</strong>e <strong>public</strong>ation;• extent of verification of accuracy;• tim<strong>in</strong>g of <strong>public</strong>ation and need <strong>for</strong> urgency; and• tone of <strong>the</strong> statement. 88In o<strong>the</strong>r words, someth<strong>in</strong>g that is of <strong>public</strong> <strong>in</strong>terest is someth<strong>in</strong>g that is <strong>for</strong> <strong>the</strong> benefit ordetriment of <strong>the</strong> <strong>public</strong>, not someth<strong>in</strong>g that is merely fasc<strong>in</strong>at<strong>in</strong>g to <strong>the</strong> <strong>public</strong>. The UKIn<strong>for</strong>mation Commissioner’s Office guidance on <strong>the</strong> Freedom of In<strong>for</strong>mation Act similarlyobserves that <strong>the</strong> dist<strong>in</strong>ction needs to be borne <strong>in</strong> m<strong>in</strong>d. 89The issue of over-rid<strong>in</strong>g contractual or professional obligations of confidentiality to report, <strong>for</strong>example, fraud or o<strong>the</strong>r illegal acts, similarly requires a series of factors to be considered. The UKPublic Interest Disclosure Act <strong>in</strong>dicates that <strong>the</strong> matters to be considered <strong>in</strong> order to determ<strong>in</strong>ewhe<strong>the</strong>r confidentiality should be breached <strong>in</strong>clude: whe<strong>the</strong>r members of <strong>the</strong> <strong>public</strong> are likelyto be affected; whe<strong>the</strong>r corrective action is be<strong>in</strong>g taken; possibility of repetition; <strong>the</strong> gravity of<strong>the</strong> matter; <strong>the</strong> presence of a general ethos of disregard<strong>in</strong>g <strong>the</strong> law; reliability and quality of<strong>in</strong><strong>for</strong>mation available and <strong>the</strong> degree of suspicion; and legal protection <strong>for</strong> breach of duty ofconfidentiality. 9085National Union of Journalists, ‘The Public Interest’, Press Compla<strong>in</strong>ts Commission, ‘Editors Code’.86Joyce, The Reynolds Public Interest Defence, referr<strong>in</strong>g to Reynolds v Times Newspapers [2001] 2 AC 127 and Jameel and O<strong>the</strong>rs v WallStreet Journal Europe Sprl [2006] UKHL 144.87Await<strong>in</strong>g Parliamentary debate at <strong>the</strong> time of writ<strong>in</strong>g.88M<strong>in</strong>istry of Justice, ‘Draft Defamation Bill’.89In<strong>for</strong>mation Commissioners Office, Freedom of In<strong>for</strong>mation Act, Awareness Guidance 3.90Audit<strong>in</strong>g Practices Board, ‘ISA (UK and Ireland) 250 Section A’.Applicability of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest29
4.4 Whe<strong>the</strong>r <strong>the</strong> remit is wide enough to regard it as a <strong>public</strong><strong>in</strong>terest matterOne of <strong>the</strong> issues <strong>for</strong> <strong>the</strong> advocate of a <strong>public</strong> <strong>in</strong>terest action to consider, particularly <strong>for</strong> anorganisation, is what authority <strong>the</strong>re is and whe<strong>the</strong>r <strong>the</strong> advocate’s remit extends to <strong>the</strong> issue.This especially applies where <strong>the</strong> <strong>in</strong>tent is to apply <strong>the</strong> decision ra<strong>the</strong>r than act as a <strong>for</strong>ce of<strong>in</strong>fluence on o<strong>the</strong>rs. A <strong>public</strong> <strong>in</strong>terest perspective may be mandated by remit and encouragedby structure. This expla<strong>in</strong>s why <strong>the</strong> matter is said to be a <strong>public</strong> <strong>in</strong>terest issue but <strong>the</strong> onus toexpla<strong>in</strong> why <strong>the</strong> particular action is <strong>the</strong> right <strong>public</strong> <strong>in</strong>terest one rema<strong>in</strong>s.Alternatively <strong>the</strong> remit scope may be very narrow (as <strong>in</strong> <strong>the</strong> village example above). In suchcircumstances a <strong>public</strong> <strong>in</strong>terest perspective would seem over-complicated and <strong>in</strong>deed slightlyva<strong>in</strong>glorious.While a remit may pass <strong>the</strong> test of be<strong>in</strong>g sufficient <strong>for</strong> an action to be a <strong>public</strong> <strong>in</strong>terest matter,it does not follow that all matters considered with<strong>in</strong> such a remit will automatically be <strong>public</strong><strong>in</strong>terest matters – see <strong>ICAEW</strong> example <strong>in</strong> Panel 4.1 below.Panel 4.1: <strong>ICAEW</strong> and <strong>public</strong> <strong>in</strong>terest mattersAs noted <strong>in</strong> Panel 2.4, while <strong>ICAEW</strong>’s charters do not mandate it to adopt a <strong>public</strong> <strong>in</strong>terestperspective, <strong>ICAEW</strong> accepts that it should be adopted as part of <strong>the</strong> consideration <strong>for</strong> ourcont<strong>in</strong>u<strong>in</strong>g professional status. This is particularly noticeable <strong>in</strong>: (i) mak<strong>in</strong>g large parts of ourtechnical guidance on <strong>in</strong>terpretation of legal and regulatory matters available to all, free ofcharge; and (ii) representations to governments and o<strong>the</strong>rs on policy matters.However, not all matters addressed by <strong>ICAEW</strong> are <strong>public</strong> <strong>in</strong>terest matters. For example,membership fees are a matter between <strong>ICAEW</strong> and its members. Follow<strong>in</strong>g <strong>the</strong> village analogy<strong>in</strong> Section 4.3, this <strong>in</strong>volves a fixed number of people, who can be communicated with andwho have <strong>the</strong> right to opt out. This is not a <strong>public</strong> <strong>in</strong>terest matter.The IESBA and <strong>ICAEW</strong> codes of ethics, among o<strong>the</strong>rs, discuss <strong>the</strong> concept of ‘<strong>public</strong> <strong>in</strong>terestentities’ (PIEs). Different authorities take different views as to what constitutes a PIE <strong>for</strong> <strong>the</strong>purposes of ethics codes. The IESBA and <strong>ICAEW</strong> codes specifically <strong>in</strong>clude companies witha list<strong>in</strong>g on a recognised stock exchange but o<strong>the</strong>r entities which have a ‘large number andwide range of stakeholders’ 91 can be seen as PIEs at a given po<strong>in</strong>t <strong>in</strong> time – organisations and<strong>in</strong>dividuals can move <strong>in</strong> and out of <strong>the</strong> categories of PIEs and stakeholders. The concept of a PIEexists <strong>in</strong> <strong>the</strong> code <strong>for</strong> a specified purpose (that of decid<strong>in</strong>g which set of auditor <strong>in</strong>dependencerequirements need to be complied with) and it is <strong>the</strong>re<strong>for</strong>e narrower <strong>in</strong> scope than what wemight consider to be an entity <strong>in</strong> which <strong>the</strong>re is a <strong>public</strong> <strong>in</strong>terest. However, <strong>the</strong> rationale isrelated to our argument previously about <strong>the</strong> use of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest concept: a PIE willgenerally have a wider range of stakeholders than can be communicated with directly and<strong>the</strong>re<strong>for</strong>e a set of standards that places a greater emphasis on perception is required.The codes also consider matters that <strong>in</strong>dividuals might address <strong>in</strong> terms of act<strong>in</strong>g <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest, <strong>in</strong> particular overrid<strong>in</strong>g presumptions of confidentiality where <strong>in</strong>stances of badbehaviour have been discovered or at least suspected. Confidentiality is a fundamental pr<strong>in</strong>cipleas without it, <strong>the</strong>re would be <strong>in</strong>sufficient trust <strong>in</strong> <strong>the</strong> accountant to enable him or her to do<strong>the</strong>ir job. However, where <strong>the</strong> law permits, <strong>the</strong> codes note that <strong>the</strong>re can be circumstanceswhere that pr<strong>in</strong>ciple can be over-ridden to allow disclosure <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.<strong>ICAEW</strong> has supplementary guidance on this issue, not<strong>in</strong>g that (<strong>in</strong> l<strong>in</strong>e with UK legislation)examples of situations where disclosure might be regarded as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest<strong>in</strong>clude: a crim<strong>in</strong>al offence; a miscarriage of justice; matters where health and safety areendangered; and damage to <strong>the</strong> environment.In terms of matters to consider when determ<strong>in</strong><strong>in</strong>g whe<strong>the</strong>r or not a disclosure is justified <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest, examples given <strong>in</strong>clude similar matters to those referred to <strong>in</strong> 4.3.1 above <strong>in</strong> <strong>the</strong>context of breach of professional confidentiality, as well as <strong>the</strong> availability of legal protection <strong>for</strong>breach of duty of confidentiality. Critically though, <strong>the</strong> guidance cautions that each situationneeds to be considered on its own merits. 924.5 Practical limitations on <strong>the</strong> outcome<strong>ICAEW</strong>’s Crisis Without a Legacy programme of policy summits has developed a triangulationdoctr<strong>in</strong>e: recognition that at a practical level, <strong>in</strong>ternational <strong>public</strong> policy decisions need tobalance <strong>the</strong> demands of <strong>in</strong>ternational <strong>public</strong> <strong>in</strong>terest, market <strong>for</strong>ces and popular op<strong>in</strong>ion. 9391<strong>ICAEW</strong>, Code of Ethics.92<strong>ICAEW</strong>, Professional Conduct <strong>in</strong> Relation to Defaults or Unlawful Acts.93For example, <strong>ICAEW</strong>, Crisis Without a Legacy London Policy Summit 21 May 2012.30Applicability of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest
This highlights that <strong>the</strong>re may be political or o<strong>the</strong>r practical reasons why what might be <strong>the</strong>optimum <strong>public</strong> <strong>in</strong>terest outcome cannot be delivered.Where such considerations do affect <strong>the</strong> outcome, long-term reputation is likely to suffer less byacknowledg<strong>in</strong>g that <strong>the</strong>re are practical considerations which have changed <strong>the</strong> outcome, ra<strong>the</strong>rthan contrive an argument that <strong>the</strong> sub-optimal (from a <strong>public</strong> <strong>in</strong>terest perspective) outcome isactually <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.4.6 Use of <strong>the</strong> <strong>framework</strong> <strong>for</strong> non-<strong>public</strong> <strong>in</strong>terest mattersEven if <strong>the</strong> issue is not a <strong>public</strong> <strong>in</strong>terest matter, <strong>the</strong> <strong>framework</strong> may still be useful to an advocateof an action that <strong>in</strong>volves a wider range of people than can be communicated with directly.However, <strong>the</strong> justification used should fit <strong>the</strong> purpose. O<strong>the</strong>r alternatives might <strong>in</strong>clude, <strong>for</strong>example:• acknowledgement that <strong>the</strong> matter is <strong>for</strong> <strong>the</strong> benefit only of a few, but obta<strong>in</strong><strong>in</strong>g agreementfrom those disadvantaged by <strong>in</strong>clud<strong>in</strong>g compensation <strong>in</strong> <strong>the</strong> arrangements; or• arrang<strong>in</strong>g <strong>the</strong> matter as someth<strong>in</strong>g that people can opt <strong>in</strong> to or opt out of.4.7 Chapter summaryThe use of <strong>the</strong> concept of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest as justification will present a challenge. Itshould be used only where it needs to be used and where it can be supported by address<strong>in</strong>gsatisfactorily <strong>the</strong> matters raised <strong>in</strong> this <strong>framework</strong>The <strong>public</strong> <strong>in</strong>terest is an abstract notion; to argue and be able to hold out that an action (or<strong>in</strong>action) is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest can require consideration of a number of complex factorsand it imposes a burden of proof on <strong>the</strong> advocate of <strong>the</strong> action. Flaws <strong>in</strong> <strong>the</strong> argument or <strong>the</strong>outcome can rebound upon <strong>the</strong> reputation of <strong>the</strong> advocate, which will harm acceptance offuture matters asserted to be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. Alternative means of justification may bepreferable, where much of <strong>the</strong> <strong>public</strong> is scoped out, or can opt out.Matters to consider when decid<strong>in</strong>g whe<strong>the</strong>r to use a <strong>public</strong> <strong>in</strong>terest justification <strong>in</strong>clude:• <strong>the</strong> purpose of seek<strong>in</strong>g to <strong>in</strong>voke <strong>the</strong> <strong>public</strong> <strong>in</strong>terest;• whe<strong>the</strong>r <strong>the</strong> matter is really <strong>in</strong>tended to be <strong>for</strong> <strong>the</strong> benefit of society, as represented by <strong>the</strong>relevant <strong>public</strong> – this will <strong>in</strong>volve a wide section of <strong>the</strong> <strong>public</strong>, whe<strong>the</strong>r <strong>the</strong>y like it or not;• whe<strong>the</strong>r <strong>the</strong> locus or remit of <strong>the</strong> advocate of <strong>the</strong> action permits or requires a <strong>public</strong><strong>in</strong>terest perspective; and• whe<strong>the</strong>r political or o<strong>the</strong>r practical considerations are likely to result <strong>in</strong> a sub-optimaloutcome <strong>for</strong>m a <strong>public</strong> <strong>in</strong>terest perspective.Even if <strong>the</strong> issue is not a <strong>public</strong> <strong>in</strong>terest matter, <strong>the</strong> <strong>framework</strong> may still be useful to thoseadvocat<strong>in</strong>g an action that impacts upon a fairly wide group of people, but <strong>the</strong> justification usedshould fit <strong>the</strong> purpose.It is important to consider whe<strong>the</strong>r <strong>the</strong> likely debate would be about what is <strong>in</strong> <strong>the</strong> <strong>public</strong><strong>in</strong>terest: it may <strong>in</strong>stead be about different expectations of what is likely to happen <strong>in</strong> <strong>the</strong> future.Applicability of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest31
5. THE RELEVANT PUBLICConsideration of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest must mean be<strong>in</strong>g open to tak<strong>in</strong>g<strong>in</strong>to account <strong>the</strong> <strong>in</strong>terests of <strong>the</strong> global <strong>public</strong>.However, as a practical matter, not everyone will actually be affectedby <strong>the</strong> matter at hand. Who is relevant to be taken <strong>in</strong>to consideration?Who is not relevant?Credentials <strong>for</strong><strong>in</strong>vok<strong>in</strong>g <strong>the</strong><strong>public</strong> <strong>in</strong>terestImplementationApplicability of<strong>the</strong> <strong>public</strong><strong>in</strong>terestAggregation anddecision<strong>Act<strong>in</strong>g</strong> <strong>in</strong><strong>the</strong> <strong>public</strong><strong>in</strong>terestThe relevant<strong>public</strong>Constra<strong>in</strong>ts towantsThe relevant<strong>public</strong>’s wants
5. THE RELEVANT PUBLIC5.1 ScopeIn our view, <strong>the</strong> whole of <strong>the</strong> <strong>public</strong> must be eligible <strong>for</strong> consideration <strong>in</strong> respect of a matterwhich is asserted to be of <strong>public</strong> <strong>in</strong>terest, by its very nature. However, as a practical po<strong>in</strong>t,<strong>the</strong>re will be large numbers of people whose welfare will not actually be affected by <strong>the</strong>action.To argue that <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is be<strong>in</strong>g considered must mean that <strong>the</strong> <strong>in</strong>terests of <strong>the</strong> whole<strong>public</strong> are be<strong>in</strong>g taken <strong>in</strong>to account, that is to say, everyone <strong>in</strong> society, and we start with <strong>the</strong>view that society should be considered <strong>in</strong> terms of <strong>the</strong> global community as a whole (discussedfur<strong>the</strong>r below). Any lesser consideration needs a caveat. For example, just because a regulator’sremit requires it to concentrate on <strong>the</strong> <strong>in</strong>terests of <strong>in</strong>vestors does not make <strong>the</strong> consideration a<strong>public</strong> <strong>in</strong>terest one, even if a lot of <strong>the</strong> <strong>public</strong> have <strong>in</strong>vestments: it makes it an <strong>in</strong>vestor <strong>in</strong>terestconsideration, even though o<strong>the</strong>rs may benefit peripherally. This high hurdle is not proposedthrough any desire to deem matters that affect only a few people as not be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong><strong>in</strong>terest. It is more that, as discussed previously, to argue that someth<strong>in</strong>g is a <strong>public</strong> <strong>in</strong>terestmatter imposes a considerable burden of proof on <strong>the</strong> proponent of <strong>the</strong> action and o<strong>the</strong>rarguments might be more appropriate.Panel 5.1: Charities and <strong>public</strong> benefitThere are differ<strong>in</strong>g views as to <strong>the</strong> nature of ‘<strong>the</strong> <strong>public</strong>’. For example, <strong>the</strong> CharityCommission <strong>for</strong> England and Wales requires charities registered with it to have charitableaims that are <strong>for</strong> <strong>the</strong> <strong>public</strong> benefit and to report on how <strong>the</strong>y do benefit <strong>the</strong> <strong>public</strong>.The Commission does permit restriction of benefits to a section of society under certa<strong>in</strong>circumstances: ‘The restriction must be reasonable and, if it is, <strong>the</strong>n it is accepted that societyas a whole benefits by help<strong>in</strong>g that section of society.’‘The <strong>public</strong> benefit’ is not def<strong>in</strong>ed but guidance is given about <strong>the</strong> nature of <strong>the</strong> restrictions,examples <strong>in</strong>clud<strong>in</strong>g:• preserv<strong>in</strong>g an endangered species, which would be regarded as acceptable as it is<strong>in</strong>tended to benefit everyone;• provision of a village hall would be reasonable, provided it was available to all – although<strong>in</strong> practice only those locally would be likely to benefit;• provision of benefits <strong>for</strong> women would be reasonable assum<strong>in</strong>g <strong>the</strong> aims were, saywomen’s health issues; and• provision of a bridge <strong>for</strong> Methodists only would not be reasonable as <strong>the</strong> restrictionwould have no justification based on special need. 94Our proposal above of a need <strong>for</strong> potentially unrestricted scope would suggest a narroweracceptance of what a <strong>public</strong> <strong>in</strong>terest matter is than <strong>the</strong> Charity Commission’s <strong>public</strong> benefittest. The village hall example was discussed fur<strong>the</strong>r <strong>in</strong> Section 4.3.Hav<strong>in</strong>g started with an unrestricted scope, <strong>in</strong> practice not all of <strong>the</strong> <strong>public</strong> will actually havean <strong>in</strong>terest <strong>in</strong> <strong>the</strong> matter at hand. There<strong>for</strong>e, as a practical measure <strong>in</strong> terms of work<strong>in</strong>g outwho actually needs to be considered, <strong>the</strong> ‘relevant’ <strong>public</strong> needs to be determ<strong>in</strong>ed. The relevant<strong>public</strong> will <strong>in</strong>clude:• those who benefit or are disadvantaged; and• o<strong>the</strong>rs who might have a legitimate <strong>in</strong>terest.94The Charity Commission <strong>for</strong> England and Wales, Charities and Public Benefit.34 The relevant <strong>public</strong>
5.2 Degrees of effectIn practice it is not usually necessary <strong>for</strong> <strong>the</strong> advocate of a <strong>public</strong> <strong>in</strong>terest action to consider<strong>the</strong> detailed effect on <strong>the</strong> whole population of <strong>the</strong> world or <strong>the</strong>ir views. Everyone may have anop<strong>in</strong>ion but <strong>the</strong> extent to which that op<strong>in</strong>ion needs to be considered will vary: <strong>in</strong> many casesit will be clear that only certa<strong>in</strong> people will be affected. However, often <strong>the</strong>re will be differentdegrees of effect and ignor<strong>in</strong>g those who are not affected is different from ignor<strong>in</strong>g those whoare marg<strong>in</strong>ally affected. An airport, <strong>for</strong> example, might be located <strong>in</strong> one local authority area,its flight paths may directly affect <strong>the</strong> citizens of a different area, its facilities could be usedby bus<strong>in</strong>esses and passengers from a whole region, and, arguably, its general environmentalimpact would be on a much wider area still. People <strong>in</strong> <strong>the</strong>se different areas are clearly affectedto different degrees and that will contribute to <strong>the</strong>ir be<strong>in</strong>g likely to have completely differentperspectives on whe<strong>the</strong>r <strong>the</strong> airport should be expanded. Whose <strong>in</strong>terest is to be considered?• Everyone with an op<strong>in</strong>ion?• Everyone who might be impacted?• Everyone who will be impacted?• Those who are significantly and directly impacted?• Those to whom <strong>the</strong>re is a legal responsibility?If some who might be affected are ignored altoge<strong>the</strong>r, <strong>the</strong>n <strong>the</strong> <strong>public</strong> <strong>in</strong>terest has not beenconsidered. That does not mean to say that some weight<strong>in</strong>g cannot be applied. This isconsidered fur<strong>the</strong>r below.Panel 5.2: <strong>ICAEW</strong> and <strong>the</strong> relevant <strong>public</strong>We have suggested above that to say that <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is be<strong>in</strong>g considered must meanthat <strong>the</strong> <strong>in</strong>terests of <strong>the</strong> whole <strong>public</strong> are be<strong>in</strong>g taken <strong>in</strong>to account. <strong>ICAEW</strong>’s version of <strong>the</strong>Code of Ethics <strong>in</strong>cludes additional explanatory word<strong>in</strong>g to that of IESBA: ‘<strong>Act<strong>in</strong>g</strong> <strong>in</strong> <strong>the</strong> <strong>public</strong><strong>in</strong>terest <strong>in</strong>volves hav<strong>in</strong>g regard to <strong>the</strong> legitimate <strong>in</strong>terests of clients, government, f<strong>in</strong>ancial<strong>in</strong>stitutions, employers, employees, <strong>in</strong>vestors, <strong>the</strong> bus<strong>in</strong>ess and f<strong>in</strong>ancial community ando<strong>the</strong>rs who rely upon <strong>the</strong> objectivity and <strong>in</strong>tegrity of <strong>the</strong> accountancy profession to support<strong>the</strong> propriety and orderly function<strong>in</strong>g of commerce’. 95In practical terms, nei<strong>the</strong>r <strong>ICAEW</strong> nor its members can solicit <strong>the</strong> op<strong>in</strong>ions of everyone <strong>in</strong> <strong>the</strong>world so <strong>the</strong> key word <strong>the</strong>re is ‘legitimate’: who is likely to have (or should have) a reasonable<strong>in</strong>terest <strong>in</strong> <strong>the</strong> matter at hand?For <strong>ICAEW</strong> itself, its members are those to whom it, as an organisation, is most directlyaccountable. However, <strong>the</strong>re is a much wider set of people that both <strong>ICAEW</strong> and its memberswill often need to consider. As is evident <strong>in</strong> <strong>the</strong> discussion <strong>in</strong> Panel 2.4 on our history andobjectives, a prime purpose <strong>for</strong> our existence is <strong>the</strong> ma<strong>in</strong>tenance of high standards so thatthose who rely on <strong>the</strong> work of <strong>ICAEW</strong> Chartered Accountants can have confidence <strong>in</strong> <strong>the</strong>work <strong>the</strong>y do. All members of <strong>ICAEW</strong> <strong>the</strong>re<strong>for</strong>e have an <strong>in</strong>terest <strong>in</strong> what <strong>the</strong>ir fellow membersdo: each has a duty to o<strong>the</strong>r members of <strong>the</strong> body to act <strong>in</strong> a way which preserves <strong>the</strong>ircollective reputation – a powerful requirement given its importance.Similarly, <strong>the</strong>re can be o<strong>the</strong>r people with a direct <strong>in</strong>terest <strong>in</strong> <strong>the</strong> work of our members, ra<strong>the</strong>rthan that of <strong>ICAEW</strong> itself. This will vary by type of work. For example, <strong>for</strong> audit work <strong>the</strong><strong>in</strong>vestors and <strong>the</strong> regulators that governments have set up to safeguard <strong>the</strong>ir <strong>in</strong>terests havea direct <strong>in</strong>terest <strong>in</strong> one way or ano<strong>the</strong>r. On a more <strong>in</strong>direct basis everyone has an <strong>in</strong>terest <strong>in</strong><strong>the</strong> smooth function<strong>in</strong>g of capital markets that quality audits facilitate.In o<strong>the</strong>r areas, <strong>the</strong>re is less rationale <strong>for</strong>, say, regulators of a specific type of work, to bedirectly relevant. For example, to whom does a professional accountant <strong>in</strong> practice, advis<strong>in</strong>ga private company, or one work<strong>in</strong>g <strong>in</strong> bus<strong>in</strong>ess owe a duty to, o<strong>the</strong>r than his or her client/employer and his or her fellow professionals? The answer, based on <strong>the</strong> background to <strong>the</strong>profession discussed above, would always seem to <strong>in</strong>clude <strong>the</strong> general <strong>public</strong>. However, isthis wider duty any more specific than to comply with <strong>the</strong> law and <strong>the</strong> Code of Ethics?Occasionally a conflict may arise: a <strong>for</strong>mer <strong>ICAEW</strong> president has observed that <strong>the</strong>re is anargument that ‘members can’t have a <strong>public</strong> <strong>in</strong>terest role because <strong>the</strong>y work <strong>for</strong> clients and,like commercial bus<strong>in</strong>esses, are motivated by seek<strong>in</strong>g to generate <strong>in</strong>come’. However, he alsonoted that this argument fails to recognise that ‘it is <strong>the</strong> attitude of m<strong>in</strong>d that charteredaccountants br<strong>in</strong>g to <strong>the</strong>ir work, ra<strong>the</strong>r than <strong>public</strong> spirited deeds, that ensures <strong>the</strong>y areact<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’. 9695<strong>ICAEW</strong>, The Code of Ethics.96Russell, ‘What is <strong>the</strong> Public Interest?’The relevant <strong>public</strong>35
5.3 Geographical exclusionsGeographical remit issues may also narrow <strong>the</strong> range: <strong>for</strong> <strong>in</strong>stance while governments haveto bear <strong>in</strong> m<strong>in</strong>d <strong>in</strong>ternational relations, when <strong>the</strong>y say ‘<strong>the</strong> <strong>public</strong> <strong>in</strong>terest’ <strong>the</strong>y are usually notgo<strong>in</strong>g beyond <strong>the</strong> <strong>public</strong> of <strong>the</strong>ir own country, to whom <strong>the</strong>y are accountable. An exampleof this perspective is a def<strong>in</strong>ition of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, albeit caveated that <strong>the</strong> <strong>public</strong> <strong>in</strong>terestis a ‘mercurial concept’, <strong>in</strong> a report on legal services regulation <strong>in</strong> <strong>the</strong> UK: ‘an aggregation of<strong>the</strong> <strong>in</strong>dividual and corporate <strong>in</strong>terests of everyone with<strong>in</strong> a given territory [bold added <strong>for</strong>emphasis] with<strong>in</strong> which it must be <strong>the</strong> role of government and its agencies to arbitrate as andwhen those <strong>in</strong>terests conflict or collide.’ 97This simplifies matters where <strong>the</strong> government deems itself to be able to determ<strong>in</strong>e what is <strong>in</strong><strong>the</strong> national <strong>in</strong>terest – discussed fur<strong>the</strong>r <strong>in</strong> Section 9.2.1. Strictly though, <strong>in</strong> a world <strong>in</strong>creas<strong>in</strong>glygiven to global <strong>in</strong>teraction, a <strong>public</strong> <strong>in</strong>terest def<strong>in</strong>ed by borders would not be <strong>the</strong> whole <strong>public</strong>of <strong>the</strong> world: it should be considered to be <strong>the</strong> national <strong>in</strong>terest ra<strong>the</strong>r than <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.The approach to <strong>analysis</strong> would be similar but it helps to be clear to avoid confusion.5.4 Interest and op<strong>in</strong>ionThe relevant <strong>public</strong> will not <strong>in</strong>clude those who are only <strong>in</strong>terested <strong>in</strong> <strong>the</strong> sense of f<strong>in</strong>d<strong>in</strong>g <strong>the</strong>subject fasc<strong>in</strong>at<strong>in</strong>g. That is a different sense of <strong>in</strong>terest and not directly what <strong>the</strong> <strong>public</strong> <strong>in</strong>terest,<strong>in</strong> <strong>the</strong> sense of be<strong>in</strong>g <strong>for</strong> <strong>the</strong> greater good, is about.That is not to say that popular op<strong>in</strong>ion is not relevant: it is and is considered fur<strong>the</strong>r below.However, that is about <strong>the</strong> <strong>public</strong>’s thoughts on a matter that is a <strong>public</strong> <strong>in</strong>terest matter, notabout whe<strong>the</strong>r <strong>the</strong> <strong>public</strong>’s <strong>in</strong>terest makes it a <strong>public</strong> <strong>in</strong>terest matter.The <strong>ICAEW</strong> Code of Ethics specifically refers to consideration of legitimate <strong>in</strong>terests (Panel 5.2).In addition, standards such as those of IESBA, <strong>in</strong> <strong>the</strong>ir codes of ethics refer to perception of a‘reasonable and <strong>in</strong><strong>for</strong>med third party’. 985.5 RepresentativesWho is considered to be relevant may not be obvious, particularly if that set is not <strong>the</strong> whole<strong>public</strong>. It is important <strong>for</strong> <strong>the</strong>re to be transparency to ensure that those who might have beenomitted from consideration, but believe <strong>the</strong>y are relevant, have <strong>the</strong> opportunity to expla<strong>in</strong> why.In addition <strong>the</strong>re can be a difference between those who ‘can’ affect someth<strong>in</strong>g and those witha legitimate <strong>in</strong>terest <strong>in</strong> affect<strong>in</strong>g it. The latter have a <strong>the</strong>oretically stronger case and this needsto be considered carefully, although <strong>the</strong> boundaries can blur. For example, charities or lobbygroups can often be set up by someone with no obvious direct <strong>in</strong>terest at all, but if <strong>the</strong>y attractenough support from those who are affected (which is different from merely purport<strong>in</strong>g tospeak <strong>for</strong> <strong>the</strong>m), <strong>the</strong>y become <strong>the</strong>ir representatives and thus relevant <strong>in</strong> <strong>the</strong>ir own right.5.6 Chapter summaryThe whole of <strong>the</strong> <strong>public</strong> must be eligible <strong>for</strong> consideration <strong>in</strong> respect of a matter which isasserted to be of <strong>public</strong> <strong>in</strong>terest, by its very nature. However, as a practical po<strong>in</strong>t, <strong>the</strong>re will belarge numbers of people whose welfare will not actually be affected by <strong>the</strong> action.The relevant <strong>public</strong> will <strong>the</strong>re<strong>for</strong>e only be a sub-set of <strong>the</strong> whole <strong>public</strong>: first, those whosewelfare will be advantaged or disadvantaged, although this is not always clear-cut; also, o<strong>the</strong>rswith a legitimate <strong>in</strong>terest, <strong>for</strong> example NGOs, representative bodies and o<strong>the</strong>rs with a mandateto speak on behalf of people who are affected. With<strong>in</strong> <strong>the</strong> relevant <strong>public</strong> <strong>the</strong>re will also bedegrees of impact, which may be relevant <strong>in</strong> determ<strong>in</strong><strong>in</strong>g how to weight views.The relevant <strong>public</strong> will not <strong>in</strong>clude those whose <strong>in</strong>terest merely lies <strong>in</strong> f<strong>in</strong>d<strong>in</strong>g someth<strong>in</strong>g<strong>in</strong>terest<strong>in</strong>g. That is a different mean<strong>in</strong>g of <strong>in</strong>terest altoge<strong>the</strong>r.This chapter also considered who <strong>the</strong> relevant <strong>public</strong> can be from <strong>ICAEW</strong>’s perspective.Depend<strong>in</strong>g on <strong>the</strong> circumstances, those most directly affected will often <strong>in</strong>clude: members;clients and employers; <strong>in</strong>vestors; and regulators. It can <strong>in</strong>clude <strong>the</strong> whole of <strong>the</strong> <strong>public</strong> where,<strong>for</strong> example, <strong>the</strong> smooth runn<strong>in</strong>g of capital markets is concerned.97Lord Hunt of Wirral, The Hunt Review of <strong>the</strong> Regulation of Legal Services.98International Ethics Standards Board <strong>for</strong> Accountants, Code of Ethics.36The relevant <strong>public</strong>
6. THE RELEVANT PUBLIC’S WANTSPublic op<strong>in</strong>ion must be relevant <strong>in</strong> consider<strong>in</strong>g what is required <strong>in</strong><strong>the</strong> <strong>public</strong> <strong>in</strong>terest. However, different people arrive at decisionsapply<strong>in</strong>g different sets of values and perspectives and <strong>the</strong>re will notbe a uni<strong>for</strong>m view.What are <strong>the</strong> roles of <strong>public</strong> op<strong>in</strong>ion, <strong>public</strong> needs and <strong>public</strong> wants?How are <strong>the</strong> relevant <strong>public</strong>’s wants and needs best assessed?Credentials <strong>for</strong><strong>in</strong>vok<strong>in</strong>g <strong>the</strong><strong>public</strong> <strong>in</strong>terestImplementationApplicability of<strong>the</strong> <strong>public</strong><strong>in</strong>terestAggregation anddecision<strong>Act<strong>in</strong>g</strong> <strong>in</strong><strong>the</strong> <strong>public</strong><strong>in</strong>terestThe relevant<strong>public</strong>Constra<strong>in</strong>ts towantsThe relevant<strong>public</strong>’s wants
6. THE RELEVANT PUBLIC’S WANTS6.1 Public op<strong>in</strong>ionIn our view, <strong>the</strong> start<strong>in</strong>g po<strong>in</strong>t <strong>in</strong> any <strong>public</strong> <strong>in</strong>terest consideration is what <strong>the</strong> relevant <strong>public</strong>wants. Popular op<strong>in</strong>ion must be relevant <strong>in</strong> consider<strong>in</strong>g what is required <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.We argue that <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is not an absolute value, but a variable that depends, amongo<strong>the</strong>r th<strong>in</strong>gs, on po<strong>in</strong>ts of view. Different people arrive at decisions apply<strong>in</strong>g different sets ofvalues and perspectives and <strong>the</strong>re will not be a uni<strong>for</strong>m view. The ‘weight of <strong>public</strong> op<strong>in</strong>ion’is ano<strong>the</strong>r way of say<strong>in</strong>g ‘<strong>the</strong> majority view’ and, particularly <strong>in</strong> a democracy, <strong>the</strong> view of <strong>the</strong>majority must prevail to avoid dictatorship by <strong>the</strong> few. 99 There will be occasions when thatview needs to be tempered or adjusted: <strong>the</strong> <strong>public</strong>’s wants may be based on <strong>in</strong>complete orerroneous <strong>in</strong><strong>for</strong>mation and <strong>the</strong>re may be o<strong>the</strong>r constra<strong>in</strong>ts to those wants that need to be taken<strong>in</strong>to consideration (<strong>in</strong>deed sometimes core values may need to be <strong>the</strong> start<strong>in</strong>g po<strong>in</strong>t). These areconsidered <strong>in</strong> Chapter 7 but overrid<strong>in</strong>g wants needs to be transparent and justified. In <strong>the</strong> longterm <strong>the</strong> actual wants may become aligned with <strong>the</strong> ‘adjusted wants’ but if not, reputation andultimately remit to act will suffer.Panel 6.1: Historical perspective on <strong>public</strong> op<strong>in</strong>ionPublic op<strong>in</strong>ion, which might extend beyond those with an immediate <strong>in</strong>terest, has waxedand waned <strong>in</strong> importance <strong>in</strong> terms of <strong>in</strong>fluenc<strong>in</strong>g policy.From a European perspective it rose <strong>in</strong> importance dur<strong>in</strong>g <strong>the</strong> seventeenth and eighteenthcenturies due to a number of factors:• <strong>the</strong> abolition of censorship as a result of, <strong>for</strong> example, <strong>the</strong> lapse of <strong>the</strong> Licens<strong>in</strong>g Order<strong>in</strong> England <strong>in</strong> 1689;• <strong>the</strong> decl<strong>in</strong>e of <strong>in</strong>dividual royal or aristocratic patronage; and• <strong>the</strong> rise <strong>in</strong> literacy among <strong>the</strong> middle classes <strong>in</strong> particular, who congregated <strong>in</strong> coffeehouses, salons and read<strong>in</strong>g circles. 100The rise <strong>in</strong> <strong>public</strong> debt <strong>in</strong>, <strong>for</strong> example, France <strong>in</strong> <strong>the</strong> eighteenth century meant that <strong>the</strong><strong>public</strong> had to be taken note of. 101Views have also differed, affected no doubt by <strong>the</strong> differ<strong>in</strong>g natures of <strong>the</strong> surround<strong>in</strong>gsocieties, as to whe<strong>the</strong>r popular op<strong>in</strong>ion was someth<strong>in</strong>g that should be used to shape policyor moulded to appreciate policy. The latter is considered fur<strong>the</strong>r below.Condorcet, <strong>for</strong> example, favoured education to avoid <strong>the</strong> ‘philosophical errors’ that he thoughtwere responsible <strong>for</strong> ‘all errors <strong>in</strong> government and <strong>in</strong> society’. Metternich saw only ‘preposterousfolly’ <strong>in</strong> consider<strong>in</strong>g <strong>public</strong> op<strong>in</strong>ion. Cann<strong>in</strong>g on <strong>the</strong> o<strong>the</strong>r hand believed it was ‘a power moretremendous than was perhaps ever yet brought <strong>in</strong>to action <strong>in</strong> <strong>the</strong> history of mank<strong>in</strong>d.’ 102In <strong>the</strong> long term, all governments are accountable to <strong>public</strong> op<strong>in</strong>ion but <strong>the</strong> widen<strong>in</strong>g of<strong>the</strong> electoral franchise <strong>in</strong> many countries over <strong>the</strong> n<strong>in</strong>eteenth and, particularly, twentiethcenturies, to create more democratic <strong>in</strong>stitutions brought more immediacy to <strong>the</strong> role ofpopular op<strong>in</strong>ion <strong>in</strong> shap<strong>in</strong>g government policies.6.2 Public needs and wantsPreviously we considered a historical perspective on <strong>the</strong> development of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.This evolved <strong>in</strong>to a set of state <strong>in</strong>terventions to ensure certa<strong>in</strong> basic standards that allowedpeople to go about <strong>the</strong>ir bus<strong>in</strong>ess. There has been no shortage of writ<strong>in</strong>gs at least touch<strong>in</strong>g on<strong>the</strong> extent and role of <strong>in</strong>terventions needed. The recurr<strong>in</strong>g requirements can be summarised thus:99Prout, ‘Public Op<strong>in</strong>ion and <strong>the</strong> Public Interest’.100Speier, ‘Historical Development of Public Op<strong>in</strong>ion’.101Acton, referred to <strong>in</strong> Speier, ibid.102All quoted <strong>in</strong> Speier, ibid.38The relevant <strong>public</strong>’s wants
• defend <strong>the</strong> right to pursue material self-<strong>in</strong>terest without unnecessary restriction, 103<strong>in</strong>clud<strong>in</strong>g allow<strong>in</strong>g <strong>for</strong>ms of comb<strong>in</strong>ation through <strong>for</strong> example corporate <strong>for</strong>ms; 104• defend life, liberty and property 105 <strong>in</strong>clud<strong>in</strong>g <strong>in</strong>tellectual property rights; 106• protect private <strong>in</strong>terests by unit<strong>in</strong>g to <strong>in</strong>sure, more effectively, life, health, liberty orpossessions; 107• arbitrate <strong>in</strong> conflicts; 108• en<strong>for</strong>ce m<strong>in</strong>imum standards of, <strong>for</strong> example competition 109 or professionalism; 110• promote openness to allow <strong>in</strong>dividuals to make appropriate decisions; 111 and• promote stability and openness to pluralism, which necessitates a conducive politicalstructure. 112This is not <strong>in</strong>consistent with <strong>the</strong> causes of <strong>the</strong> historical <strong>in</strong>terventions considered <strong>in</strong> Chapter 2.However, <strong>the</strong>se are but a part of what people want. One strand of argument as to whatmotivates people has been advanced over a lengthy period of time to be ‘happ<strong>in</strong>ess’, albeitwith slightly different use of words:• Aristotle argued that <strong>the</strong> common <strong>in</strong>terest was an <strong>in</strong>terest <strong>in</strong> <strong>the</strong> atta<strong>in</strong>ment of a good life. 113• Bentham, over 2,000 years later, observed that people are driven by two masters, pa<strong>in</strong>and pleasure. Thus <strong>in</strong>dividuals ga<strong>in</strong> utility where someth<strong>in</strong>g ‘tends to produce benefit,advantage, pleasure, good, or happ<strong>in</strong>ess (all this <strong>in</strong> <strong>the</strong> present case comes to <strong>the</strong> sameth<strong>in</strong>g) or (what comes aga<strong>in</strong> to <strong>the</strong> same th<strong>in</strong>g) to prevent <strong>the</strong> happen<strong>in</strong>g of mischief,pa<strong>in</strong>, evil, or unhapp<strong>in</strong>ess’. 114• A much more recent <strong>analysis</strong> argues along related l<strong>in</strong>es: happ<strong>in</strong>ess is <strong>the</strong> sole goal ofhuman activity ‘because it is our overall motivational device’. What makes us happy is acomb<strong>in</strong>ation of subjective factors: good family relationships; a sound f<strong>in</strong>ancial situation;work; a trustworthy community; freedom from chronic pa<strong>in</strong> and mental illness; andpersonal liberty. 115Government policy tends to concentrate on material prosperity and freedom, which fits <strong>in</strong>with eighteenth century suggestions that <strong>the</strong> whole po<strong>in</strong>t was <strong>the</strong> achievement of ‘a great andprosperous society’ 116 . A more recent consideration broadened this out to <strong>the</strong> ‘realisation ofsocial and political goals of <strong>the</strong> community at large’ 117 which might mean someth<strong>in</strong>g different,if society’s goals are o<strong>the</strong>r than greatness and prosperity.Indeed, <strong>the</strong> above <strong>analysis</strong> suggests this is not what people concentrate upon exclusively.Thus measures of, <strong>for</strong> example, Gross Domestic Product, do not tell <strong>the</strong> full story. 118 The issueis complicated by our material wants be<strong>in</strong>g relative and our desire <strong>for</strong> th<strong>in</strong>gs that matter suchas security, be<strong>in</strong>g able to trust, and hav<strong>in</strong>g good relationships, which are not easy to measure.6.2.1 What matters to peopleThere are a number of models list<strong>in</strong>g around half a dozen or so factors that matter to people <strong>in</strong>terms of determ<strong>in</strong><strong>in</strong>g <strong>the</strong>ir happ<strong>in</strong>ess.One example suggests <strong>the</strong> follow<strong>in</strong>g factors:• family relationships, such as marriage quality and stability;• f<strong>in</strong>ancial situation;103Wilmott, quoted <strong>in</strong> The Accountancy Foundation Review Board, Protect<strong>in</strong>g <strong>the</strong> Public Interest.104Kay, The Truth About Markets.105Partridge, ‘Conscience of a Progressive’.106Kay, The Truth About Markets.107Locke, quoted <strong>in</strong> Faulhaber, ‘The Rise and Fall of “Self Interest”’.108Faulhaber, ibid.109Wise, ‘Review of Competition Law and Policy <strong>in</strong> <strong>the</strong> United K<strong>in</strong>gdom’.110The Accountancy Foundation Review Board, Protect<strong>in</strong>g <strong>the</strong> Public Interest.111The Accountancy Foundation Review Board, ibid, Watts and Zimmerman, ‘The Demand <strong>for</strong> and Supply of Account<strong>in</strong>g Theories:The Market <strong>for</strong> Excuses’.112Kay, The Truth About Markets.113Aristotle quoted <strong>in</strong> The Accountancy Foundation Review Board, Protect<strong>in</strong>g <strong>the</strong> Public Interest.114Bentham, An Introduction to <strong>the</strong> Pr<strong>in</strong>ciples of Morals and Legislation.115Layard, Happ<strong>in</strong>ess – Lessons From a New Science.116Faulhaber, ‘The Rise and Fall of ‘Self Interest’, quot<strong>in</strong>g Smith and Mandeville.117The Accountancy Foundation Review Board, Protect<strong>in</strong>g <strong>the</strong> Public Interest.118Considered fur<strong>the</strong>r <strong>in</strong> Section 7.2.2.The relevant <strong>public</strong>’s wants39
• work, that is hav<strong>in</strong>g some, hav<strong>in</strong>g some control and be<strong>in</strong>g fulfilled. Unemployment and fearof that is negative;• community and friends, which relates to trust;• health, where positive health does not matter so much but chronic pa<strong>in</strong> and mental illnessare severe negatives;• personal freedom, where higher local democracy helps; and• personal values, such as religious belief, concern <strong>for</strong> o<strong>the</strong>rs, and hav<strong>in</strong>g atta<strong>in</strong>able goals. 119Ano<strong>the</strong>r lists:• economic well-be<strong>in</strong>g;• political freedom;• personal freedom;• social mobility;• health; and• safety. 120The UK government consulted at <strong>the</strong> end of 2010 on how to measure national ‘well-be<strong>in</strong>g’.The consultation suggested that this would <strong>in</strong>clude subjective measures around satisfaction,happ<strong>in</strong>ess and purpose, as well as more conventional objective measures. The report on<strong>the</strong> responses <strong>in</strong>dicated f<strong>in</strong>d<strong>in</strong>gs <strong>in</strong> l<strong>in</strong>e with <strong>the</strong> models above: ‘The results show that whiledifferent th<strong>in</strong>gs matter to different people, and vary at different stages of life, <strong>the</strong>re are somecommon <strong>the</strong>mes. These <strong>in</strong>clude:• <strong>the</strong> importance of our health to our well-be<strong>in</strong>g;• <strong>the</strong> importance of hav<strong>in</strong>g adequate <strong>in</strong>come or wealth to cover basic needs;• <strong>the</strong> environment around us, and <strong>the</strong> need to connect with o<strong>the</strong>r people – whe<strong>the</strong>rpartners, children, wider family, <strong>the</strong> community (local, national, faith and onl<strong>in</strong>e), orwork colleagues’. 121These various models and f<strong>in</strong>d<strong>in</strong>gs can be summarised as; material and physical security;relationships; health; freedom; and value beliefs. These make an <strong>in</strong>terest<strong>in</strong>g comparison with<strong>the</strong> purposes of <strong>the</strong> state <strong>in</strong>terventions <strong>in</strong> Section 6.2 above. Comb<strong>in</strong><strong>in</strong>g <strong>the</strong> two seems tosuggest that wants and needs could be summarised as:• freedom to go about your affairs;• defend<strong>in</strong>g private <strong>in</strong>terests;• defend<strong>in</strong>g health and basic liv<strong>in</strong>g standards; and• preservation of core values.In short, at a wider level what people want is complex and cannot necessarily be presumed.6.3 Compatibility of <strong>the</strong> action with overall <strong>public</strong> wantsThere is an argument that matters of <strong>public</strong> <strong>in</strong>terest should be restricted to significant issuesperta<strong>in</strong><strong>in</strong>g to society – <strong>for</strong> example, one ‘articulation’ of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest <strong>in</strong> connection with(but not restricted to) legal services regulation: ‘The <strong>public</strong> <strong>in</strong>terest concerns objectives andactions <strong>for</strong> <strong>the</strong> collective benefit and good of <strong>the</strong> current and future citizens <strong>in</strong> achiev<strong>in</strong>g andma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g those fundamentals of society that are regarded by <strong>the</strong>m as essential to <strong>the</strong>ircommon security and well-be<strong>in</strong>g, and to <strong>the</strong>ir legitimate participation <strong>in</strong> society’ [bold<strong>in</strong>serted <strong>for</strong> emphasis]. 122The goals under consideration at any po<strong>in</strong>t may not be strategic: <strong>the</strong>y can be quite detailed,<strong>for</strong> example m<strong>in</strong>imis<strong>in</strong>g <strong>in</strong>convenience. It is useful as a sense check to consider how <strong>the</strong> specificwants fit <strong>in</strong> with <strong>the</strong> <strong>public</strong>’s overall apparent wants, as discussed above.119Layard, Happ<strong>in</strong>ess – Lessons From a New Science.120Desk<strong>in</strong>s, ‘On <strong>the</strong> Nature of <strong>the</strong> Public Interest’.121Office <strong>for</strong> National Statistics, Measur<strong>in</strong>g National Well-Be<strong>in</strong>g, Measur<strong>in</strong>g what matters.122Mayson, Legal Services Regulation and The Public Interest.40The relevant <strong>public</strong>’s wants
Panel 6.2: The need <strong>for</strong> more £5 notesA small example of where <strong>in</strong>tervention might have been <strong>for</strong> <strong>the</strong> greater good but <strong>in</strong> adetailed context is from 2007 when <strong>the</strong> Governor of <strong>the</strong> Bank of England commented on <strong>the</strong>shortage of £5 notes <strong>in</strong> circulation <strong>in</strong> <strong>the</strong> UK. 123 This is widely attributed to <strong>the</strong> fact that cashis now largely drawn from bank ATMs. Banks, to m<strong>in</strong>imise cost, stock <strong>the</strong> ATMs with £20 and£10 notes, but <strong>the</strong> net effect is that <strong>the</strong>re are relatively few £5 notes <strong>in</strong> circulation, lead<strong>in</strong>gto people hav<strong>in</strong>g to carry larger numbers of co<strong>in</strong>s around <strong>the</strong>n <strong>the</strong>y would like. Here is an<strong>in</strong>stance where rational self-<strong>in</strong>terest has led to <strong>public</strong> <strong>in</strong>convenience.6.4 Establish<strong>in</strong>g representative op<strong>in</strong>ionAs noted <strong>in</strong> Chapter 5, <strong>the</strong> whole of <strong>the</strong> <strong>public</strong> may not be relevant to <strong>the</strong> issue <strong>in</strong> question.Where <strong>the</strong>re is a narrow range of people with legitimate <strong>in</strong>terests (<strong>for</strong> example <strong>in</strong> mostprivate companies) or <strong>the</strong> issue is a very simple, specific one, such as <strong>the</strong> example of <strong>the</strong>£5 notes above, <strong>the</strong> determ<strong>in</strong>ation of what <strong>the</strong>y want is quite easy. However, where <strong>the</strong>relevant <strong>public</strong> <strong>in</strong>cludes all or most of <strong>the</strong> <strong>public</strong> at large, and <strong>the</strong> issue is a more widelydrawn one of fur<strong>the</strong>r<strong>in</strong>g <strong>the</strong> <strong>public</strong> <strong>in</strong>terest <strong>in</strong> general, what <strong>the</strong>y want has been shownto be quite complex and perhaps not always understood by governments and o<strong>the</strong>rs tak<strong>in</strong>g<strong>public</strong> <strong>in</strong>terest decisions.6.4.1 Expressed op<strong>in</strong>ionOne of <strong>the</strong> key problems <strong>in</strong> ascerta<strong>in</strong><strong>in</strong>g op<strong>in</strong>ion lies <strong>in</strong> dist<strong>in</strong>guish<strong>in</strong>g what relevant op<strong>in</strong>ionactually is from what it appears to be. Those seek<strong>in</strong>g to assess what relevant <strong>public</strong> op<strong>in</strong>ion iscannot know it <strong>in</strong>st<strong>in</strong>ctively. They must <strong>the</strong>re<strong>for</strong>e seek out such op<strong>in</strong>ion, which is costly and takesknowledge and ef<strong>for</strong>t both on <strong>the</strong> part of those seek<strong>in</strong>g <strong>the</strong> op<strong>in</strong>ion and those deliver<strong>in</strong>g it.Inevitably, <strong>the</strong>re<strong>for</strong>e, <strong>the</strong> op<strong>in</strong>ion on which <strong>the</strong>y will be seek<strong>in</strong>g to act upon will not be complete.It will be expressed op<strong>in</strong>ion, ra<strong>the</strong>r than actual op<strong>in</strong>ion, and <strong>the</strong>re are potential problems with this.First, some groups and <strong>in</strong>dividuals are more articulate or o<strong>the</strong>rwise better at gett<strong>in</strong>g <strong>the</strong>ir op<strong>in</strong>ionsexpressed than o<strong>the</strong>rs through, <strong>for</strong> example, well-organised lobby<strong>in</strong>g, or <strong>the</strong> attraction of <strong>the</strong>mass media to particular types of story. Some matters will unite groups of <strong>in</strong>dividuals withcommon economic, geographic or political <strong>in</strong>terests, <strong>for</strong> example. Lobby groups will advance<strong>the</strong> <strong>in</strong>terests of those who are well funded and organised. Some issues can be, <strong>in</strong> effect, anarrow zero-sum game: a contest <strong>for</strong> ga<strong>in</strong> between one group and ano<strong>the</strong>r. At <strong>the</strong> o<strong>the</strong>r extreme,issues can impact very widely, beyond <strong>the</strong> group(s) <strong>in</strong>volved, and be of a <strong>public</strong> <strong>in</strong>terest nature.A dist<strong>in</strong>ction can be made between different types of groups:• common <strong>in</strong>terest groups, that are wholly <strong>in</strong>ward look<strong>in</strong>g;• representative common <strong>in</strong>terest groups, that also represent <strong>the</strong> <strong>in</strong>terests of <strong>the</strong>ir ownmembers, but o<strong>the</strong>rs outside of <strong>the</strong>se groups may also obta<strong>in</strong> <strong>the</strong> benefits; and• surrogate common <strong>in</strong>terest groups, that represent <strong>the</strong> <strong>in</strong>terests of those beyond <strong>the</strong>irmembership, albeit not necessarily everyone. 124Common <strong>in</strong>terest groups will tend to resist change where <strong>the</strong>ir members benefit from <strong>the</strong>status quo (<strong>for</strong> example trade unions seek<strong>in</strong>g to ma<strong>in</strong>ta<strong>in</strong> restrictive practices) and thus slowdown a society’s ability to benefit from technological and o<strong>the</strong>r change. It has been suggestedthat smaller groups will have disproportionate impact as <strong>the</strong>y can organise <strong>the</strong>mselves better,with social, as well as economic <strong>in</strong>terest cohesion. 125Matters which primarily benefit lobby groups’ own members are less likely to merit <strong>public</strong>support than those which primarily benefit <strong>the</strong> <strong>public</strong> at large.123Larsen, ‘K<strong>in</strong>g’s Call <strong>for</strong> More Fivers Catches Bankers Off Guard’.124Pleasence and Maclean, The Public Interest.125Olson, The Rise and Decl<strong>in</strong>e of Nations: Economic Growth, Stagflation, and Social Rigidities, Beattie, False Economy.The relevant <strong>public</strong>’s wants41
Panel 6.3: Weisbrod’s <strong>public</strong> <strong>in</strong>terest ratioWeisbrod’s ‘<strong>public</strong> <strong>in</strong>terest ratio’ sought to measure <strong>the</strong> effect of lobby groups’ benefit. Theratio is calculated as external benefit divided by external plus <strong>in</strong>ternal benefit. 126 For example,at one extreme, a labour union <strong>in</strong> a ‘closed shop’ factory campaign<strong>in</strong>g to improve safetyissues <strong>in</strong> that factory, would have a very low ratio – <strong>the</strong>re is no external benefit, only benefitto its members. A small rambl<strong>in</strong>g group campaign<strong>in</strong>g to re-open a pedestrian bridge thatwas used by many o<strong>the</strong>rs, would, if successful, be likely to benefit mostly people outside itsown group, so, based on numbers affected, <strong>the</strong>re would be a small <strong>in</strong>ternal benefit but a muchlarger external benefit. However, Weisbrod’s ratio does not allow <strong>for</strong> <strong>the</strong> size of <strong>the</strong> groupconcerned: it actually tends to flatter small groups. It also does not take <strong>in</strong>to account anyqualitative factors attributable to <strong>the</strong> respective group<strong>in</strong>gs, so should be treated with caution.Ano<strong>the</strong>r matter to address is to ensure that <strong>the</strong> selection of op<strong>in</strong>ion sought is not biased,consciously or o<strong>the</strong>rwise, towards those groups or <strong>in</strong>dividuals most likely to agree with <strong>the</strong><strong>in</strong>tentions of <strong>the</strong> advocate of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest action. As noted previously, <strong>public</strong> choice<strong>the</strong>ory suggests that those responsible <strong>for</strong> <strong>public</strong> <strong>in</strong>terest actions may well have <strong>the</strong>ir ownmotivations, and a pre-determ<strong>in</strong>ed idea of what <strong>the</strong>y would like <strong>the</strong> outcome to be.Panel 6.4: <strong>ICAEW</strong> and ascerta<strong>in</strong><strong>in</strong>g relevant op<strong>in</strong>ionIn <strong>the</strong> context of <strong>in</strong>dividual members, expectations of those with a direct <strong>in</strong>terest are usuallymade relatively clear by <strong>the</strong> client or employer. The potential problem is with potentialconflicts between <strong>the</strong>se duties, and wider duties to <strong>the</strong> general <strong>public</strong>, considered <strong>in</strong>Panels 3.1 and 4.1.For <strong>ICAEW</strong>, <strong>in</strong> common with o<strong>the</strong>r regulatory and/or representational bodies, ascerta<strong>in</strong><strong>in</strong>gand weight<strong>in</strong>g appropriate op<strong>in</strong>ion, as opposed to just expressed op<strong>in</strong>ion is a challenge.Consultation has to be not just reactive to those best organised to lobby, but, us<strong>in</strong>gexist<strong>in</strong>g knowledge and skills, proactive <strong>in</strong> terms of seek<strong>in</strong>g out o<strong>the</strong>rs likely to be affected,<strong>in</strong> particular where gaps exist <strong>in</strong> <strong>the</strong> knowledge and skills. <strong>ICAEW</strong> does this through <strong>for</strong>example: try<strong>in</strong>g to collect and balance out <strong>in</strong>put from its committees and boards; <strong>public</strong>is<strong>in</strong>gactivities; organis<strong>in</strong>g events <strong>for</strong> those likely to have an <strong>in</strong>terest; and <strong>in</strong>itiat<strong>in</strong>g direct contactswith its members and o<strong>the</strong>r relevant persons.<strong>ICAEW</strong>’s Code of Ethics <strong>in</strong>cludes a requirement to ma<strong>in</strong>ta<strong>in</strong> confidentiality as a fundamentalpr<strong>in</strong>ciple. However it allows this to be over-ridden <strong>in</strong> a number of circumstances, <strong>in</strong>clud<strong>in</strong>gwhen disclosure is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. However, it recognises <strong>the</strong> potential differencesbetween actual and expressed <strong>in</strong><strong>for</strong>mation, counsell<strong>in</strong>g that ‘In decid<strong>in</strong>g whe<strong>the</strong>r to discloseconfidential <strong>in</strong><strong>for</strong>mation, relevant factors to consider <strong>in</strong>clude ... whe<strong>the</strong>r all <strong>the</strong> relevant<strong>in</strong><strong>for</strong>mation is known and substantiated, to <strong>the</strong> extent it is practicable. When <strong>the</strong> situation<strong>in</strong>volves unsubstantiated facts, <strong>in</strong>complete <strong>in</strong><strong>for</strong>mation or unsubstantiated conclusions,professional judgement shall be used...’ 1276.5 Ensur<strong>in</strong>g conflicts with<strong>in</strong> <strong>the</strong> relevant <strong>public</strong> are not overlookedThe ‘consensualist’ approach referred to earlier could be taken as suggest<strong>in</strong>g that someth<strong>in</strong>gcan only be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest if everyone agrees with it – what has also been called acollective concept of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. 128 However, we believe that this is too narrow aperspective and would discount many actions which are <strong>for</strong> <strong>the</strong> greater good, even though noteveryone agrees with <strong>the</strong>m. There are <strong>in</strong>evitably variations between what different <strong>in</strong>dividualswant, both <strong>in</strong> terms of <strong>the</strong>ir underly<strong>in</strong>g moral values and, <strong>in</strong> priorities between values because<strong>the</strong>y often conflict with each o<strong>the</strong>r. For example, whe<strong>the</strong>r <strong>the</strong> end justifies <strong>the</strong> means, or<strong>the</strong> means justifies <strong>the</strong> end. A fur<strong>the</strong>r source of differences is <strong>the</strong> variation <strong>in</strong> cultural values,particularly, though not exclusively, across <strong>in</strong>ternational boundaries.126Quoted <strong>in</strong> Pleasence and Maclean, The Public Interest.127<strong>ICAEW</strong>, Code of Ethics.128Benditt, ‘The Public Interest’.42The relevant <strong>public</strong>’s wants
Panel 6.5: Eastern and Western philosophiesThere is a considerable amount of literature focus<strong>in</strong>g on <strong>the</strong> differences between western andCh<strong>in</strong>ese philosophy. The latter is often equated with Confucianism, although this is just oneelement of Ch<strong>in</strong>ese philosophy. There are a number of o<strong>the</strong>r philosophies which blend <strong>in</strong>to<strong>the</strong> whole, deriv<strong>in</strong>g from <strong>the</strong> ‘Hundred Schools of Thought’ period. These <strong>in</strong>clude <strong>for</strong> example:• Mohism, which is similar to democratic centralism <strong>in</strong> that leaders embody and en<strong>for</strong>ce aconsensus moral judgement;• daoism, which tends more towards <strong>the</strong> value of utility but is pluralist ra<strong>the</strong>r than<strong>in</strong>dividualist, so societies make <strong>the</strong> choice; and• Xunxi, a version of Confucianism, which <strong>in</strong>ter alia advocated suppress<strong>in</strong>g rival voices <strong>in</strong><strong>the</strong> <strong>in</strong>terests of social order and economic distribution. 129For our purposes <strong>the</strong> issues can be illustrated and considered concentrat<strong>in</strong>g on Confucianism.Western philosophers tend to focus on <strong>the</strong> <strong>in</strong>dividual as an autonomous and rational be<strong>in</strong>g.This follows Greek philosophy which requires reason<strong>in</strong>g and <strong>analysis</strong>, but also <strong>in</strong>corporatesnotions from Christianity such as <strong>in</strong>dividual souls and an <strong>in</strong>dividual quest <strong>for</strong> salvation.Confucianism focuses on harmonious relationships <strong>in</strong> which reciprocity and obligations to<strong>in</strong>dividuals or groups take precedence over <strong>in</strong>dividual rights or obligations to a wider abstractnotion of <strong>the</strong> <strong>public</strong> good. Examples of differences of view on certa<strong>in</strong> actions that this mightresult <strong>in</strong> <strong>in</strong>clude: payments to smooth th<strong>in</strong>gs out; nepotism; employer loyalty; gift giv<strong>in</strong>g;personal relationships; <strong>in</strong>vestments <strong>in</strong> related firms; and profit versus stability. 130It has been suggested that arguments <strong>for</strong> human rights will not work with<strong>in</strong> a Ch<strong>in</strong>ese moralconceptual<strong>framework</strong>. Western rationalism requires recognition of different po<strong>in</strong>ts of viewprovided <strong>the</strong>y are seriously reflective. The Ch<strong>in</strong>ese character <strong>for</strong> ‘rights’, used on its own,does not have <strong>the</strong> western sense of human rights: it implies power. 131In consider<strong>in</strong>g how to determ<strong>in</strong>e op<strong>in</strong>ion, <strong>the</strong> likely impact of <strong>the</strong> decision across cultural ando<strong>the</strong>r boundaries needs to be considered by <strong>the</strong> advocate of a <strong>public</strong> <strong>in</strong>terest action. If <strong>the</strong>re isfeedback miss<strong>in</strong>g from sections of <strong>the</strong> relevant <strong>public</strong> that are likely to take a different view, <strong>the</strong>decision itself will be open to challenge unless reasonable ef<strong>for</strong>ts have been made to fill <strong>the</strong> gap.6.6 Theoretical approach to assess<strong>in</strong>g wantsIt is useful to consider what steps have been taken to determ<strong>in</strong>e what <strong>the</strong> relevant <strong>public</strong> wants.Sometimes it is not possible to establish what people want with any reasonable degree ofcerta<strong>in</strong>ty. An option is to establish a <strong>the</strong>oretical approach by ‘stand<strong>in</strong>g <strong>in</strong> <strong>the</strong>ir shoes’ – a use of<strong>the</strong> ‘veil of ignorance’ concept referred to fur<strong>the</strong>r <strong>in</strong> Section 7.4.1, although <strong>the</strong> latter is moreabout stand<strong>in</strong>g <strong>in</strong> everyone’s shoes. This can open up accusations of bias or be<strong>in</strong>g out of touchand significant transparency is needed, as discussed previously.Empirical evidence alone does not always give a full picture: <strong>the</strong>re is a role <strong>for</strong> <strong>in</strong>telligence andcreativity. The <strong>the</strong>oretical approach acts as a useful sense check on <strong>the</strong> advocate’s assessment ofop<strong>in</strong>ion, even where <strong>in</strong><strong>for</strong>mation seems to have been ga<strong>the</strong>red comprehensively.6.7 Chapter summaryThose responsible <strong>for</strong> a <strong>public</strong> <strong>in</strong>terest action have first to determ<strong>in</strong>e who <strong>the</strong> relevant <strong>public</strong>are. The next consideration <strong>in</strong> decid<strong>in</strong>g what is <strong>in</strong> <strong>the</strong>ir <strong>in</strong>terest should be what <strong>the</strong>y want andwhe<strong>the</strong>r <strong>the</strong> action is consistent with that. In some circumstances overrid<strong>in</strong>g values may be <strong>the</strong>start<strong>in</strong>g po<strong>in</strong>t but popular op<strong>in</strong>ion must be relevant. However, determ<strong>in</strong>ation is not easy. First,by its nature, <strong>the</strong> relevant <strong>public</strong> <strong>in</strong> a <strong>public</strong> <strong>in</strong>terest matter will be broadly based. Second, whatpeople want is complicated: it usually revolves around happ<strong>in</strong>ess, which is a subjective notionbuilt around a whole series of factors that often conflict with each o<strong>the</strong>r, those of o<strong>the</strong>r peopleand those of o<strong>the</strong>r cultures. Third, <strong>in</strong>terests can co<strong>in</strong>cide with those of o<strong>the</strong>rs and <strong>in</strong>terestgroups will be created. Inevitably some will have a <strong>public</strong> <strong>in</strong>terest perspective and some not.Some are more articulate or o<strong>the</strong>rwise better at mak<strong>in</strong>g <strong>the</strong>mselves heard than o<strong>the</strong>rs andexpressed op<strong>in</strong>ion will not necessarily be <strong>the</strong> same as actual op<strong>in</strong>ion.129Hansen, ‘Ch<strong>in</strong>ese Philosophy and Human Rights: An Application of Comparative Ethics’.130Waldmann, ‘Teach<strong>in</strong>g ethics <strong>in</strong> account<strong>in</strong>g: a discussion of cross-cultural factors with a focus on Confucian and Western philosophy’.131Based on Hansen, ‘Ch<strong>in</strong>ese Philosophy and Human Rights: An Application of Comparative Ethics’.The relevant <strong>public</strong>’s wants43
Hav<strong>in</strong>g sought out representative op<strong>in</strong>ion from <strong>the</strong> relevant <strong>public</strong>, it can be helpful to <strong>the</strong>advocate of a <strong>public</strong> <strong>in</strong>terest action to apply a sense check. A rational imputation of wants willconsider: what would we expect <strong>the</strong> relevant <strong>public</strong> to want stand<strong>in</strong>g <strong>in</strong> <strong>the</strong>ir shoes? Intelligenceand creativity have an important role to play <strong>in</strong> mak<strong>in</strong>g <strong>the</strong> assessment too. Sometimes it maybe difficult or impossible to ga<strong>the</strong>r op<strong>in</strong>ion and <strong>the</strong> <strong>the</strong>oretical assessment will be <strong>the</strong> onlyoption <strong>for</strong> <strong>the</strong> advocate. This does impose a greater burden of proof of ability and right todecide, as <strong>the</strong> assessment will <strong>in</strong>evitably be challenged by those with different views.44The relevant <strong>public</strong>’s wants
7. CONSTRAINTS TO WANTSThose determ<strong>in</strong><strong>in</strong>g <strong>the</strong> best <strong>public</strong> <strong>in</strong>terest action may have to acton behalf of <strong>the</strong> stakeholders by exercis<strong>in</strong>g <strong>in</strong>dependent judgement<strong>in</strong> <strong>the</strong>ir <strong>in</strong>terests, ra<strong>the</strong>r than be<strong>in</strong>g a proxy to represent <strong>the</strong>ir views.How can allowance be made <strong>for</strong> <strong>the</strong> impact of self-<strong>in</strong>terest,mis<strong>in</strong><strong>for</strong>mation and externalities <strong>in</strong> consider<strong>in</strong>g apparent wants?Are <strong>the</strong>re overrid<strong>in</strong>g values that should be applied?Credentials <strong>for</strong><strong>in</strong>vok<strong>in</strong>g <strong>the</strong><strong>public</strong> <strong>in</strong>terestImplementationApplicability of<strong>the</strong> <strong>public</strong><strong>in</strong>terestAggregation anddecision<strong>Act<strong>in</strong>g</strong> <strong>in</strong><strong>the</strong> <strong>public</strong><strong>in</strong>terestThe relevant<strong>public</strong>Constra<strong>in</strong>ts towantsThe relevant<strong>public</strong>’s wants
7. CONSTRAINTS TO WANTS7.1 Self-<strong>in</strong>terest and mis<strong>in</strong><strong>for</strong>mationHav<strong>in</strong>g ascerta<strong>in</strong>ed <strong>the</strong> relevant <strong>public</strong>’s wants, that is obta<strong>in</strong>ed <strong>the</strong> stakeholder <strong>in</strong>put, thosedeterm<strong>in</strong><strong>in</strong>g <strong>the</strong> best <strong>public</strong> <strong>in</strong>terest action may have to act on behalf of <strong>the</strong> stakeholders byexercis<strong>in</strong>g <strong>in</strong>dependent judgement <strong>in</strong> <strong>the</strong>ir <strong>in</strong>terests, ra<strong>the</strong>r than be<strong>in</strong>g a proxy to represent<strong>the</strong>ir views. 132 There may be grounds <strong>for</strong> over-rid<strong>in</strong>g <strong>the</strong> relevant <strong>public</strong>’s wants. These groundsare discussed below but when wants are over-ridden, it is <strong>in</strong>cumbent on those responsible <strong>for</strong> a<strong>public</strong> <strong>in</strong>terest action to expla<strong>in</strong> <strong>the</strong> rationale clearly.7.1.1 Can <strong>the</strong> sum of <strong>in</strong>dividual actions give <strong>the</strong> wrong answer?In determ<strong>in</strong><strong>in</strong>g whe<strong>the</strong>r it is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest to go beyond <strong>the</strong> existence of <strong>the</strong> basic‘protected laissez-faire’ <strong>in</strong>frastructure referred to previously, we need to consider whe<strong>the</strong>reveryone act<strong>in</strong>g on <strong>the</strong>ir own accord<strong>in</strong>g to <strong>the</strong>ir own <strong>in</strong>terests, can result <strong>in</strong> an outcome whichis clearly sub-optimal from a wider perspective. In short, we believe that <strong>the</strong> sum of <strong>the</strong> partscan sometimes add up to a net position that can be seen not to be <strong>for</strong> <strong>the</strong> greater good.Panel 7.1: <strong>Act<strong>in</strong>g</strong> <strong>in</strong> one’s own <strong>in</strong>terestsThe notion that people act <strong>in</strong> <strong>the</strong>ir own self-<strong>in</strong>terest is long established.Egoism is a fundamental feature of Sophist, Epicurean and Skeptic views of man. 133 In <strong>the</strong>sixteenth century, Machiavelli not only recognised this but sought to use it to hold Florent<strong>in</strong>esociety toge<strong>the</strong>r 134Hobbes, writ<strong>in</strong>g <strong>in</strong> <strong>the</strong> seventeenth century <strong>in</strong> a time of turmoil, argued that allow<strong>in</strong>gunrestricted self-<strong>in</strong>terested actions results <strong>in</strong> ‘war of everyone aga<strong>in</strong>st everyone’. He arguedthat, unlike creatures such as ants and bees, mank<strong>in</strong>d is <strong>in</strong>capable of act<strong>in</strong>g sociably ‘withoutany coercive power’ as we are given to, <strong>for</strong> example, a desire <strong>for</strong> pre-em<strong>in</strong>ence and anyagreement to common action is by artificial covenant ra<strong>the</strong>r than natural tendency. There<strong>for</strong>e<strong>the</strong>re needs to be ‘a common power, to keep <strong>the</strong>m <strong>in</strong> awe, and to direct <strong>the</strong>ir actions to <strong>the</strong>common benefit’. 135Adam Smith, a century later, conceded that an <strong>in</strong>dividual generally ‘nei<strong>the</strong>r <strong>in</strong>tends topromote <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, nor knows how much he is promot<strong>in</strong>g it’. However he held thatmarkets generally delivered beneficial effects, not<strong>in</strong>g ‘It is not from <strong>the</strong> benevolence of <strong>the</strong>butcher, <strong>the</strong> brewer, or <strong>the</strong> baker, that we expect our d<strong>in</strong>ner, but from <strong>the</strong>ir regard to <strong>the</strong>irown <strong>in</strong>terest.’ Although he is generally advanced as a champion of absolute free-marketers,this po<strong>in</strong>t is also a key argument of those that hold that <strong>the</strong> <strong>public</strong> <strong>in</strong>terest is not necessarilyserved by merely allow<strong>in</strong>g <strong>in</strong>dividuals to do <strong>the</strong>ir own th<strong>in</strong>g: people make decisions to suit<strong>the</strong>ir own <strong>in</strong>terests. Smith observed that mank<strong>in</strong>d had charitable traits that would temper<strong>the</strong> effect of self-<strong>in</strong>terest <strong>in</strong>teraction. 136 However, he also took <strong>the</strong> po<strong>in</strong>t about <strong>the</strong> need<strong>for</strong> vigilance, argu<strong>in</strong>g that: ‘The <strong>in</strong>terests of dealers…is always <strong>in</strong> some respects differentfrom, and even opposite to, that of <strong>the</strong> <strong>public</strong> ... The proposal of any new law or regulationof commerce which comes from this order, ought always to be listened to with greatprecaution, and ought never be adopted till after hav<strong>in</strong>g been long and carefully exam<strong>in</strong>ed,not only with <strong>the</strong> most scrupulous, but with <strong>the</strong> most suspicious attention.’ 137Our desire <strong>for</strong> pre-em<strong>in</strong>ence apart, <strong>the</strong>re are a number of o<strong>the</strong>r reasons why <strong>the</strong> sum of<strong>in</strong>dividual decisions might not equate to <strong>the</strong> common good.132Burke,’Speech to <strong>the</strong> Electors of Bristol’, Lev<strong>in</strong>e and Forrence, ‘Regulatory capture, Public Interest, and <strong>the</strong> Public Agenda: Towardsa Syn<strong>the</strong>sis’.133Faulhaber, ‘The Rise and Fall of ‘Self Interest’’.134Ibid.135Quoted and analysed <strong>in</strong> Faulhaber, ibid.136Discussed fur<strong>the</strong>r <strong>in</strong> Section 7.4.137Smith, An Inquiry <strong>in</strong>to <strong>the</strong> Nature and Causes of <strong>the</strong> Wealth of Nations.46Constra<strong>in</strong>ts to wants
What people consider to be <strong>in</strong> <strong>the</strong>ir own <strong>in</strong>terest is determ<strong>in</strong>ed by a whole set of valuesacquired over time. For example: need or desire <strong>for</strong> tangible ga<strong>in</strong>; notions of rights andobligations; and moral values of right and wrong.However, <strong>the</strong> <strong>public</strong> may:• not have all <strong>the</strong> facts;• be swayed by emotion ra<strong>the</strong>r than logic; and/or• have been <strong>in</strong>fluenced by <strong>in</strong>dividual charisma. 138Thus <strong>the</strong>re has to be a concern that <strong>in</strong>dividuals may not be able to take <strong>the</strong> ‘right’ decision<strong>for</strong> <strong>the</strong>mselves, even if consider<strong>in</strong>g only <strong>the</strong>ir personal perspective. A perfect market, <strong>in</strong> whicheveryone makes rational decisions, assumes: rational behaviour; no transaction costs; perfect<strong>in</strong><strong>for</strong>mation; enough decision makers and goods that one decision does not distort <strong>the</strong> market;and freedom of decision mak<strong>in</strong>g and market entry. In practice <strong>the</strong>se conditions rarely apply,<strong>for</strong> <strong>the</strong> follow<strong>in</strong>g reasons:• Lack of full understand<strong>in</strong>gTo make a sensible decision, people have to have knowledge of an issue and understand<strong>in</strong>gof <strong>the</strong> consequences. In some <strong>in</strong>stances <strong>the</strong> issue can be so specialised or apparently remotethat <strong>in</strong>dividuals are unable, or unwill<strong>in</strong>g to make a rational decision. A slightly extreme,though illum<strong>in</strong>at<strong>in</strong>g example is a prospective limited nuclear test ban treaty where a firsthandunderstand<strong>in</strong>g of <strong>the</strong> consequences would be ra<strong>the</strong>r too late: ‘if <strong>the</strong> consequencesever arose to make <strong>the</strong> <strong>public</strong> capable of evaluat<strong>in</strong>g <strong>the</strong>ir <strong>in</strong>terests <strong>in</strong> <strong>the</strong> subject, most of<strong>the</strong>m would not be present to do so.’ 139• Cost of <strong>in</strong><strong>for</strong>mationThe acquisition of <strong>in</strong><strong>for</strong>mation does, <strong>in</strong> practice, have a cost, whe<strong>the</strong>r <strong>in</strong> time, energy ormoney. Indeed it has been argued that perfect <strong>in</strong><strong>for</strong>mation and perfect rationality are<strong>in</strong>compatible as that cost can profitably be used elsewhere. 140 Because of this cost, or as aresult of fraudulent or anti-competitive behaviour, <strong>in</strong><strong>for</strong>mation can be <strong>in</strong>complete, result<strong>in</strong>g<strong>in</strong> moral hazard and adverse selection. 141• Human behaviourHuman be<strong>in</strong>gs do not necessarily act rationally. We are, <strong>for</strong> example, prone to overdiscount<strong>in</strong>g<strong>the</strong> impact of future events, and are often capable of suppress<strong>in</strong>g rationalthought <strong>in</strong> favour of emotion – a po<strong>in</strong>t played on by politicians <strong>in</strong> particular – and <strong>in</strong>fluencethrough charisma. Sir Robert Peel commented that ‘Public op<strong>in</strong>ion is a compound of folly,weakness, prejudice, wrong feel<strong>in</strong>g, right feel<strong>in</strong>g, obst<strong>in</strong>acy and newspaper paragraphs.’ 142Human behaviour is discussed fur<strong>the</strong>r below.As a result of <strong>the</strong>se factors, action by <strong>in</strong>dividuals <strong>in</strong> <strong>the</strong>ir own <strong>in</strong>terests may result <strong>in</strong> collective harm.Panel 7.2: Examples of <strong>in</strong>advertent collective harm• In some cultures, carry<strong>in</strong>g on <strong>the</strong> family name is so valued as an objective that maleoffspr<strong>in</strong>g are very much preferred to female offspr<strong>in</strong>g. As it is now possible to know,be<strong>for</strong>e <strong>the</strong> birth, what <strong>the</strong> sex of <strong>the</strong> child will be, <strong>the</strong>re is a tendency to term<strong>in</strong>atefemale births with <strong>the</strong> result that <strong>the</strong> ratio of males to females becomes disproportionate.Thus, <strong>the</strong> likelihood of be<strong>in</strong>g able to carry on <strong>the</strong> family name is actually dim<strong>in</strong>ished <strong>for</strong>people as a whole.• The use of antibiotics to treat relatively m<strong>in</strong>or bronchial <strong>in</strong>fections has a short termbeneficial effect <strong>for</strong> <strong>the</strong> <strong>in</strong>dividual patient but, taken toge<strong>the</strong>r, millions of <strong>in</strong>dividualusages of antibiotics decrease <strong>the</strong>ir effectiveness from <strong>the</strong> perspective of <strong>the</strong> <strong>public</strong> asa whole, <strong>for</strong> more serious <strong>in</strong>fections.• Traffic lights restrict <strong>the</strong> ability of <strong>the</strong> <strong>in</strong>dividual to proceed through often empty<strong>in</strong>tersections at will. However, without <strong>the</strong>m <strong>the</strong>re can be chaos <strong>for</strong> all. 143In each case a restriction on <strong>the</strong> ability of <strong>in</strong>dividuals to do exactly what <strong>the</strong>y want when <strong>the</strong>ywant is seen to benefit everyone <strong>in</strong> <strong>the</strong> long term although this may not always be so: <strong>the</strong>traffic light example above was based on <strong>the</strong> effect on <strong>the</strong> urban grid system <strong>in</strong> Manhattandur<strong>in</strong>g power blackouts. However, a different experience is discussed <strong>in</strong> panel 9.1.138From Prout, ‘Public Op<strong>in</strong>ion and <strong>the</strong> Public Interest’.139Desk<strong>in</strong>s, ‘On <strong>the</strong> Nature of <strong>the</strong> Public Interest’.140Hollis and Neil quoted <strong>in</strong> Po-Keung, ‘Profit and Morality: Problems <strong>in</strong> Bus<strong>in</strong>ess Ethics’.141Rodrik, Institutions <strong>for</strong> High-Quality Growth: What <strong>the</strong>y are and how to acquire <strong>the</strong>m.142Quoted <strong>in</strong> Prout, ‘Public Op<strong>in</strong>ion and <strong>the</strong> Public Interest’.143All three from Partridge, ‘Conscience of a Progressive’.Constra<strong>in</strong>ts to wants47
In terms of whe<strong>the</strong>r <strong>the</strong> relevant <strong>public</strong>’s <strong>in</strong>dividual wants need to be adjusted to arrive at anoverall outcome that can be considered to be <strong>for</strong> <strong>the</strong> greater good, <strong>the</strong> considerations aboveact as an overall sense check <strong>for</strong> <strong>the</strong> advocate of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest action. Is <strong>the</strong>re reason tosuppose that <strong>the</strong> <strong>public</strong> has been mis<strong>in</strong><strong>for</strong>med or misled? Does <strong>the</strong> <strong>in</strong>teraction of <strong>in</strong>dividualactions produce an undesirable result as a result of <strong>in</strong>teractions when aggregated?7.2 Externalities and <strong>public</strong> goods7.2.1 Establish<strong>in</strong>g how <strong>public</strong> goods and o<strong>the</strong>r externalities should be dealt withThe existence of externalities and <strong>public</strong> goods is a fur<strong>the</strong>r factor that can result <strong>in</strong> <strong>in</strong>dividualwants not produc<strong>in</strong>g a result that is <strong>for</strong> <strong>the</strong> greater good overall.For <strong>public</strong> goods such as roads, most of which are funded by <strong>public</strong> taxation regardless of<strong>in</strong>dividual use, market rationality tends to result <strong>in</strong> people underestimat<strong>in</strong>g <strong>the</strong>ir cost. Weassume <strong>the</strong> obligations can be passed to o<strong>the</strong>rs while we reta<strong>in</strong> use of <strong>the</strong> good: 144 marg<strong>in</strong>al usedoes not result <strong>in</strong> marg<strong>in</strong>al costs to <strong>the</strong> <strong>in</strong>dividual. Examples <strong>in</strong>clude common pasture, where<strong>in</strong>dividuals will tend to overgraze <strong>the</strong>ir own animals, even though it dim<strong>in</strong>ishes <strong>the</strong> pastureand thus <strong>the</strong> wealth of <strong>the</strong> village as a whole, and overfish<strong>in</strong>g <strong>in</strong> <strong>in</strong>ternational waters, whicheventually exhausts <strong>the</strong> fish<strong>in</strong>g stock. 145 Environmental issues such as pollution, overexploitationof natural resources, and depletion of wildlife also derive from <strong>the</strong>ir be<strong>in</strong>g treated as commonproperty resources. 146 Aga<strong>in</strong>, it requires some sort of central authority to address <strong>the</strong>se issues,although as discussed below, <strong>the</strong>re are ways of push<strong>in</strong>g <strong>the</strong>m <strong>in</strong>to <strong>the</strong> <strong>in</strong>dividual doma<strong>in</strong>.7.2.2 Causes of externalitiesExternalities result <strong>in</strong> sub-optimum resource allocation because <strong>the</strong>re is no clear economic effecton those potentially us<strong>in</strong>g <strong>the</strong> resources, of <strong>the</strong>ir usage or not. Some activities are externalitiesbecause <strong>the</strong> market does not deal with <strong>the</strong>m. An example is pollution, where <strong>the</strong> cost is borneby <strong>the</strong> <strong>public</strong> as a whole ra<strong>the</strong>r than <strong>the</strong> polluter. This can be addressed by governmentsthrough direct regulation such as required actions or prohibitions, or <strong>in</strong>ternalis<strong>in</strong>g <strong>the</strong> activitiesto <strong>the</strong> market through mechanisms such as taxation, subsidies, and market-mirror<strong>in</strong>g schemes147 148such as emissions trad<strong>in</strong>g.O<strong>the</strong>r externalities arise through <strong>the</strong> general <strong>public</strong>’s choice. Sometimes this emerges throughpracticality. An example is defence where it would be difficult to work out how to charge <strong>for</strong>it on a user-pays pr<strong>in</strong>ciple, and <strong>the</strong>re is also <strong>the</strong> free-rider problem: how would those with<strong>in</strong>a country who do not pay, be excluded from benefit? If <strong>the</strong>y are not excluded, why shouldo<strong>the</strong>rs pay?Sometimes goods and services become common <strong>for</strong> social purposes. Governments and o<strong>the</strong>rrelevant authorities need to balance economic efficiency and social cohesion. This is particularlyimportant <strong>in</strong> <strong>the</strong> context of <strong>public</strong> services, ie, those which are provided from <strong>the</strong> <strong>public</strong>purse ra<strong>the</strong>r than be<strong>in</strong>g recharged to users, and which thus become externalities to thoseusers. Public op<strong>in</strong>ion, shaped by slow-mov<strong>in</strong>g <strong>for</strong>ces such as social <strong>in</strong>stitutions and collectivememories, has been attributed as a key cause of ensur<strong>in</strong>g that welfare states survive globalpressures. 149 Op<strong>in</strong>ion differs on <strong>the</strong> extent to which <strong>the</strong>re should be <strong>public</strong> goods, even with<strong>in</strong>one country. For example, <strong>in</strong> Belgium, <strong>the</strong>re have been seen to be different views between<strong>the</strong> Dutch and French speak<strong>in</strong>g populace as to what should be <strong>in</strong>cluded with<strong>in</strong> such services,<strong>the</strong> latter consistently expect<strong>in</strong>g higher levels of universal service. 150What <strong>the</strong>re seldom seems to be with<strong>in</strong> a society is a coherent debate on this, items <strong>in</strong>steadbe<strong>in</strong>g picked off and argued about on a case-by-case basis.It follows that those advocat<strong>in</strong>g or assess<strong>in</strong>g a <strong>public</strong> <strong>in</strong>terest measure may need to consider:• not only how to deal with common goods or services, but also• what relevant factors should be treated as common goods or services.From <strong>the</strong> perspective of a <strong>public</strong> <strong>in</strong>terest action, externalities can feature even where <strong>the</strong>re donot appear, on <strong>the</strong> face of it, to be common goods or services. We have already noted thatmeasures such as Gross Domestic Product do not tell <strong>the</strong> full story because of <strong>the</strong> omission of144Po-Keung, ‘Profit and Morality: Problems <strong>in</strong> Bus<strong>in</strong>ess Ethics’.145Hard<strong>in</strong>, ‘The Tragedy of <strong>the</strong> Commons’.146Smith R, quoted <strong>in</strong> Partridge, ‘Conscience of a Progressive’.147Tanguay, Lanoie and Moreau, ‘Environmental policy, <strong>public</strong> <strong>in</strong>terest and political market’.148<strong>ICAEW</strong>, Susta<strong>in</strong>ability: The Role of Accountants.149Brooks and Manza, Why Welfare States Persist: The Importance of Public Op<strong>in</strong>ion <strong>in</strong> Democracies.150Van de Walle, ‘The Impact of Public Service Values on Services of General Interest’.48Constra<strong>in</strong>ts to wants
qualitative characteristics of what people actually want. They also do not consider <strong>the</strong> overallsocial effect of <strong>the</strong> apparent output, <strong>in</strong>discrim<strong>in</strong>ately mix<strong>in</strong>g output that satisfies needs, outputthat satisfies ‘needs’ generated artificially through, <strong>for</strong> example, advertis<strong>in</strong>g, and social costssuch as accidents, wars and litigation. 151Panel 7.3: <strong>ICAEW</strong> and externalitiesCommon goods are not a particularly key issue <strong>in</strong> <strong>the</strong> context of accountancy professionalconduct, although some professional activities are designed to achieve what could beregarded as positive externalities. For example, <strong>ICAEW</strong> and some o<strong>the</strong>r professional bodiescomment on matters that are wider than those immediately relevant to <strong>the</strong>ir members andmake some thought leadership and guidance material free to all, <strong>in</strong> order to raise standardsmore generally <strong>in</strong> <strong>the</strong> economy. Ano<strong>the</strong>r perspective would be that <strong>the</strong>y do this to enhance<strong>the</strong>ir own reputation and thus that of <strong>the</strong>ir members, and that this work does not fall to betreated as an externality.<strong>ICAEW</strong>’s thought leadership work covers, among o<strong>the</strong>r areas, f<strong>in</strong>ancial report<strong>in</strong>g andsusta<strong>in</strong>ability, both areas <strong>in</strong> which account<strong>in</strong>g <strong>for</strong> externalities is a key challenge andopportunity.It was noted above that people will tend to discount <strong>the</strong> severity and probability of futuredownsides, when <strong>the</strong> prospect of an upside is more immediate. The same can hold true <strong>in</strong>reverse. <strong>ICAEW</strong> and o<strong>the</strong>r professional bodies that seek to follow a <strong>public</strong> <strong>in</strong>terest perspectivewill sometimes f<strong>in</strong>d that such a perspective requires a long-term view to be taken, that canresult <strong>in</strong> short term disadvantages. With <strong>the</strong> time discount<strong>in</strong>g referred to, it is not alwaysnatural to accept def<strong>in</strong>ite short term sacrifices <strong>for</strong> potential longer term ga<strong>in</strong>s. Ultimately <strong>the</strong>equation has to be that <strong>the</strong> long-term ma<strong>in</strong>tenance of trust <strong>in</strong> <strong>the</strong> profession is <strong>in</strong> both <strong>the</strong><strong>public</strong> <strong>in</strong>terest and <strong>the</strong> <strong>in</strong>terests of members.7.3 Time effectsTwo issues arise. First, balanc<strong>in</strong>g immediate concerns aga<strong>in</strong>st future impacts. Human naturediscounts <strong>the</strong> severity and probability of future downsides, when <strong>the</strong> prospect of an upsideis more immediate. 152 More positively <strong>the</strong>re is an argument <strong>for</strong> putt<strong>in</strong>g greater weight on <strong>the</strong>needs of <strong>the</strong> present based on probability: present needs are concrete, whereas <strong>the</strong>re are manypossible futures so <strong>the</strong> <strong>for</strong>ce of future <strong>in</strong>terests is diluted by <strong>the</strong>ir cont<strong>in</strong>gency. 153 This does notmean that future <strong>in</strong>terests can be ignored. There is an <strong>in</strong>creas<strong>in</strong>g call <strong>for</strong> development to besusta<strong>in</strong>able, which has been def<strong>in</strong>ed as, <strong>for</strong> example: ‘development that meets <strong>the</strong> needs of <strong>the</strong>present without compromis<strong>in</strong>g <strong>the</strong> ability of future generations to meet <strong>the</strong>ir own needs.’ 154Panel 7.4: Example of guidel<strong>in</strong>es to deal with <strong>the</strong> futureThe US National Academy of Public Adm<strong>in</strong>istration applies four pr<strong>in</strong>ciples:• ‘Trusteeship’ – an obligation to protect future <strong>in</strong>terests;• ‘Susta<strong>in</strong>ability’ – no generation should deprive future generations of a quality of lifecomparable to that currently experienced;• ‘Cha<strong>in</strong> of obligations’ – each generation’s priority is <strong>the</strong> liv<strong>in</strong>g and succeed<strong>in</strong>ggenerations, which recognises <strong>the</strong> ‘concrete current <strong>in</strong>terests’ argument above; and• ‘Precaution’ – Actions pos<strong>in</strong>g a realistic threat of irreversible harm should be avoided <strong>in</strong><strong>the</strong> absence of a compell<strong>in</strong>g, countervail<strong>in</strong>g need. 155The second issue is about different expectations. The world’s affairs are <strong>in</strong>creas<strong>in</strong>gly <strong>in</strong>terrelated,people’s reactions and behaviours are complex and often difficult to predict and eventsoccur beyond anyone’s control. In short, <strong>the</strong> future is uncerta<strong>in</strong>. As decisions about <strong>the</strong> <strong>public</strong><strong>in</strong>terest often <strong>in</strong>volve predict<strong>in</strong>g <strong>the</strong> future, <strong>the</strong>re will <strong>in</strong>evitably be different views. What isoften seen as a debate about what is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest might actually be an agreementabout what is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, but a disagreement about what reactions to particularmeasures will be.151Capra and Henderson, Qualitative Growth.152Marnet, ‘History Repeats Itself: The Failure of Rational Choice Models <strong>in</strong> Corporate Governance’, Gwilliam and Marnet,Audit With<strong>in</strong> <strong>the</strong> Corporate Governance Paradigm: a Cornerstone Built on Shift<strong>in</strong>g Sand.153Pleasence and Maclean, ‘The Public Interest’.154The Bruntland Report quoted <strong>in</strong> <strong>ICAEW</strong>, Susta<strong>in</strong>able Bus<strong>in</strong>ess.155Quoted <strong>in</strong> US National Academy of Public Adm<strong>in</strong>istration, Decid<strong>in</strong>g <strong>for</strong> <strong>the</strong> Future: Balanc<strong>in</strong>g Risks, Costs and Benefits FairlyAcross Generations.Constra<strong>in</strong>ts to wants49
Panel 7.5: Management of national debt: differences of op<strong>in</strong>ionAn example of this is <strong>the</strong> on-go<strong>in</strong>g global debate about how to manage government debt,which particularly <strong>in</strong> <strong>the</strong> western economies, <strong>in</strong>creased significantly after <strong>the</strong> f<strong>in</strong>ancial crisis.Some governments believe that more expenditure will stimulate growth, which <strong>in</strong> turn willgenerate more government <strong>in</strong>come and thus debt, at least as a proportion of economic output,will reduce. O<strong>the</strong>rs do not believe that this will happen and that reduc<strong>in</strong>g net governmentexpenditure directly is <strong>the</strong> best solution. This debate, although often heated, is not really aboutwhat <strong>the</strong> <strong>public</strong> <strong>in</strong>terest objective is – <strong>the</strong> management of government debt with<strong>in</strong> <strong>the</strong> abilityof <strong>the</strong> economy to susta<strong>in</strong> it. It is about how to achieve that and <strong>the</strong> differences arise becauseof different expectations about how people will react and what will happen <strong>in</strong> <strong>the</strong> future.7.4 Overrid<strong>in</strong>g valuesAs well as mis<strong>in</strong><strong>for</strong>mation and externalities, a third reason why <strong>the</strong> apparent wants of <strong>the</strong>relevant <strong>public</strong> may need to be adjusted is <strong>the</strong> existence of core values to be adhered toregardless of short term wants.A recurr<strong>in</strong>g <strong>the</strong>me of behavioural writ<strong>in</strong>g is, as discussed fur<strong>the</strong>r below, that we are allmotivated by selfishness. 156 This, however, is not <strong>in</strong>compatible with <strong>the</strong> notion that we havevalues over and above f<strong>in</strong>ancial ga<strong>in</strong>.These <strong>in</strong>clude charitable traits. This was recognised by, <strong>for</strong> example, Adam Smith, whosemarket society effectively <strong>in</strong>stitutionalised self-<strong>in</strong>terest (panel 7.1). However, <strong>in</strong> The Theory ofMoral Sentiments (which actually preceded <strong>the</strong> Wealth of Nations), he argued that <strong>the</strong> impactof such a society was tempered by a trait <strong>in</strong> man such that: ‘<strong>the</strong>re are some pr<strong>in</strong>ciples <strong>in</strong> hisnature, which <strong>in</strong>terest him <strong>in</strong> <strong>the</strong> <strong>for</strong>tune of o<strong>the</strong>rs, and render <strong>the</strong>ir happ<strong>in</strong>ess necessary tohim, although he derives noth<strong>in</strong>g from it except <strong>the</strong> pleasure of see<strong>in</strong>g it.’ 157Ma<strong>in</strong>tenance of values and personal ga<strong>in</strong> can go hand <strong>in</strong> hand. People are greedy <strong>for</strong> esteem,so flattery, avoidance of blame, pride (<strong>in</strong>, say, be<strong>in</strong>g charitable), compassion and praise are asrelevant to <strong>the</strong>ir desires as reward. Esteem is not just someth<strong>in</strong>g awarded by o<strong>the</strong>rs: self-esteemis also regarded as important, though views differ as to whe<strong>the</strong>r this is a universal humanmotive or a relatively recent Western cultural imperative. 158 Self-esteem will be fed by <strong>the</strong><strong>in</strong>dividual’s view on how <strong>the</strong>y are comply<strong>in</strong>g with <strong>the</strong>ir own values.Needs vary with level of subsistence, <strong>the</strong> hierarchy mov<strong>in</strong>g from lower order physiological andsafety needs at a subsistence level, through belong<strong>in</strong>gness and love, to higher order esteemand self-actualisation wants at better standards of liv<strong>in</strong>g. 159 However, <strong>the</strong>se needs, which canbe grouped <strong>in</strong>to existence, relatedness and growth, might not operate as a strict hierarchy. 160Indeed people have sacrificed vital <strong>in</strong>terests to pr<strong>in</strong>ciples throughout history as subsistence<strong>in</strong>terests can encapsulate morally heavyweight values, mak<strong>in</strong>g <strong>the</strong> sacrifice of vital <strong>in</strong>terests <strong>in</strong><strong>the</strong>ir pursuit sometimes entirely appropriate. 1617.4.1 Basis of determ<strong>in</strong><strong>in</strong>g valuesChoices <strong>in</strong>volve judgement and judgement <strong>in</strong>volves values. As noted above, what peoplewant is <strong>in</strong>fluenced by underly<strong>in</strong>g moral values but different, and sometimes conflict<strong>in</strong>g,ethical pr<strong>in</strong>ciples result <strong>in</strong> different sets of values. Some of <strong>the</strong> key philosophical approaches todeterm<strong>in</strong><strong>in</strong>g <strong>the</strong>se <strong>in</strong>clude:• Virtue – which would require an action <strong>in</strong> keep<strong>in</strong>g with a chosen characteristic;• Consequentialism – which requires consideration of <strong>the</strong> expected consequences ra<strong>the</strong>r than<strong>the</strong> means, and <strong>the</strong> maximum greatest well-be<strong>in</strong>g;• duty – which is based on <strong>the</strong> rights of o<strong>the</strong>rs; and• Justice – which focuses on fairness. 162A notion which comb<strong>in</strong>es <strong>the</strong> concepts of fairness and self-<strong>in</strong>terest is that of <strong>the</strong> veil ofignorance. 163 This poses a test that requires those impos<strong>in</strong>g <strong>the</strong> action to consider whe<strong>the</strong>r <strong>the</strong>ywould still agree with that action if society’s roles were to be refashioned and redistributed so156Hundert, The Fable of <strong>the</strong> Bees and O<strong>the</strong>r Writ<strong>in</strong>gs, discuss<strong>in</strong>g Mandeville.157Smith, The Theory of Moral Sentiments.158Baumeister, Cambell, Krueger and Vohs, ‘Does High Self-Esteem Cause Better Per<strong>for</strong>mance, Interpersonal Success, Happ<strong>in</strong>ess, orHealthier Lifestyles?‘159Maslow, ‘A Theory of Human Motivation’.160Alderfer, ’An Empirical Test of a New Theory of Human Needs’.161Griff<strong>in</strong> quoted <strong>in</strong> Pleasence and Maclean, ‘The Public Interest’.162Flanagan, Values, Codes of Ethics and <strong>the</strong> Law.163Rawls, A Theory of Justice.50Constra<strong>in</strong>ts to wants
that <strong>the</strong> persons mak<strong>in</strong>g <strong>the</strong> decision do not know whe<strong>the</strong>r <strong>the</strong>y would be <strong>the</strong> imposers orthose be<strong>in</strong>g imposed upon. In o<strong>the</strong>r words, what would you decide if personal bias could becompletely removed?Ultimately it is <strong>the</strong> underly<strong>in</strong>g values adopted that set <strong>the</strong> boundaries <strong>for</strong> what is right andwhat is wrong, what ends and means to those ends are acceptable and what are not.7.4.2 Conflicts between valuesWhile it is reasonable to suppose from <strong>the</strong> above that uphold<strong>in</strong>g basic values is important topeople, <strong>the</strong>re may be circumstances when this will be compromised, ei<strong>the</strong>r know<strong>in</strong>gly or not.People have <strong>the</strong> capacity <strong>for</strong> rationalisation or self-justification: <strong>the</strong> ability to argue that anaction that happens to be self-<strong>in</strong>terested actually has some higher motive, or has been <strong>for</strong>cedon one by external factors. 164O<strong>the</strong>r examples of potential conflicts, where personal values will come <strong>in</strong>to <strong>in</strong>dividuals’determ<strong>in</strong>ation of what is ‘right’, <strong>in</strong>clude:• <strong>in</strong>dividual liberties or general order;• <strong>in</strong>dividual or group rights, <strong>for</strong> <strong>in</strong>stance <strong>in</strong> plann<strong>in</strong>g decisions; 165• justice compared to family or o<strong>the</strong>r obligations; and• altruism and sympathy <strong>for</strong> o<strong>the</strong>rs aga<strong>in</strong>st self-<strong>in</strong>terest.The sorts of conflicts considered above will <strong>in</strong>evitably result <strong>in</strong> trade-offs. Br<strong>in</strong>g<strong>in</strong>g those thatneed to be considered out <strong>in</strong>to <strong>the</strong> open will help to encourage debate and to flush out selfjustification.Values can change over time, attitudes to slavery be<strong>in</strong>g an obvious example. The changeis often a result of far sighted ideas advocated by political or o<strong>the</strong>r leaders. Those ideas arefrequently only accepted by <strong>the</strong> <strong>public</strong> as good ideas after <strong>the</strong>y have been implemented <strong>in</strong><strong>the</strong> face of <strong>in</strong>itial resistance.Examples of changes <strong>in</strong> attitude over time <strong>in</strong>clude:• <strong>the</strong> shift <strong>in</strong> US stance away from isolationism at <strong>the</strong> end of <strong>the</strong> 1930s;• <strong>the</strong> <strong>in</strong>creased acceptance of disclosure of <strong>in</strong><strong>for</strong>mation about <strong>public</strong> companies <strong>in</strong> recentdecades; 166• as referred to previously, <strong>ICAEW</strong>’s own support <strong>in</strong> <strong>the</strong> 1920s, <strong>for</strong> <strong>the</strong> existence of hiddenreserves and objection to a profit and loss account be<strong>in</strong>g published <strong>in</strong> <strong>the</strong> accounts. 1677.4.3 TransparencyThere is a clear role <strong>for</strong> <strong>the</strong> application of overrid<strong>in</strong>g values but <strong>the</strong> <strong>public</strong> whose wants arebe<strong>in</strong>g overridden deserves to understand that this is <strong>the</strong> case and where <strong>the</strong> overrid<strong>in</strong>g valuesare com<strong>in</strong>g from.Panel 7.6: <strong>ICAEW</strong> and clarity of valuesOn <strong>the</strong> face of it, with<strong>in</strong> <strong>the</strong> accountancy profession <strong>the</strong>se underly<strong>in</strong>g values are, unusually,laid out <strong>for</strong> all to see. Many codes of ethics, <strong>in</strong>clud<strong>in</strong>g those of <strong>ICAEW</strong> and IESBA, are basedaround five fundamental pr<strong>in</strong>ciples: <strong>in</strong>tegrity; objectivity; professional competence and duecare; confidentiality; and professional behaviour. All o<strong>the</strong>r guidance derives from <strong>the</strong>se.However, <strong>the</strong>re are societal values beh<strong>in</strong>d <strong>the</strong>se pr<strong>in</strong>ciples. In particular, <strong>the</strong> determ<strong>in</strong>ation ofhow to behave with <strong>in</strong>tegrity is based on a series of underly<strong>in</strong>g moral values and motives. 168These need to be acceptable to <strong>the</strong> societies <strong>in</strong> which <strong>ICAEW</strong> and its members operate.These are less clear, particularly <strong>in</strong> an <strong>in</strong>ternational context, although <strong>the</strong> codes do <strong>in</strong>cludesome fur<strong>the</strong>r discussion on <strong>the</strong> fundamental pr<strong>in</strong>ciples. The discussion on <strong>in</strong>tegrity, <strong>for</strong>example, refers to be<strong>in</strong>g straight<strong>for</strong>ward and honest, also that it implies fair deal<strong>in</strong>g andtruthfulness. 169164Flanagan, Values, Codes of Ethics and <strong>the</strong> Law.165Section 5.2 and Panel 8.2 <strong>in</strong>clude examples.166Both from Desk<strong>in</strong>s, ‘On <strong>the</strong> Nature of <strong>the</strong> Public Interest’.167Lee and Parker, The Evolution of Corporate F<strong>in</strong>ancial Reports.168<strong>ICAEW</strong>, Report<strong>in</strong>g with Integrity.169<strong>ICAEW</strong>, Code of Ethics.Constra<strong>in</strong>ts to wants51
Panel 7.6: <strong>ICAEW</strong> and clarity of values (cont<strong>in</strong>ued)Fur<strong>the</strong>r work is be<strong>in</strong>g done <strong>in</strong> this area: <strong>for</strong> example <strong>ICAEW</strong>’s on-go<strong>in</strong>g Market Foundationsthought leadership work and a paper by <strong>the</strong> Fédération des Experts Comptables Européens,which has been explor<strong>in</strong>g <strong>the</strong> need <strong>for</strong> fur<strong>the</strong>r guidance on <strong>in</strong>tegrity <strong>in</strong> professionalethics. 170 In addition, <strong>ICAEW</strong> is carry<strong>in</strong>g out work with <strong>the</strong> TEEB coalition (The Economics ofEcosystems and Biodiversity 171 ) which addresses <strong>the</strong> importance of ecosystem services and<strong>the</strong> value of biodiversity to <strong>the</strong> economy. This work highlights <strong>the</strong> problems of def<strong>in</strong><strong>in</strong>g andagree<strong>in</strong>g values that underlie <strong>the</strong> necessary ethical <strong>framework</strong>s, and throws up <strong>the</strong> challengeof adjust<strong>in</strong>g <strong>the</strong> <strong>public</strong>’s wants or even overrid<strong>in</strong>g <strong>the</strong>m legitimately with replacement values.7.5 Chapter summaryThe relevant <strong>public</strong>’s wants may be <strong>in</strong>compatible with a <strong>public</strong> <strong>in</strong>terest outcome <strong>for</strong> a numberof reasons:• <strong>the</strong> overall impact of <strong>in</strong>dividual wants may be a sub-optimal outcome through <strong>the</strong> effectof one person’s activities directly affect<strong>in</strong>g ano<strong>the</strong>r’s, or through what <strong>the</strong> <strong>public</strong> th<strong>in</strong>k <strong>the</strong>ywant be<strong>in</strong>g distorted by <strong>in</strong>complete or wrong <strong>in</strong><strong>for</strong>mation;• common goods and services and o<strong>the</strong>r externalities, which result <strong>in</strong> a different marg<strong>in</strong>alcost-benefit to <strong>in</strong>dividuals than to society as a whole, especially tak<strong>in</strong>g qualitative issues<strong>in</strong>to account;• over-rid<strong>in</strong>g values, aris<strong>in</strong>g <strong>for</strong> example, from seek<strong>in</strong>g to lead a change <strong>in</strong> attitudes; or• over discount<strong>in</strong>g of future effects compared to current impact.As a result <strong>the</strong> relevant <strong>public</strong>’s wants may need to be adjusted. However, a ‘we know better’attitude is rightly open to challenge and <strong>the</strong>re will be an onus on advocates of <strong>public</strong> <strong>in</strong>terestactions to expla<strong>in</strong> why <strong>the</strong>y know better.170Fédération des Experts Comptables Européens, Integrity <strong>in</strong> Professional Ethics: A Discussion Paper and Analysis of Responses.171www.teebweb.org52Constra<strong>in</strong>ts to wants
8. AGGREGATION AND DECISIONThose responsible <strong>for</strong> a <strong>public</strong> <strong>in</strong>terest action need to adopt a process<strong>for</strong> decision mak<strong>in</strong>g which can be expla<strong>in</strong>ed and justified.How are decisions to be made practically, given conflicts and o<strong>the</strong>rconstra<strong>in</strong>ts?What are <strong>the</strong> roles <strong>in</strong> decision mak<strong>in</strong>g of calculation and ‘<strong>in</strong>tuition’?Credentials <strong>for</strong><strong>in</strong>vok<strong>in</strong>g <strong>the</strong><strong>public</strong> <strong>in</strong>terestImplementationApplicability of<strong>the</strong> <strong>public</strong><strong>in</strong>terestAggregation anddecision<strong>Act<strong>in</strong>g</strong> <strong>in</strong><strong>the</strong> <strong>public</strong><strong>in</strong>terestThe relevant<strong>public</strong>Constra<strong>in</strong>ts towantsThe relevant<strong>public</strong>’s wants
8. AGGREGATION AND DECISION8.1 Bases of assessmentThose responsible <strong>for</strong> a <strong>public</strong> <strong>in</strong>terest action need to adopt a process <strong>for</strong> decision mak<strong>in</strong>gwhich can be expla<strong>in</strong>ed and justified. There are frequently a number of alternative outcomes,of which more than one can be justified as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.A number of models to address <strong>the</strong> decision can be used.8.1.1 Decision by rational calculationRational decision-mak<strong>in</strong>g will generally be based on some sort of system of calculation.For example, Bazerman’s six-step approach advocates:• def<strong>in</strong>e <strong>the</strong> problem;• identify criteria and objectives;• weight <strong>the</strong> criteria;• generate alternatives;• rate <strong>the</strong> alternatives on each criterion; and• compute <strong>the</strong> optimal decision to arrive at an expected value <strong>for</strong> each alternative. 172Such <strong>for</strong>ms of decision mak<strong>in</strong>g lend <strong>the</strong>mselves to transparency of process, an importantconsideration <strong>in</strong> terms of justify<strong>in</strong>g use of ‘<strong>the</strong> <strong>public</strong> <strong>in</strong>terest’ and, <strong>in</strong> pr<strong>in</strong>ciple, <strong>the</strong>y avoidemotional override. However, <strong>the</strong>y are often easier set out <strong>in</strong> <strong>the</strong>ory than implemented <strong>in</strong>practice. Consider <strong>the</strong> issues with one calculation approach, utility. Utility is <strong>the</strong> ‘amount’of satisfaction that someone derives from some action, such as <strong>the</strong> consumption of goodsor services.The usage of ‘utility’ <strong>in</strong> relatively modern times is generally credited to Jeremy Bentham.His pr<strong>in</strong>ciple of utility argues that:• <strong>the</strong> best action is <strong>the</strong> one that br<strong>in</strong>gs <strong>the</strong> greatest utility;• <strong>the</strong> greatest utility is what is good; and• good is whatever br<strong>in</strong>gs <strong>the</strong> greatest quantity of happ<strong>in</strong>ess – although he later recognisedthat <strong>the</strong> latter two sometimes conflicted. 173John Stuart Mill took a similar l<strong>in</strong>e but, more concerned with restrict<strong>in</strong>g <strong>the</strong> boundaries ofcentral authority as a pr<strong>in</strong>ciple, he argued that <strong>in</strong>tervention should be restricted to ensur<strong>in</strong>gthat harm to o<strong>the</strong>rs is prevented. 174Ei<strong>the</strong>r way, while utilitarianism is a simple pr<strong>in</strong>ciple, it gives rise to a whole series ofphilosophical and practical questions: What do people want? What authority does or shouldgovernment and o<strong>the</strong>rs have to set policies to achieve greater utility? Do <strong>in</strong>dividuals act <strong>in</strong> away that <strong>the</strong> sum of <strong>in</strong>dividual <strong>in</strong>terests does achieve <strong>the</strong> greatest utility? How do you measureand aggregate <strong>in</strong>dividual utility?Some of <strong>the</strong>se have been considered previously. This part of <strong>the</strong> section addresses a few of<strong>the</strong> practical issues <strong>in</strong>volved <strong>in</strong> determ<strong>in</strong><strong>in</strong>g ‘<strong>the</strong> greatest happ<strong>in</strong>ess’, given a number of optionsto choose from.172Quoted <strong>in</strong> Thagard, How to Make Decisions: Coherence, Emotion and Practical Inference.173Bentham, An Introduction to <strong>the</strong> Pr<strong>in</strong>ciples of Morals and Legislation.174Mill, Utilitarianism.54Aggregation and decision
8.1.2 Decision by <strong>in</strong>tuitionMak<strong>in</strong>g decisions by what seems to us as <strong>in</strong>tuition, has also been called ‘fast th<strong>in</strong>k<strong>in</strong>g’. 175 What isactually happen<strong>in</strong>g is that an automatic sub-conscious mental process has been <strong>in</strong>voked whichrecognises patterns, draws on past experiences and which balances various actions and goals(and prejudices) aga<strong>in</strong>st each o<strong>the</strong>r. Thus many of <strong>the</strong> processes considered <strong>in</strong> <strong>the</strong> Bazermanapproach noted above are be<strong>in</strong>g undertaken, but <strong>in</strong> a less structured and objective manner.Decision mak<strong>in</strong>g by <strong>in</strong>tuition can have some advantages: speed; <strong>in</strong>tr<strong>in</strong>sically tak<strong>in</strong>g <strong>in</strong>to accountwhat we really care about; and a greater <strong>in</strong>centive to implementation. 176 It is also a useful shortcut when common sense can be applied and <strong>the</strong> proposed outcome is not go<strong>in</strong>g to be disputed.There is some empirical evidence suggest<strong>in</strong>g that calculation may sometimes be <strong>in</strong>ferior to<strong>in</strong>tuition <strong>in</strong> mak<strong>in</strong>g good judgements. 177 How often do we do an objective assessment, comeup with a ‘best’ answer and <strong>the</strong>n decide that it is not what we really want to do? This maybe because our objective assessment has caused us to focus too much attention on relativelyunimportant criteria, or because we have subconscious learn<strong>in</strong>g processes that can be<strong>in</strong>terfered with by attempts at explicit learn<strong>in</strong>g.However, decision-mak<strong>in</strong>g by <strong>in</strong>tuition also has drawbacks. It is difficult to switch off and <strong>the</strong>past experiences we are draw<strong>in</strong>g on may not actually match <strong>the</strong> current circumstances. 178O<strong>the</strong>r traits of human nature that lead to illogical decisions are considered later. In particular<strong>the</strong>se <strong>in</strong>clude an over-reliance on emotion (or even crav<strong>in</strong>g) and a lesser likelihood of realis<strong>in</strong>gthat <strong>in</strong><strong>for</strong>mation or alternatives are <strong>in</strong>accurate, irrelevant or miss<strong>in</strong>g. In addition, of particularrelevance to this study, it is difficult to demonstrate how <strong>the</strong> process has been applied and isdifficult to apply <strong>in</strong> group situations, where different members of <strong>the</strong> group arrive at different<strong>in</strong>tuitive outcomes.A comb<strong>in</strong>ation of bases – <strong>in</strong><strong>for</strong>med <strong>in</strong>tuition – is considered below.8.2 Bases of overcom<strong>in</strong>g measurement problems8.2.1 MeasurementThe fundamental pr<strong>in</strong>ciple of measur<strong>in</strong>g utility is that that utility is <strong>the</strong> sum of <strong>in</strong>dividual<strong>in</strong>terests. There<strong>for</strong>e one could set out <strong>for</strong>mulae to calculate utility.Panel 8.1: Utility calculation example(a) <strong>for</strong> an <strong>in</strong>dividualr = a1x1 + a2x2 + a3x3 + ……. +/- anx1x2x3….., where• r is <strong>the</strong> overall measure be<strong>in</strong>g maximised (<strong>for</strong> example wellbe<strong>in</strong>g or happ<strong>in</strong>ess);• x1, x2 etc are <strong>the</strong> satisfactions ga<strong>in</strong>ed from <strong>the</strong> different factors that contribute to <strong>the</strong>overall measure (examples be<strong>in</strong>g economic well-be<strong>in</strong>g, health, or safety);• a1, a2 etc are weight<strong>in</strong>g factors applied to each of <strong>the</strong> satisfactions; and• anx1x2x3 is an <strong>in</strong>teractive factor that allows <strong>for</strong> <strong>the</strong> fact that some comb<strong>in</strong>ations offactors may change overall satisfaction <strong>in</strong> a way that is not just <strong>the</strong> sum of <strong>the</strong> parts.(b) <strong>for</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terestR = ∑ Yi/Y ri, where• ri is <strong>the</strong> <strong>in</strong>dividual <strong>in</strong>terest <strong>for</strong> each person be<strong>in</strong>g considered; and• Yi/Y is a weight<strong>in</strong>g factor be<strong>in</strong>g allocated to each of those <strong>in</strong>dividuals. 179Like impact <strong>analysis</strong>, <strong>the</strong> <strong>the</strong>ory beh<strong>in</strong>d measurement <strong>in</strong> this manner is relatively easily set outbut <strong>the</strong> underly<strong>in</strong>g concepts are often difficult to quantify.8.2.2 Ends and meansOn <strong>the</strong> face of it utilitarianism is concerned with <strong>the</strong> outcome, so <strong>in</strong>tent is irrelevant. However,<strong>in</strong> terms of decision mak<strong>in</strong>g, utility will often need to be based on expected outcome, <strong>in</strong>which <strong>in</strong>tent may be relevant. 180175Kahneman, Th<strong>in</strong>k<strong>in</strong>g, Fast and Slow.176Thagard, How to Make Decisions: Coherence, Emotion and Practical Inference.177Quoted <strong>in</strong> Thagard, ibid.178Kahneman, Th<strong>in</strong>k<strong>in</strong>g, Fast and Slow.179Desk<strong>in</strong>s, ‘On <strong>the</strong> Nature of <strong>the</strong> Public Interest’.180Schultz, ‘Henry Sidgwick’.Aggregation and decision55
O<strong>the</strong>r ethical decision-mak<strong>in</strong>g models are concerned more with <strong>the</strong> means as <strong>the</strong>y are basedon behav<strong>in</strong>g accord<strong>in</strong>g to a set of moral pr<strong>in</strong>ciples, such as Kant’s adherence to a set of dutiesor Plato’s concern <strong>for</strong> good ‘character.’ 181 This need not necessarily be a polarised conflictbetween what is pragmatic and what is ‘right’, as <strong>the</strong> utilitarians’ consequences may <strong>in</strong>cludehow people feel about <strong>the</strong> means used and adverse consequences may affect <strong>the</strong> discharge of aduty or character trait (considered fur<strong>the</strong>r below).8.2.3 Subjectivity and <strong>in</strong>commensurabilityTo measure requires quantification, at least to some extent. Some measurements typically lend<strong>the</strong>mselves to quantification, examples be<strong>in</strong>g <strong>in</strong>come, expense or time. However, o<strong>the</strong>rs donot, <strong>for</strong> example contentment, or <strong>in</strong>convenience. Without some sort of quantification, issues of<strong>in</strong>commensurability arise.Panel 8.2: Examples of <strong>in</strong>commensurabilityAn example fac<strong>in</strong>g <strong>in</strong>dividuals might be when look<strong>in</strong>g <strong>for</strong> a new car: how do you compare<strong>the</strong> respective merits of more luggage space, lower fuel consumption and air condition<strong>in</strong>g?Quality cannot be measured realistically without a generally accepted def<strong>in</strong>ition or standardto assess it aga<strong>in</strong>st and that is not always available.An example with wider impact is <strong>the</strong> current debate <strong>in</strong> <strong>the</strong> UK over proposals to build anew rail l<strong>in</strong>k (known as ‘High Speed 2’) from London, through some unspoilt and attractivecountryside <strong>in</strong> Buck<strong>in</strong>ghamshire, to <strong>the</strong> English Midlands and later <strong>the</strong> North. Here abalance needs to be struck between a loss of amenity and a large amount of disruption <strong>for</strong>some, aga<strong>in</strong>st timesav<strong>in</strong>g and potential economic benefit, <strong>for</strong> o<strong>the</strong>rs. Here <strong>the</strong>re are issuesof subjectivity, <strong>in</strong>commensurability, weight<strong>in</strong>g if quantification can be achieved, potentialconflict of values and different expectations about potential benefits. This latter po<strong>in</strong>t <strong>in</strong>particular is an illustration 182 that even where <strong>the</strong>re is agreement as to what <strong>the</strong> <strong>public</strong> <strong>in</strong>terestobjective would be, <strong>the</strong>re can still be disagreements as to what <strong>the</strong> consequences will be.In this <strong>in</strong>stance it might be agreed that <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest <strong>the</strong> decision will be based onwhe<strong>the</strong>r <strong>the</strong> economic benefit to <strong>the</strong> country exceeds a certa<strong>in</strong> amount, but <strong>the</strong>re are highlyvariable op<strong>in</strong>ions as to what extra economic activity <strong>the</strong> new l<strong>in</strong>e would produce, and where.Panel 8.3: UK competition policy and <strong>the</strong> <strong>public</strong> <strong>in</strong>terestA fur<strong>the</strong>r example of multiple aims that cannot easily be compared by measurement is UKcompetition policy.For many years assessment of <strong>the</strong> acceptability of takeovers and monopolies was based aon a ra<strong>the</strong>r generic ‘<strong>public</strong> <strong>in</strong>terest’ test. The Fair Trad<strong>in</strong>g Act 1973 went a little way towardsspecify<strong>in</strong>g <strong>the</strong> matters to be considered, stat<strong>in</strong>g:‘In determ<strong>in</strong><strong>in</strong>g … whe<strong>the</strong>r any particular matter operates, or may be expected to operate,aga<strong>in</strong>st <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, <strong>the</strong> Commission shall take <strong>in</strong>to account all matters which appearto <strong>the</strong>m <strong>in</strong> <strong>the</strong> particular circumstances to be relevant and, among o<strong>the</strong>r th<strong>in</strong>gs, shall haveregard to <strong>the</strong> desirability –(a) of ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g and promot<strong>in</strong>g effective competition…;(b) of promot<strong>in</strong>g <strong>the</strong> <strong>in</strong>terests of consumers, purchasers and o<strong>the</strong>r users of goods andservices … <strong>in</strong> respect of … prices … quality and … variety…;(c) of promot<strong>in</strong>g …reduction of costs… development and use of new techniques and newproducts, and… new competitors <strong>in</strong>to exist<strong>in</strong>g markets;(d) of ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g and promot<strong>in</strong>g <strong>the</strong> balanced distribution of <strong>in</strong>dustry and employment <strong>in</strong><strong>the</strong> United K<strong>in</strong>gdom; and(e) of ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g and promot<strong>in</strong>g competitive activity <strong>in</strong> markets outside <strong>the</strong> United K<strong>in</strong>gdomon <strong>the</strong> part of producers of goods…’. 183This wide variety of aims potentially conflict. For example, help<strong>in</strong>g compete abroad cansometimes be assisted by allow<strong>in</strong>g <strong>the</strong> establishment of a large ‘national champion’ reduc<strong>in</strong>gcompetition at home. No guidance was given as to how <strong>the</strong>se matters should be balancedbut <strong>in</strong> pr<strong>in</strong>ciple it should be possible to work out, at least <strong>in</strong> money terms, <strong>the</strong> net ga<strong>in</strong>s andlosses to <strong>the</strong> national economy.181Flanagan, Values, Codes of Ethics and <strong>the</strong> Law.182Ano<strong>the</strong>r is at Section 5.2.183Wise, ‘Review of Competition Law and Policy <strong>in</strong> <strong>the</strong> United K<strong>in</strong>gdom’, Fair Trad<strong>in</strong>g Act.56Aggregation and decision
Panel 8.3: UK competition policy and <strong>the</strong> <strong>public</strong> <strong>in</strong>terest (cont<strong>in</strong>ued)In <strong>the</strong> UK Enterprise Act 2002, <strong>public</strong> <strong>in</strong>terest was directly preserved only <strong>for</strong> media mergers,where guidance was given that matters such as accurate presentation, free expressionof op<strong>in</strong>ion and plurality of views – ‘to <strong>the</strong> extent reasonable and practicable’ – would beconsidered. 184 In o<strong>the</strong>r cases <strong>the</strong> <strong>public</strong> <strong>in</strong>terest test was replaced by and large, with a purecompetition-based test, although <strong>the</strong> Secretary of State (that is, <strong>the</strong> UK government) reta<strong>in</strong>ed<strong>the</strong> power to <strong>in</strong>tervene <strong>in</strong> cases where <strong>the</strong> <strong>public</strong> <strong>in</strong>terest merited it. 185 This effectively seemedto be say<strong>in</strong>g that it is up to <strong>the</strong> government to determ<strong>in</strong>e <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, which isconsistent with our observations <strong>in</strong> <strong>the</strong> next chapter on government authority.8.2.4 InteractionDecisions as to what someone should do, cannot usually be made <strong>in</strong> isolation: it is often <strong>the</strong>case that one person’s actions will <strong>in</strong>fluence those of o<strong>the</strong>rs.Game <strong>the</strong>ory works on <strong>the</strong> premise that to every action <strong>the</strong>re is a reaction by o<strong>the</strong>r ‘players’.The reaction can, <strong>in</strong> pr<strong>in</strong>ciple, be predicted by consider<strong>in</strong>g <strong>the</strong> rules of ‘<strong>the</strong> game’ although ithas been noted that <strong>in</strong> some circumstances <strong>the</strong>re are no rules: a freewheel<strong>in</strong>g game. In suchcircumstances it has been suggested that <strong>the</strong> premise should be that a player does not get outof <strong>the</strong> game more than he or she puts <strong>in</strong>to it. 186 If <strong>the</strong> likely reaction is not what is desired, <strong>the</strong>nei<strong>the</strong>r <strong>the</strong> <strong>in</strong>itial action needs to be changed, or a more lateral approach applied: change <strong>the</strong>players, change <strong>the</strong> rules, enlist allies, tie people <strong>in</strong> or change <strong>the</strong> added value. Commercialexamples of <strong>the</strong>se sorts of behaviour <strong>in</strong>clude subsidis<strong>in</strong>g <strong>the</strong> costs of products which <strong>the</strong>n needexpensive consumables, long-term exclusivity contracts, and add<strong>in</strong>g quality to <strong>the</strong> product.One key problem with game <strong>the</strong>ory is that it presupposes rational, <strong>in</strong><strong>for</strong>med behaviour by <strong>the</strong>o<strong>the</strong>r players. 187 As discussed fur<strong>the</strong>r below, this is not necessarily <strong>the</strong> case.8.2.5 Weight<strong>in</strong>g of <strong>in</strong>terestsFrom a <strong>public</strong> <strong>in</strong>terest perspective <strong>the</strong> key aspect is not <strong>the</strong> weight<strong>in</strong>g that one <strong>in</strong>dividualundertakes between his or her collection of <strong>in</strong>terests, but how <strong>the</strong> <strong>in</strong>terests of different<strong>in</strong>dividuals, groups and even societies, are weighted. It can be argued that <strong>the</strong>re should beno weight<strong>in</strong>g at all: ‘<strong>the</strong> good of any one <strong>in</strong>dividual is of no more importance, from <strong>the</strong> po<strong>in</strong>tof view …of <strong>the</strong> universe, than <strong>the</strong> good of any o<strong>the</strong>r’. 188 However, this does not recognisethat people have vary<strong>in</strong>g needs, abilities and relative <strong>in</strong>terests <strong>in</strong> an issue, hence <strong>the</strong> caveat:‘unless…<strong>the</strong>re are special grounds <strong>for</strong> believ<strong>in</strong>g <strong>the</strong> more good is likely to be realised <strong>in</strong> <strong>the</strong>one case than <strong>in</strong> <strong>the</strong> o<strong>the</strong>r.’This <strong>in</strong>convenient but real issue causes problems: ‘<strong>the</strong> most common and most durablesource of factions has been <strong>the</strong> various and unequal distribution of property’, which has been<strong>in</strong>terpreted also to <strong>in</strong>clude abilities. ‘Those who hold and those who are without property have189 190ever <strong>for</strong>med dist<strong>in</strong>ct <strong>in</strong>terests <strong>in</strong> society.’In practice, weight<strong>in</strong>g is applied <strong>in</strong> a wide range of decisions. Politicians, <strong>for</strong> example, will atleast <strong>in</strong> <strong>the</strong>ory, tend to have more regard to poorer/disadvantaged citizens when determ<strong>in</strong><strong>in</strong>gtaxation and social spend<strong>in</strong>g policies. This can be defended up to a po<strong>in</strong>t on utilitarian groundsas <strong>the</strong> marg<strong>in</strong>al value of one pound is greater <strong>for</strong> a poor person than a well off one. A counterargumentwould be that if this is taken to <strong>the</strong> extreme, taxation/benefits would cont<strong>in</strong>ue untileveryone had <strong>the</strong> same <strong>in</strong>come, reduce <strong>in</strong>centive and thus reduce <strong>the</strong> overall pot.With<strong>in</strong> <strong>the</strong> UK accountancy profession, such discussion as <strong>the</strong>re is <strong>in</strong> <strong>the</strong> profession’s codesand o<strong>the</strong>r writ<strong>in</strong>gs implies that ‘<strong>the</strong> <strong>public</strong> <strong>in</strong>terest’ has a sense of ‘majority satisfaction’: somesituations aris<strong>in</strong>g where part of <strong>the</strong> <strong>public</strong> would be satisfied at <strong>the</strong> expense of o<strong>the</strong>r parts. 191‘National security’ is often a trump card applied although even here o<strong>the</strong>r <strong>in</strong>terests cannotbe completely dismissed. An example of this is a seventeenth century English court casewhich decided that <strong>the</strong> K<strong>in</strong>g could remove vital m<strong>in</strong>erals from a private <strong>in</strong>dividual’s land as<strong>the</strong> tak<strong>in</strong>g was considered to ‘extend to <strong>the</strong> defence of <strong>the</strong> whole realm, <strong>in</strong> which everysubject hath benefit’. It was also ordered that <strong>the</strong> K<strong>in</strong>g should restore <strong>the</strong> land afterwards. 192184Department <strong>for</strong> Bus<strong>in</strong>ess Innovation and Skills, Enterprise Act 2002: Public Interest Intervention <strong>in</strong> Media Mergers.185Ibid.186Brandenburger and Nalebuff, ‘The Right Game: Use Game Theory to Shape Strategy’.187Rappeport, ‘Game Theory Versus Practice’.188Sidgwick quoted <strong>in</strong> Schultz, ‘Henry Sidgwick’.189James Madison, quoted <strong>in</strong> Faulhaber, ‘The Rise and Fall of ‘Self Interest’’.190Faulhaber, ibid, on Madison.191The Accountancy Foundation Review Board, Protect<strong>in</strong>g <strong>the</strong> Public Interest.192‘The K<strong>in</strong>gs Prerogative <strong>in</strong> Saltpetre’ discussed <strong>in</strong> Manfredo, ‘Public Use & Public Benefit: The Battle <strong>for</strong> Upstate New York’.Aggregation and decision57
In this <strong>in</strong>stance, while national security was considered to carry significant weight<strong>in</strong>g, this wasnot considered an excuse to avoid mitigation of <strong>the</strong> effect.An <strong>in</strong>ternational study on particular medical treatments considered criteria <strong>for</strong> patient selection. 193It found that social value criteria were widely applied. The actual weight<strong>in</strong>gs were largely <strong>the</strong>product of <strong>the</strong> beliefs of <strong>in</strong>dividual doctors, although cl<strong>in</strong>ical criteria were provided by someprofessional bodies. Ano<strong>the</strong>r medical study of 450 dialysis and transplant doctors was able todeterm<strong>in</strong>e a set of weight<strong>in</strong>gs actually applied. They range from medical benefit, with a weight<strong>in</strong>gof 4.2, through, <strong>for</strong> example, will<strong>in</strong>gness – 3.7, age – 2.7, and ability to pay – 1.8, to gender –1.0. 194 Many of <strong>the</strong> aspects considered are clearly removed from broadly based impact criteriaand social value criteria can be seen as arbitrary and unfair. 195 Not least of <strong>the</strong> controversy iswhe<strong>the</strong>r <strong>the</strong> decisions should be left to specialists or take <strong>in</strong>to consideration wider <strong>public</strong> views.Sometimes <strong>the</strong>re are absolute values that are so important (<strong>for</strong> example basic human rights)that <strong>the</strong>y need to prevail <strong>in</strong> all but <strong>the</strong> most extreme situations. These can be dealt with by,<strong>in</strong> effect, apply<strong>in</strong>g a weight<strong>in</strong>g of 100% or near to it.8.2.6 Trade-off of <strong>in</strong>terestsGiven conflicts between <strong>the</strong> <strong>in</strong>terests of different elements of <strong>the</strong> relevant <strong>public</strong>, <strong>the</strong> issuearises of whe<strong>the</strong>r it is right and proper to benefit one section of <strong>the</strong> community at <strong>the</strong> expenseof ano<strong>the</strong>r: <strong>in</strong> economic terms, what is maximis<strong>in</strong>g <strong>the</strong> end result considered to mean?One measure, known as Pareto efficiency, takes it that output is maximised when it wouldbe impossible to make someone better off, without mak<strong>in</strong>g someone else worse off. Welfareeconomics, which considers distributive economic efficiency, often regards Pareto efficiencyas <strong>the</strong> appropriate measure. In perfectly competitive markets <strong>the</strong>re will be a set of prices atwhich aggregate demand equals aggregate supply <strong>for</strong> each commodity. This is competitiveequilibrium. The key pr<strong>in</strong>ciples of welfare economics are that:• every competitive equilibrium is Pareto efficient; and• every Pareto efficient outcome can be achieved by an appropriate allocation of resources.Extend<strong>in</strong>g <strong>the</strong> logic, every Pareto efficient allocation can be changed by reallocationbetween <strong>the</strong> parties <strong>in</strong>volved. 196However, this takes no account of <strong>the</strong> distribution issues that arise if consideration is be<strong>in</strong>ggiven to <strong>in</strong>terfer<strong>in</strong>g with <strong>the</strong> market equilibrium po<strong>in</strong>t <strong>in</strong> order to move to a different po<strong>in</strong>ton an output curve, or a po<strong>in</strong>t on a different curve.Panel 8.4: Pareto allocationConsider an example of possible utility outcomes <strong>for</strong> various parts of a society: 197BCAThe axes show <strong>in</strong>creas<strong>in</strong>g amounts of utility achieved by two different sections of society, <strong>for</strong>different outcomes.Position A represents <strong>the</strong> utility outcome achieved under market equilibrium. However,because of some sort of market failure, government <strong>in</strong>terference to correct that failure couldachieve positions B or C. Both B and C are on higher utility outcome curves than A so bothwould be an advance <strong>in</strong> terms of overall utility, but which, if ei<strong>the</strong>r, is a success?B is on a higher Pareto curve than C so <strong>in</strong> Pareto terms B would be a welfare success and C awelfare failure. However, <strong>in</strong> <strong>the</strong> absence of offsett<strong>in</strong>g transfers (which is a political option), toget from A to B, <strong>the</strong> much higher utility of one section is offset by a small reduction <strong>in</strong> utility<strong>in</strong> ano<strong>the</strong>r section. There is an argument that <strong>in</strong> economic terms, government <strong>in</strong>tervention islegitimate only if <strong>the</strong> position achieved through <strong>in</strong>terference is better, or at least no worse, <strong>in</strong>every way. This would <strong>the</strong> case with outcome C, which marks an improvement <strong>in</strong> utility <strong>for</strong>all sections, but B would be regarded as a failure <strong>in</strong> <strong>the</strong>se terms.193Quoted <strong>in</strong> Pleasence and Maclean, ‘The Public Interest’.194Quoted <strong>in</strong> Pleasence and Maclean, ibid.195Pleasence and Maclean, ibid.196Kay, The Truth About Markets, Besley, Welfare Economics and Public Choice.197Based on Besley, ibid.58Aggregation and decision
One way of deal<strong>in</strong>g with a position <strong>in</strong> which <strong>the</strong>re is a loss to one set of people <strong>in</strong> order tobenefit ano<strong>the</strong>r, would be to arrange offsett<strong>in</strong>g payments, <strong>for</strong> example a lump sum to offset lossof future benefits. Ano<strong>the</strong>r way would be to settle <strong>for</strong> an alternative outcome where everyone isat least no worse off even if it is, <strong>in</strong> some terms, <strong>the</strong>oretically sub optimal to ano<strong>the</strong>r outcome.This is position C <strong>in</strong> Panel 8.4. A third way is to conclude that <strong>the</strong> <strong>in</strong>terests of <strong>the</strong> section be<strong>in</strong>gbenefited are more important, <strong>in</strong> this respect at least, than those of <strong>the</strong> disadvantaged section.An example of this is welfare payments to <strong>the</strong> poor, funded by taxation on <strong>in</strong>comes of thosebetter off. This <strong>in</strong>volves weight<strong>in</strong>g of <strong>in</strong>terests.Whatever method is used, this is likely to be a key consideration <strong>in</strong> assessment by o<strong>the</strong>rs as towhe<strong>the</strong>r <strong>the</strong> action really is <strong>in</strong>tended to be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest or is more of a smokescreen,hav<strong>in</strong>g been subject to undue <strong>in</strong>fluence. Transparency is particularly important here. This is notto say that <strong>the</strong> process of <strong>the</strong> decision should take precedent over <strong>the</strong> outcome: while <strong>the</strong>re maybe pragmatic issues that result <strong>in</strong> a less than optimal outcome, that substandard outcome can hardlybe justified as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest if it is caused by prioritis<strong>in</strong>g appearance over all else.Given <strong>the</strong> tendency to concentrate on expressed <strong>in</strong>terest (discussed above) use of <strong>public</strong> vot<strong>in</strong>gand or generally supported custom and law can be safer options. 1988.3 Practical ways <strong>for</strong>wardMeasurement is <strong>the</strong>oretically simple, but <strong>in</strong> practice sensible numbers are difficulty to come by.Weight<strong>in</strong>g is possible and <strong>in</strong>deed has to be done. However, it is fraught with difficulty. How,<strong>the</strong>re<strong>for</strong>e, do those advocat<strong>in</strong>g <strong>public</strong> <strong>in</strong>terest positions actually determ<strong>in</strong>e whose <strong>in</strong>terests areto be considered and how to deal with conflicts?One option is to determ<strong>in</strong>e that <strong>the</strong>re is a ‘w<strong>in</strong>–w<strong>in</strong>’ situation: everyone is better off or at leastsome are better off and no-one is harmed. As noted <strong>in</strong> <strong>the</strong> discussion <strong>in</strong> Panel 8.4 on Paretoefficiency, this can arrive at a quite different solution to one <strong>in</strong> which <strong>the</strong>re are w<strong>in</strong>ners and losers.Given <strong>the</strong> wide divergence of op<strong>in</strong>ions and circumstances, <strong>the</strong>re is seldom an agreed view that<strong>the</strong>re has been a w<strong>in</strong>-w<strong>in</strong> anyway, or even if it is, that <strong>the</strong> allocation of ‘w<strong>in</strong>’ is fair and reasonable.However, divergent views can be taken advantage of to achieve this: if <strong>the</strong>re are differentexpectations as to what will happen, it may be possible to construct an arrangement where allparties th<strong>in</strong>k <strong>the</strong>y will w<strong>in</strong>, 199 <strong>for</strong> example fix<strong>in</strong>g upper and lower limits on a price (a cap andcollar arrangement), where <strong>the</strong> parties both regard <strong>the</strong> pric<strong>in</strong>g as <strong>in</strong> <strong>the</strong>ir <strong>in</strong>terests, due todifferent expectations as to volume.Where <strong>the</strong>re are positive and negative attributes to be considered, as is usually <strong>the</strong> case withsocial decision mak<strong>in</strong>g, impact <strong>analysis</strong> is a useful means of assess<strong>in</strong>g <strong>the</strong> net effect. It alsoassists <strong>in</strong> demonstrat<strong>in</strong>g <strong>the</strong> decision taken.One suggestion made, as a means of comb<strong>in</strong><strong>in</strong>g <strong>the</strong> best parts of all approaches, is <strong>the</strong> use of‘<strong>in</strong><strong>for</strong>med <strong>in</strong>tuition’. 200 This, <strong>in</strong> essence, takes aspects of <strong>the</strong> Bazerman approach – assess <strong>the</strong>problem, consider <strong>the</strong> goals and <strong>the</strong>ir importance, consider what actions would facilitate whatgoals – and <strong>the</strong>n make an <strong>in</strong>tuitive judgement, monitor<strong>in</strong>g your emotional reaction to differentoptions. It can also be applied <strong>the</strong> o<strong>the</strong>r way around – as noted above it is difficult to switchoff <strong>in</strong>tuition, so <strong>the</strong> rational calculation process can be used to act as a logic check on what<strong>in</strong>tuition has suggested <strong>in</strong> <strong>the</strong> first place.This approach is perhaps of more value to <strong>in</strong>dividuals than regulators or o<strong>the</strong>r accountableorganisations although even <strong>in</strong> <strong>the</strong> latter it <strong>in</strong>dicates that ‘gut feel’ can be valuable if it can bejustified as not be<strong>in</strong>g subverted by <strong>in</strong>appropriate <strong>in</strong>fluences.8.4 Chapter summaryThe advocate of a <strong>public</strong> <strong>in</strong>terest action needs to apply, and be seen to be apply, judgementto <strong>in</strong><strong>for</strong>mation ga<strong>the</strong>red about <strong>in</strong>dividual wants, needs and o<strong>the</strong>r constra<strong>in</strong>ts to wants. Theremay be a series of measurement issues to overcome, <strong>in</strong>clud<strong>in</strong>g: quantification; <strong>in</strong>teraction;weight<strong>in</strong>g; and how to maximise <strong>the</strong> end result when <strong>the</strong>re may be several acceptable solutions.A logical approach is needed to determ<strong>in</strong>e what outcome would be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, or <strong>in</strong> <strong>the</strong>case of multiple positive outcomes, most <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. A decision based on a rationalbasis of calculation will assist transparency but is easier said than done. Use of <strong>in</strong><strong>for</strong>med <strong>in</strong>tuitionand impact <strong>analysis</strong> may be relevant, although this will at least partially depend on <strong>the</strong> natureof <strong>the</strong> advocate.198Desk<strong>in</strong>s, ‘On <strong>the</strong> Nature of <strong>the</strong> Public Interest’.199Brandenburger and Nalebuff, ‘The Right Game: Use Game Theory to Shape Strategy’.200Thagard, How to Make Decisions: Coherence, Emotion and Practical Inference.Aggregation and decision59
9. IMPLEMENTATIONA proposed action is more likely to happen if people affected aremotivated to support it.When are carrot, stick or sermon approaches to implementationmost likely to be effective?How is implementation affected by human nature, authority to actand available support tools?Credentials <strong>for</strong><strong>in</strong>vok<strong>in</strong>g <strong>the</strong><strong>public</strong> <strong>in</strong>terestImplementationApplicability of<strong>the</strong> <strong>public</strong><strong>in</strong>terestAggregation anddecision<strong>Act<strong>in</strong>g</strong> <strong>in</strong><strong>the</strong> <strong>public</strong><strong>in</strong>terestThe relevant<strong>public</strong>Constra<strong>in</strong>ts towantsThe relevant<strong>public</strong>’s wants
9. IMPLEMENTATION9.1 Carrot, stick or sermon9.1.1 MotivationIf a proposed action is considered to be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, it follows that it is <strong>for</strong> <strong>the</strong> <strong>public</strong>benefit that <strong>the</strong> action actually happens. Someth<strong>in</strong>g will be more likely to happen if people aremotivated to undertake or at least support it.The first need <strong>in</strong> this respect is <strong>for</strong> <strong>the</strong> proposed action to be understood and agreed. It willhelp to reduce <strong>the</strong> risk of error if <strong>the</strong> proposition is clear and precise, able to withstand criticalreflection, consistent, and hav<strong>in</strong>g consensus. 201The next requirement is <strong>for</strong> <strong>the</strong>re to be a motivation to comply. Behavioural economicsrecognises that people do not necessarily behave rationally and are motivated by a variety offactors, considered below.The issue is exacerbated when <strong>the</strong> impact will be felt <strong>in</strong>ternationally: even where people aremotivated to do <strong>the</strong> ‘right’ th<strong>in</strong>g’, different cultures tend to have different perspectives on what<strong>the</strong> ‘right’ th<strong>in</strong>g to do is.9.1.2 Human natureFirst, self-<strong>in</strong>terest. Hobbes noted that, unlike ants and bees, people do not behave sociably as anatural state of affairs. 202 This has been attributed to a number of factors:• a tendency to: compete <strong>for</strong> honour and dignity; desire pre-em<strong>in</strong>ence; <strong>in</strong>terfere to re<strong>for</strong>mo<strong>the</strong>rs (but not <strong>the</strong>mselves); use words to misrepresent; and imag<strong>in</strong>e <strong>in</strong>juries when at rest. 203• re<strong>in</strong><strong>for</strong>c<strong>in</strong>g this is our ‘fallible reason, re<strong>in</strong><strong>for</strong>ced by passions, and our diverse abilities, whichare <strong>the</strong> source of property rights and which result <strong>in</strong> conflict’. 204• motivation by selfishness and greed <strong>for</strong> esteem, by self and o<strong>the</strong>rs. 205Given that <strong>the</strong>y exist, self-<strong>in</strong>terest and ego have long been used as motivational tools to makepeople do what <strong>the</strong> <strong>public</strong> <strong>in</strong> general (usually through government) wants <strong>the</strong>m to do. 206Whe<strong>the</strong>r people act <strong>in</strong> <strong>the</strong> <strong>in</strong>terests of o<strong>the</strong>rs through genu<strong>in</strong>e concern or esteem could beconsidered to be irrelevant here, although from an aggregate qualitative perspective, egoism isa zero-sum game but self-respect creates humanity and virtue. 207In addition, human nature makes us prone to:• follow<strong>in</strong>g herd <strong>in</strong>st<strong>in</strong>ct or ‘group th<strong>in</strong>k’; 208• a conservative tendency to stop while <strong>the</strong> go<strong>in</strong>g is good, or conversely keep plough<strong>in</strong>g onif do<strong>in</strong>g badly; 209• be<strong>in</strong>g risk averse: we are more concerned to avoid small losses than make small ga<strong>in</strong>s,accept<strong>in</strong>g a low probability of a high loss, but not vice versa. Similarly we will accept a highprobability of a low ga<strong>in</strong> but not vice versa. This can cause <strong>in</strong>surance or safety nets to result<strong>in</strong> moral hazard, as we adjust behaviour to our risk tolerance levels; 210• be<strong>in</strong>g, conversely, over confident <strong>in</strong> our own judgement; 211201Sidgwick, quoted <strong>in</strong> Schultz, ‘Henry Sidgwick’.202Quoted <strong>in</strong> Faulhaber, ‘The Rise and Fall of “Self Interest”’.203Hobbes, quoted <strong>in</strong> Faulhaber, ibid.204Madison, quoted <strong>in</strong> Faulhaber, ibid.205Mandeville referred to by Hundert, The Fable of <strong>the</strong> Bees and O<strong>the</strong>r Writ<strong>in</strong>gs.206Machiavelli, quoted <strong>in</strong> Faulhaber, ‘The Rise and Fall of ‘Self Interest’’.207Rousseau, quoted <strong>in</strong> Faulhaber, ibid.208Marnet, ‘History Repeats Itself: The Failure of Rational Choice Models <strong>in</strong> Corporate Governance’.209BBC News, ‘Hormones May Fuel Market Crises’.210Kay, The Truth About Markets.211Kay, ibid.62Implementation
• giv<strong>in</strong>g up where targets seem unatta<strong>in</strong>able; 212• unconscious bias towards what suits us; 213• over commitment to prior decisions to avoid acknowledg<strong>in</strong>g error; 214• satisfic<strong>in</strong>g ra<strong>the</strong>r than optimis<strong>in</strong>g, as heuristic ‘mental shortcut’ behaviour applies priorexperience and first impressions through rules of thumb; 215 216 and• becom<strong>in</strong>g suspicious where <strong>the</strong>re is <strong>in</strong><strong>for</strong>mation asymmetry. 217It follows from <strong>the</strong> last po<strong>in</strong>t above that <strong>the</strong> perceived trustworth<strong>in</strong>ess of those responsible <strong>for</strong> a<strong>public</strong> <strong>in</strong>terest action will directly affect reaction to it. For example, <strong>the</strong> widespread belief <strong>in</strong> <strong>the</strong>UK that roadside speed cameras are revenue-generat<strong>in</strong>g devices ra<strong>the</strong>r than to enhance safetydiscourages will<strong>in</strong>g compliance.H<strong>in</strong>dsight research <strong>in</strong>to <strong>the</strong> causes of erroneous decisions suggests that we are <strong>in</strong>fluenced bypast experiences, prejudgements and attachments that can lead us to mislead<strong>in</strong>g conclusionsabout current situations. 218It is important <strong>for</strong> those responsible <strong>for</strong> implement<strong>in</strong>g <strong>public</strong> <strong>in</strong>terest measures to work on <strong>the</strong>assumption that people will react based on human nature as it is, ra<strong>the</strong>r than as it ‘should be’.Earlier thought leadership work by <strong>ICAEW</strong> analyses <strong>the</strong> record of <strong>the</strong> UK government’s childand work<strong>in</strong>g tax credit system, <strong>in</strong>troduced <strong>in</strong> 2003. 219 It resulted <strong>in</strong> massive over- and underpaymentsand several <strong>in</strong>vestigations were carried out. The problems were at least partiallyattributed to lack of <strong>in</strong><strong>for</strong>mation, and over-complexity, which put people off claim<strong>in</strong>g, orresulted <strong>in</strong> <strong>in</strong>correct claims. This seems to be a clear example of someth<strong>in</strong>g done on <strong>the</strong> basisof how it was thought people ‘ought’ to behave, ra<strong>the</strong>r than how <strong>the</strong>y actually do.9.1.3 PresumptionThen <strong>the</strong>re is <strong>the</strong> issue of whe<strong>the</strong>r people should be treated as <strong>in</strong>nocent until proven guiltyor vice versa: should any system of government assume ‘all people are knaves’? 220We started this report observ<strong>in</strong>g that <strong>in</strong> most societies, <strong>the</strong>re is a basic presumption thatpeople should be able to go about <strong>the</strong>ir legitimate bus<strong>in</strong>ess. Sometimes ‘legitimate’ isunclear – <strong>for</strong> example where what is legal and <strong>the</strong> greyer area of what is ‘just’ do not overlap.Never<strong>the</strong>less, an assumption of guilt unless <strong>in</strong>nocence is proven does not sit easily with this.There is also a risk that a presumption of guilt will result <strong>in</strong> sub-optimal regulation: such apresumption is likely to result <strong>in</strong> an economically worse outcome than that of a system basedon a different presumption, unless <strong>the</strong>re is reason to suppose that most of those regulatedactually are likely to misbehave. 2219.1.4 The approach to implementationThe approach <strong>for</strong> <strong>the</strong> implementer to use will take <strong>the</strong> above factors <strong>in</strong>to account but willalso depend on <strong>the</strong> degree of constra<strong>in</strong>t <strong>in</strong>tended and <strong>the</strong> extent to which it is expectedthat <strong>the</strong>re is already a propensity <strong>for</strong> people to do what is wanted of <strong>the</strong>m:• Deviation from <strong>the</strong> normCompulsion through law, regulation and en<strong>for</strong>cement creates <strong>the</strong> maximum amountof constra<strong>in</strong>t <strong>in</strong> terms of comply<strong>in</strong>g with what is required (at least <strong>in</strong> <strong>the</strong> short term).An <strong>in</strong><strong>for</strong>mation approach achieves <strong>the</strong> least constra<strong>in</strong>t and <strong>in</strong>centives come somewhere<strong>in</strong> between.• Alignment of requirement with self-<strong>in</strong>terestIncentives can be used to promote behaviour through self-<strong>in</strong>terest, but law or regulationis likely to be more effective where <strong>the</strong> desire is to change behaviour <strong>in</strong> a manner thatwould o<strong>the</strong>rwise be resisted. Where <strong>the</strong>re is already a self-<strong>in</strong>terest <strong>in</strong> do<strong>in</strong>g what is wantedor it is likely that <strong>in</strong>built values will cause <strong>the</strong> required behaviour, <strong>in</strong><strong>for</strong>mation is likely tobe more effective.212Ciulla, ‘Ethics and Leadership Effectiveness’.213Bazerman quoted <strong>in</strong> Marnet, ‘History Repeats Itself: The Failure of Rational Choice Models <strong>in</strong> Corporate Governance’.214Marnet, ibid.215Marnet, ibid.216Kay, The Truth About Markets.217Kay, ibid.218F<strong>in</strong>kelste<strong>in</strong>, Whitehead and Campbell, ‘Th<strong>in</strong>k Aga<strong>in</strong>: Why Good Leaders Make Bad Decisions and How to Keep it from Happen<strong>in</strong>gto You’.219<strong>ICAEW</strong>, In<strong>for</strong>mation <strong>for</strong> Markets and Society.220Hume, referred to <strong>in</strong> Engelen, ‘Th<strong>in</strong>k<strong>in</strong>g Th<strong>in</strong>gs Through: The Value and Limitations of James Buchanan’s Public Choice Theory’.221Engelen, ibid.Implementation63
In short: ‘carrot, stick or sermon’? 222An <strong>in</strong>fluence will be <strong>the</strong> extent to which behaviour that is beyond accepted values is, <strong>in</strong> <strong>the</strong>circumstances under consideration, tolerable, and/or whe<strong>the</strong>r en<strong>for</strong>cement is needed?Panel 9.1: Traffic lightsAn example from <strong>the</strong> Ne<strong>the</strong>rlands re<strong>in</strong><strong>for</strong>ces <strong>the</strong> potential impact of consider<strong>in</strong>g alternativesto carrot or stick. There, and latterly <strong>in</strong> a number of o<strong>the</strong>r countries, <strong>the</strong>re have beenexperiments with controll<strong>in</strong>g traffic <strong>in</strong> urban areas by remov<strong>in</strong>g, ra<strong>the</strong>r than <strong>in</strong>creas<strong>in</strong>g,traffic lights, barriers and signs. In Section 7.1.1 an example was noted of chaos <strong>in</strong> Manhattanwhen power loss switched off traffic signals. This, presumably, was at least partly becausepeople were used to be<strong>in</strong>g told exactly what to do at <strong>in</strong>tersections and had ceased to have toth<strong>in</strong>k about <strong>in</strong>teract<strong>in</strong>g with o<strong>the</strong>rs. The Dutch and o<strong>the</strong>r experiments work on <strong>the</strong> premisethat by remov<strong>in</strong>g <strong>the</strong> detailed controls and mak<strong>in</strong>g cars and pedestrians <strong>in</strong>teract <strong>in</strong> a lessspecified manner: <strong>in</strong> short replac<strong>in</strong>g clarity and segregation with confusion and ambiguity,people will become more cautious and accommodat<strong>in</strong>g. The traffic world is replaced with asocial world, appeal<strong>in</strong>g to people’s <strong>in</strong>tr<strong>in</strong>sic social norms. While <strong>the</strong> traffic planners concedethis would not work everywhere, results have been encourag<strong>in</strong>g: traffic has cont<strong>in</strong>ued toflow but accidents have reduced. 223What is needed, <strong>the</strong>re<strong>for</strong>e, is a comb<strong>in</strong>ation of ‘carrot, stick and sermon’, which mighto<strong>the</strong>rwise be referred to as <strong>in</strong>centives <strong>for</strong> compliance, requirements <strong>for</strong> compliance, and<strong>in</strong><strong>for</strong>mation that persuades compliance.Panel 9.2: <strong>ICAEW</strong> approach to implementationThe approach used <strong>in</strong> practice by <strong>ICAEW</strong> illustrates <strong>the</strong> application of a comb<strong>in</strong>ation ofapproaches. The <strong>ICAEW</strong> code of ethics, <strong>in</strong> common with that of IESBA, generally applies apr<strong>in</strong>ciples based approach whereby <strong>the</strong> fundamental pr<strong>in</strong>ciples of behaviour (ie, social norms)with<strong>in</strong> <strong>the</strong> profession are set out and <strong>the</strong>n, with<strong>in</strong> a <strong>framework</strong>, <strong>the</strong> professionals <strong>the</strong>mselvesare left to determ<strong>in</strong>e potential threats to compliance with <strong>the</strong> pr<strong>in</strong>ciples and what safeguardscan be applied to address <strong>the</strong>se. The element of self-assessment <strong>in</strong>herent <strong>in</strong> such an approachdoes work on <strong>the</strong> basis of how people ought to behave, ra<strong>the</strong>r than how some do, althoughthreats to compliance through conflicts such as self-<strong>in</strong>terest, are recognised explicitly as anissue that needs to be addressed.However, <strong>the</strong>re are a number of absolute requirements and prohibitions and <strong>the</strong>se areen<strong>for</strong>ced through monitor<strong>in</strong>g and discipl<strong>in</strong>ary regimes, which recognise that some peopledo not always behave as <strong>the</strong>y ought to.Thus advantage is taken of <strong>the</strong> professional <strong>in</strong>frastructure to apply a comb<strong>in</strong>ation of ‘sermon’and targeted ‘stick’.We also discuss comb<strong>in</strong>ations of <strong>the</strong>se approaches <strong>in</strong> our thought leadership work, <strong>for</strong>example, taxes, subsidies and tradable permits and/or requirements and prohibitions <strong>in</strong> <strong>the</strong>context of implement<strong>in</strong>g susta<strong>in</strong>ability targets. 2249.2 Sufficiency of authority and remitIf a case has been made <strong>for</strong> <strong>in</strong>tervention <strong>in</strong> people’s affairs ‘<strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest’, that meansthat somebody must do <strong>the</strong> <strong>in</strong>terven<strong>in</strong>g (Hobbes’ ‘leviathan’ 225 ) and those who are <strong>the</strong> subjectof <strong>the</strong> <strong>in</strong>tervention must accept <strong>the</strong> authority to do so.As well as <strong>the</strong> means of implementation considered above, <strong>the</strong> regulator or o<strong>the</strong>r implementerneeds to consider whe<strong>the</strong>r what it believes <strong>the</strong> appropriate <strong>public</strong> <strong>in</strong>terest action is, fits withits accepted remit and/or authority. This might be too narrow or misaligned with what <strong>the</strong>regulator, hav<strong>in</strong>g taken all matters <strong>in</strong>to account, believes would be <strong>the</strong> right th<strong>in</strong>g to do.In those circumstances, a course of action might be along <strong>the</strong> l<strong>in</strong>es of: ‘let’s do what wecan with<strong>in</strong> our remit’, which will, assum<strong>in</strong>g <strong>the</strong>ir <strong>in</strong>itial <strong>analysis</strong> is right, be sub-optimal bydef<strong>in</strong>ition. An alternative course of action, <strong>in</strong> <strong>the</strong> <strong>in</strong>terests of transparency and, ultimately, <strong>the</strong>‘best’ solution, might be to <strong>public</strong>ise <strong>the</strong> issue <strong>in</strong> <strong>the</strong> <strong>in</strong>terests of a debate on whe<strong>the</strong>r <strong>the</strong> remitand/or authority should be amended, or <strong>the</strong> objective allocated elsewhere. That is, <strong>the</strong>re maybe elements of justification and persuasion.222Peter-Burth and Gotitz, ‘Review of “Carrots Sticks & Sermons”’, Rothschild, ‘Carrots, Sticks and Promises: A ConceptualFramework <strong>for</strong> <strong>the</strong> Management of Public Health and Social Issue Behaviours’.223Vanderbilt, ‘The Traffic Guru’.224<strong>ICAEW</strong>, Susta<strong>in</strong>ability: The Role of Accountants.225Quoted <strong>in</strong> Faulhaber, ‘The Rise and Fall of ‘Self Interest’’.64Implementation
9.2.1 Government authorityAt <strong>the</strong> state level <strong>the</strong> ultimate authority will take <strong>the</strong> <strong>for</strong>m of, or derive from, government,although this need not always be so. There are examples of groups <strong>in</strong> Africa exist<strong>in</strong>g withoutwhat would nowadays be regarded as government well <strong>in</strong>to <strong>the</strong> twentieth century. 226 Thereis also no authoritative <strong>in</strong>ternational government, which means that adopt<strong>in</strong>g <strong>the</strong> ‘sermon’approach is often <strong>the</strong> only proportional approach, though often slow <strong>in</strong> terms of effect. The‘stick’ approach <strong>in</strong> particular, can be extreme <strong>in</strong> an <strong>in</strong>ternational context, and raises issues ofjustification of proportionality aga<strong>in</strong>st norms which may differ from one country to ano<strong>the</strong>r.Panel 9.3: Existence of governmentTwo general explanations <strong>for</strong> <strong>the</strong> existence of government are advanced: social contract <strong>the</strong>ory,<strong>in</strong> which <strong>the</strong> cost of organisation, en<strong>for</strong>cement, and ma<strong>in</strong>tenance of <strong>public</strong> goods is outweighedby <strong>the</strong> economic benefits from <strong>in</strong>creased trade; and predatory <strong>the</strong>ory, <strong>in</strong> which <strong>for</strong>ce is usedto secure advantage <strong>for</strong> those exercis<strong>in</strong>g it. 227 From a <strong>public</strong> <strong>in</strong>terest perspective, <strong>the</strong> predatory<strong>the</strong>ory is, while perhaps a fact <strong>in</strong> some places, hardly a justification and social contract <strong>the</strong>oryhas more place as a reasonable means of consider<strong>in</strong>g <strong>in</strong>tervention <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.It follows from social contract <strong>the</strong>ory that governments, and o<strong>the</strong>r organisations set up tobenefit <strong>the</strong> <strong>public</strong>, will not be worthwhile where:• <strong>the</strong> cost would be excessive, as might be <strong>the</strong> case with an <strong>in</strong>ternational government;• <strong>the</strong> benefits would be few – <strong>for</strong> example <strong>in</strong> a primitive society where <strong>the</strong> small populationand low level of diversity <strong>in</strong> skills and preferences would result <strong>in</strong> a limited <strong>in</strong>crease <strong>in</strong>ga<strong>in</strong>s from trade. 228All governments nowadays claim authority over <strong>the</strong>ir subjects to a greater or lesser degree. 229A couple of examples <strong>in</strong>clude:• <strong>the</strong> UK Crown Proceed<strong>in</strong>gs Act 1947, which states that where <strong>the</strong> executive governmenttakes advantage of a statute it is deemed to be <strong>for</strong> <strong>the</strong> <strong>public</strong> benefit.• A comment by Harold Wilson MP (later UK Prime M<strong>in</strong>ister) <strong>in</strong> <strong>the</strong> UK parliament: ‘…In <strong>the</strong>last resort, this House is, and must be, <strong>the</strong> authority which decides whe<strong>the</strong>r or not anyparticular practice is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest.’ 230There<strong>for</strong>e, at least <strong>in</strong> <strong>the</strong> UK, <strong>the</strong> government af<strong>for</strong>ds itself democratic legitimacy and deems<strong>the</strong> determ<strong>in</strong>ations it makes to be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. This accords with <strong>the</strong> def<strong>in</strong>ition quotedearlier from a UK judge (Section 5.3) which sees <strong>the</strong> government as arbitrator.There are limits to <strong>the</strong> authority of <strong>the</strong> state. These vary from country to country, at least partlybased on <strong>the</strong> cultural issues referred to previously, as do <strong>the</strong> means of en<strong>for</strong>c<strong>in</strong>g those limits. Inmany market economies, <strong>the</strong> default position would appear to be what John Stuart Mill called<strong>the</strong> ‘liberty pr<strong>in</strong>ciple’: ‘<strong>the</strong> only purpose <strong>for</strong> which power can be rightfully exercised over anymember of a civilised community, aga<strong>in</strong>st his will, is to prevent harm to o<strong>the</strong>rs.’ 231 However, thisis not always spelt out.Even <strong>in</strong> that situation, governments will sometimes consider that o<strong>the</strong>rs are more suited toexercis<strong>in</strong>g that power: <strong>the</strong> cont<strong>in</strong>ued survival of professional bodies be<strong>in</strong>g an illustration of this.Even <strong>the</strong> liberty pr<strong>in</strong>ciple leaves wide room <strong>for</strong> <strong>in</strong>terpretation and mechanisms have evolved toconstra<strong>in</strong>, or impel, executive government action. Sometimes <strong>the</strong>se <strong>in</strong>volve <strong>in</strong>dividual or collectiveactivism apply<strong>in</strong>g what has been called: ‘<strong>the</strong> time-tested tools of <strong>in</strong>vestigative research, mediaexposés, grassroots organis<strong>in</strong>g, advocacy and litigation.’ 232 Public <strong>in</strong>terest litigation has evolved<strong>in</strong> many countries. In India, <strong>for</strong> example, one of <strong>the</strong> drivers beh<strong>in</strong>d such litigation has beendescribed as <strong>the</strong> redress<strong>in</strong>g of grievances aga<strong>in</strong>st bureaucratic unresponsiveness. 233 In <strong>the</strong> UKthis falls with<strong>in</strong> <strong>the</strong> process of ‘judicial review’, which aga<strong>in</strong> exists to keep <strong>the</strong> executive actionof <strong>the</strong> government with<strong>in</strong> <strong>the</strong> bounds of what <strong>the</strong> legislature has determ<strong>in</strong>ed to be <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest. 234 This does not, <strong>in</strong> <strong>the</strong> UK, extend to create <strong>public</strong> policy from scratch: <strong>the</strong> UKSupreme Court notes that it: ’does not have <strong>the</strong> power to strike down legislation passed by <strong>the</strong>UK parliament. It is not <strong>the</strong> court’s role to <strong>for</strong>mulate <strong>public</strong> policy, but to <strong>in</strong>terpret law.’ 235226Leeson, ‘Efficient anarchy’.227From Leeson, ibid.228Leeson, ibid.229Miller, Political Philosophy.230Hansard.231Mill, Utilitarianism. Mill used <strong>the</strong> word ‘harm’ <strong>in</strong> a narrow fashion, imply<strong>in</strong>g direct harm only.232US Public Interest Research Group, ‘Mission Statement’.233S<strong>in</strong>ha, ‘Public Interest Litigation’.234Ibid.235UK Supreme Court , ‘Frequently Asked Questions’.Implementation65
In some more autocratic regimes, such a safety valve is not available but even <strong>the</strong>re, <strong>the</strong>re areultimately limits to authority. The widespread protests and <strong>in</strong> some <strong>in</strong>stances ensu<strong>in</strong>g regimechanges <strong>in</strong> North Africa and <strong>the</strong> Middle East s<strong>in</strong>ce early 2011 are an illustration of this.9.2.2 Agreed authoritySometimes authority derives from those affected <strong>the</strong>mselves, with <strong>the</strong>m agree<strong>in</strong>g to abideby rules set by a collective body: ‘mutual coercion, mutually agreed upon’. 236 For example,<strong>the</strong> F<strong>in</strong>ancial Report<strong>in</strong>g Council (FRC), which is <strong>the</strong> <strong>in</strong>dependent oversight body <strong>for</strong> <strong>the</strong> UKaccountancy profession, is backed by <strong>the</strong> government but is not a government body. Certa<strong>in</strong>of its powers are enshr<strong>in</strong>ed <strong>in</strong> legislation but some of its activities are based around mutualagreement by <strong>the</strong> UK accountancy bodies that <strong>the</strong>y will accept <strong>the</strong> authority of <strong>the</strong> FRC <strong>in</strong><strong>the</strong>se areas.Panel 9.4: <strong>ICAEW</strong>’s remit and authority<strong>ICAEW</strong>’s remit is partly set out <strong>in</strong> law, partly <strong>in</strong> its objectives, as re-summarised <strong>in</strong> <strong>the</strong>Supplemental Charter and noted above. Many of its objectives and activities relate to <strong>the</strong>establishment, <strong>in</strong>culcation and ma<strong>in</strong>tenance of high standards of <strong>in</strong>tegrity and competenceamong its members – <strong>the</strong> rationale <strong>for</strong> it com<strong>in</strong>g <strong>in</strong>to existence <strong>in</strong> <strong>the</strong> first place. These<strong>in</strong>clude tra<strong>in</strong><strong>in</strong>g, on-go<strong>in</strong>g education, sett<strong>in</strong>g ethics standards, and regulation andmonitor<strong>in</strong>g.O<strong>the</strong>r activities relate to <strong>the</strong> o<strong>the</strong>r objectives: ‘to advance <strong>the</strong> <strong>the</strong>ory and practice ofaccountancy, f<strong>in</strong>ance, bus<strong>in</strong>ess and commerce <strong>in</strong> all <strong>the</strong>ir aspects…’ and ‘to do all such th<strong>in</strong>gsas may advance <strong>the</strong> profession of accountancy…’ These objectives could be <strong>in</strong>terpretedto mean various different th<strong>in</strong>gs. A consideration of <strong>the</strong> key areas of work that <strong>ICAEW</strong>undertakes that would seem to fall under <strong>the</strong>se objectives suggests that <strong>the</strong> objectives aretaken to cover:• provid<strong>in</strong>g guidance to members to assist with <strong>the</strong> work that many of <strong>the</strong>m typically do:such guidance is often made available to <strong>the</strong> wider <strong>public</strong>;• <strong>in</strong>teract<strong>in</strong>g with and mak<strong>in</strong>g representations to o<strong>the</strong>r regulators who now set moststandards that affect accountants and also bus<strong>in</strong>ess <strong>in</strong> general;• develop<strong>in</strong>g ‘thought leadership’ debates and materials on <strong>the</strong> markets <strong>in</strong> which bus<strong>in</strong>essoperates, areas traditionally covered by accountants, and evolv<strong>in</strong>g new areas;• look<strong>in</strong>g to raise standards with<strong>in</strong> <strong>the</strong> profession generally through <strong>in</strong>ternational outreachand additional qualifications;• and through all <strong>the</strong>se raise <strong>the</strong> reputation of <strong>ICAEW</strong> and its members specifically and <strong>the</strong>accountancy profession <strong>in</strong> general.Some of this is with<strong>in</strong> <strong>ICAEW</strong>’s own authority but much requires seek<strong>in</strong>g to persuade o<strong>the</strong>rs,with wider authority. Achiev<strong>in</strong>g an action which <strong>ICAEW</strong> believes necessary <strong>in</strong> pursuit of itsobjectives and <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, will <strong>the</strong>re<strong>for</strong>e depend on be<strong>in</strong>g persuasive, ra<strong>the</strong>r thansett<strong>in</strong>g out requirements.As noted previously, <strong>the</strong>re is a widespread view that professions use <strong>the</strong>ir <strong>public</strong> <strong>in</strong>terestresponsibilities to justify <strong>the</strong> privileges that <strong>the</strong>y attract. By comparison with someprofessions, accountancy bodies <strong>in</strong> <strong>the</strong> UK have relatively few monopolistic privileges: <strong>in</strong> mostactivities <strong>the</strong>ir members face competition from unqualified accountants and/or members ofo<strong>the</strong>r types of professional body. However, <strong>the</strong>re are some restricted activities (<strong>for</strong> examplestatutory audit) and <strong>the</strong>re will be a natural suspicion that any actions asserted to be <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest are designed to protect or facilitate such protection. The global nature ofmarketplaces and <strong>the</strong> media has also resulted <strong>in</strong> account<strong>in</strong>g scandals such as Enron, be<strong>in</strong>greflected on professional accountants and auditors around <strong>the</strong> world, regardless of actualconnection, and that has generated a fur<strong>the</strong>r suspicion about motives.When advocat<strong>in</strong>g measures <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, <strong>ICAEW</strong> will need to take care to justifyits position, as much as anyone else. A <strong>for</strong>mer <strong>ICAEW</strong> President has noted ‘that <strong>the</strong>re is alooseness <strong>in</strong> <strong>the</strong> way we refer to <strong>the</strong> <strong>ICAEW</strong>’s <strong>public</strong> <strong>in</strong>terest role…’ He went on to notethat ‘we [<strong>ICAEW</strong>] act on behalf of <strong>the</strong> <strong>public</strong> to ensure that our members work to properstandards’. 237236Hard<strong>in</strong>, quoted <strong>in</strong> Partridge, Conscience of a Progressive.237Russell, ‘What is <strong>the</strong> Public Interest?’66Implementation
9.3 Infrastructure and support toolsA fur<strong>the</strong>r factor to consider is what tools are available to those responsible <strong>for</strong> implementation.What education and <strong>public</strong>ity tools are available? What <strong>in</strong>frastructure and support is <strong>the</strong>re?The <strong>in</strong>frastructure available to those responsible <strong>for</strong> implementation and those affected, is akey consideration.Education and <strong>public</strong>ity are vital, both to <strong>in</strong><strong>for</strong>m those affected about any changes, and toimprove motivation to comply.We have so far <strong>in</strong> this section primarily been consider<strong>in</strong>g actions <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest <strong>in</strong> termsof an organisation such as a government or regulator. If <strong>in</strong>stead we look at possible actions ofan <strong>in</strong>dividual <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, <strong>the</strong> potential negative effect becomes a key consideration.The action may be unpopular with those that <strong>in</strong>fluence <strong>the</strong> <strong>in</strong>dividual’s way of liv<strong>in</strong>g (<strong>for</strong>example he or she may be consider<strong>in</strong>g mak<strong>in</strong>g <strong>public</strong> a breach of standards by an employer).Any organisation that encourages people to act <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest needs to consider supportmechanisms <strong>for</strong> its members, or o<strong>the</strong>rs as appropriate. This particularly applies to professionalbodies which require <strong>the</strong>ir members to act <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest as part of professionalism.Some countries’ legislation seeks to help <strong>in</strong>dividuals act<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest, <strong>for</strong> example<strong>the</strong> UK’s Public Interest Disclosure Act, which seeks to protect workers from reprisals because<strong>the</strong>y have raised a concern about malpractice. Never<strong>the</strong>less act<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest canresult <strong>in</strong> peer, family and/or f<strong>in</strong>ancial pressures, which support mechanisms should seek toalleviate.Panel 9.5: <strong>ICAEW</strong> and supportThe broadly pr<strong>in</strong>ciples-based approach generally used <strong>in</strong> <strong>the</strong> accountancy profession isreasonably clear as to <strong>in</strong>tent and <strong>the</strong> motivation is clear: to preserve common reputationand thus marketability.However, it does require support, both because of <strong>the</strong> significant amounts of judgementrequired to ensure <strong>the</strong> solution fits <strong>the</strong> circumstances and, sometimes, because of <strong>the</strong>consequences of act<strong>in</strong>g professionally. <strong>ICAEW</strong> has confidential advisory services available <strong>for</strong>members, along with a Support Members Scheme and, as a separate entity, <strong>the</strong> CharteredAccountants’ Benevolent Association, which can offer f<strong>in</strong>ancial and o<strong>the</strong>r support to members<strong>in</strong> need.9.4 Chapter summaryIf a proposed <strong>public</strong> policy action is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest it follows that it is <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest<strong>for</strong> that action to be implemented and implemented effectively. This requires post-decisionaction by those charged with implementation, follow<strong>in</strong>g consideration of how best to do it.That <strong>in</strong> turn depends on three key aspects:• first, how will those affected actually be expected to react to <strong>the</strong> changes be<strong>in</strong>g implemented,given human nature? Is it even clear that <strong>the</strong>re will be a consensus as to what <strong>the</strong> ‘right’th<strong>in</strong>g to do is? Many <strong>public</strong> policy <strong>in</strong>itiatives have foundered because <strong>the</strong>y are based onperceptions of how people should react, ra<strong>the</strong>r than how <strong>the</strong>y actually do behave. In addition,people’s perception of motives will be relevant.• second, are those affected able to be assured that <strong>the</strong> advocate of <strong>the</strong> action can be trustedto make a decision <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest? This was considered under <strong>the</strong> first element of <strong>the</strong><strong>framework</strong> <strong>in</strong> Chapter 3, but is also relevant here.• Third, practicalities: what remit and authority does <strong>the</strong> advocate have, and what education,<strong>public</strong>ity and support tools will be available?The answers to <strong>the</strong>se questions will all <strong>in</strong><strong>for</strong>m <strong>the</strong> decision on <strong>the</strong> relative degrees withwhich persuasion is balanced with outright requirements. Reaction needs to be anticipated <strong>in</strong>assess<strong>in</strong>g <strong>the</strong> various comb<strong>in</strong>ations of ‘carrot, stick or sermon’ that may be needed.This is <strong>the</strong> f<strong>in</strong>al element of <strong>the</strong> <strong>framework</strong> <strong>in</strong> our report, but as noted at <strong>the</strong> beg<strong>in</strong>n<strong>in</strong>g of <strong>the</strong>report, <strong>the</strong> whole process is iterative and implementation outcomes will affect <strong>the</strong> reputation of<strong>the</strong> advocate of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest action, itself feed<strong>in</strong>g through to <strong>in</strong>fluence future acceptanceand implementation.As <strong>the</strong> pace of change <strong>in</strong> society <strong>in</strong>creases, so demand <strong>for</strong>, and controversy over, actions justifiedas be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest will <strong>in</strong>crease. In this report we have identified key challenges <strong>in</strong>advocat<strong>in</strong>g, justify<strong>in</strong>g and assess<strong>in</strong>g such actions and set out a <strong>framework</strong> that we hope will beuseful <strong>in</strong> address<strong>in</strong>g <strong>the</strong>m.Implementation67
10. INVITATION TO COMMENT<strong>ICAEW</strong> welcomes comments on <strong>the</strong> <strong>analysis</strong> <strong>in</strong> this report and <strong>the</strong> proposed <strong>framework</strong>.Readers are particularly <strong>in</strong>vited to give <strong>the</strong>ir op<strong>in</strong>ions on <strong>the</strong> assertions noted below, <strong>in</strong>clud<strong>in</strong>gillustrative challenges and examples beyond those which we have noted.Comments on some of <strong>the</strong> assertions are likely to identify areas need<strong>in</strong>g fur<strong>the</strong>r review ofexist<strong>in</strong>g knowledge or fur<strong>the</strong>r research on specific issues. These and comments on o<strong>the</strong>rmatters will be taken <strong>in</strong>to account <strong>in</strong> <strong>the</strong> fur<strong>the</strong>r evolution of this <strong>framework</strong>.1. There is a <strong>public</strong> <strong>in</strong>terest <strong>in</strong> people be<strong>in</strong>g allowed to go about <strong>the</strong>ir bus<strong>in</strong>ess.However, collective <strong>in</strong>dividual actions can result <strong>in</strong> an outcome which is not <strong>for</strong> <strong>the</strong>greater good <strong>in</strong> aggregate, and so <strong>in</strong>terference can sometimes be justified <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest, even if <strong>the</strong>re is not an overall consensus.2. A detailed general def<strong>in</strong>ition of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest would not be helpful as <strong>in</strong>dividualcircumstances are too variable and detailed def<strong>in</strong>itions would be likely to result <strong>in</strong>un<strong>in</strong>tended consequences.3. ‘The <strong>public</strong> <strong>in</strong>terest’ is often used without a clear understand<strong>in</strong>g of why it is be<strong>in</strong>gused, or sometimes as a smokescreen <strong>for</strong> o<strong>the</strong>r <strong>in</strong>terests.4. We propose a <strong>framework</strong> that identifies a number of key questions to be addressedwhen justify<strong>in</strong>g actions as be<strong>in</strong>g <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. We believe it will assist<strong>in</strong> understand<strong>in</strong>g both by those advocat<strong>in</strong>g a <strong>public</strong> <strong>in</strong>terest measure and thoseassess<strong>in</strong>g it.5. There are a number of threats to a <strong>public</strong> <strong>in</strong>terest decision not actually be<strong>in</strong>g, or seento be, <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. Examples <strong>in</strong>clude past behaviour, self-<strong>in</strong>terest and lobbypressure. We suggest that safeguards should match <strong>the</strong> threat, <strong>for</strong> example act<strong>in</strong>g onfeedback, transparency of process, oversight, and a sense check on understand<strong>in</strong>g.6. We dist<strong>in</strong>guish between matters which are <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest and matters <strong>in</strong> which<strong>the</strong> <strong>public</strong> is <strong>in</strong>terested, argu<strong>in</strong>g that <strong>the</strong> latter does not determ<strong>in</strong>e <strong>the</strong> <strong>for</strong>mer.7. Consideration of <strong>the</strong> <strong>public</strong> <strong>in</strong>terest must mean be<strong>in</strong>g open to tak<strong>in</strong>g <strong>in</strong>to account<strong>the</strong> <strong>in</strong>terests of <strong>the</strong> global <strong>public</strong>. However, as a practical matter, not everyone willactually be affected by <strong>the</strong> matter at hand. The relevant <strong>public</strong> will be all those whowill be affected, or who have a legitimate remit to speak <strong>for</strong> those who are.8. There can be constra<strong>in</strong>ts to <strong>the</strong> <strong>public</strong>’s wants through, <strong>for</strong> example, self-<strong>in</strong>terest,mis<strong>in</strong><strong>for</strong>mation, and externalities. In addition, <strong>the</strong>re may be overrid<strong>in</strong>g values, though<strong>the</strong>se should be transparent.9. In pr<strong>in</strong>ciple even small scale matters can be considered to be <strong>in</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest,although <strong>in</strong> practice o<strong>the</strong>r decision-mak<strong>in</strong>g objectives might be more suitable.10. A number of ways to deal with aggregation problems and conflicts are proposed.Many of <strong>the</strong>se are variations or add-ons to utility <strong>the</strong>ory and <strong>the</strong>y <strong>in</strong>clude, <strong>for</strong>example: weight<strong>in</strong>g and rat<strong>in</strong>g; game <strong>the</strong>ory; offsett<strong>in</strong>g payments; Pareto optima;w<strong>in</strong>-w<strong>in</strong> solutions; and impact <strong>analysis</strong>, <strong>in</strong>clud<strong>in</strong>g cont<strong>in</strong>gent valuation.11. We note a number of potential approaches to implementation, summarised as ‘carrot,stick and sermon’. We suggest that <strong>the</strong> appropriate approach depends on; <strong>the</strong> likelyreaction by those affected, which is itself <strong>in</strong>fluenced by factors such as reputationof <strong>the</strong> proposer and closeness of <strong>the</strong> required behaviour to what self-<strong>in</strong>terest woulddictate; <strong>the</strong> nature of <strong>the</strong> en<strong>for</strong>c<strong>in</strong>g structure; and acceptability of alternativebehaviour.68Invitation to comment
12. The <strong>framework</strong> proposes a significant degree of transparency throughout <strong>the</strong> processof assess<strong>in</strong>g and apply<strong>in</strong>g what action is <strong>in</strong> <strong>the</strong> <strong>the</strong> <strong>public</strong> <strong>in</strong>terest. However we caveatthis with <strong>the</strong> view that a sub-standard outcome can never be justified as be<strong>in</strong>g <strong>in</strong> <strong>the</strong><strong>public</strong> <strong>in</strong>terest by prioritis<strong>in</strong>g appearance over outcome.13. As well as undertak<strong>in</strong>g a relatively high level review of <strong>the</strong> issues <strong>in</strong>volved <strong>in</strong> <strong>public</strong><strong>in</strong>terest determ<strong>in</strong>ation, this report also <strong>in</strong>cludes some illustrative examples. These<strong>in</strong>clude: balanc<strong>in</strong>g confidentiality with report<strong>in</strong>g illegal acts; how to manage trafficat road cross<strong>in</strong>gs; how to allocate scarce health resources among patients; balanc<strong>in</strong>gdifferent <strong>in</strong>terests <strong>in</strong> transport <strong>in</strong>frastructure projects; and <strong>the</strong> current debate onmanag<strong>in</strong>g government debt.Invitation to comment69
ACKNOWLEDGEMENTS<strong>ICAEW</strong> is grateful to <strong>the</strong> follow<strong>in</strong>g commentators <strong>for</strong> shar<strong>in</strong>g <strong>the</strong>ir knowledge and experienceof <strong>the</strong> topics with us, provid<strong>in</strong>g helpful reactions <strong>in</strong> a personal capacity to <strong>the</strong> developmentof <strong>the</strong> ideas <strong>in</strong> this report or comment<strong>in</strong>g on drafts of it, or participat<strong>in</strong>g <strong>in</strong> <strong>ICAEW</strong> organiseddiscussion panels on <strong>the</strong> <strong>public</strong> <strong>in</strong>terest at <strong>the</strong> American Account<strong>in</strong>g Association EthicsSymposiums <strong>in</strong> 2010 and 2012.Kenneth Chatela<strong>in</strong>Jim GaaJay HansonJeff HoopsMartyn JonesLisa L<strong>in</strong>dsleyGareth MorganPaul PalmerManuel RamirezStavros ThomadakisJohn ThorntonGraham WardRoss WattsNone of <strong>the</strong> commentators should be assumed to agree with <strong>the</strong> views expressed <strong>in</strong> this report,and <strong>the</strong>y are not responsible <strong>for</strong> any errors or omissions.The report’s pr<strong>in</strong>cipal authors are Tony Bromell and Robert Hodgk<strong>in</strong>son.70 Acknowledgements
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