The ungreening of integrated reporting: a reflection on regulatory capture

Purpose The initial rationale for developing integrated reporting included addressing the failures of traditional reporting to address sustainability issues. Subsequently, the International Integrated Reporting Council (IIRC) modified its stated objectives to emphasise integrated thinking and value creation. There has been debate on whether the IIRC’s process for developing its integrated reporting framework was subject to regulatory capture by the accounting profession (Flower, 2015; Adams, 2015; Thomson, 2015). This paper aims to provide additional evidence on the extent to which this regulatory capture occurred, with an update on current developments. Design/methodology/approach Data from interviews with key participants in the integrated reporting framework’s development and the IIRC’s Council and Working Group meeting minutes were analysed to identify to what extent the change in the IIRC’s focus can be explained by regulatory capture theory. Findings The findings show that the integrated reporting framework’s development was subject to regulatory capture by accountants. However, the extent of capture was mitigated to some extent by processes adopted in its development. This is consistent with regulatory capture theory. Originality/value This paper critically examines the debate on the extent to which the sustainability message has been lost as a result of regulatory capture. It provides an in-depth analysis of the IIRC’s treatment of sustainability which explores the application of regulatory capture theory and examines evidence not considered in previous studies.

Business Entities' Liability for 'Associated Persons' Corruption: Key Reflections

Section 17A of the Malaysian Anti -Corruption Commission Act 2009 imposes liability on business entities and their management if persons associated with them offer a bribe for their benefit. It provides a new regulatory capture to the meaning ‘Associated Person’ and corporate liability. This doctrinal research highlights the associated person legal framework that business entities should take cognisance of and incorporate in business operations. A comparative approach is undertaken to investigate how other jurisdictions deal with the issue. The study’s findings are significant to Malaysia’s business entities in curbing the associated person’s corruption acts. Keywords: corporate liability; associated person; corporate corruption; risk assessment eISSN: 2398-4287© 2021. The Authors. Published for AMER ABRA cE-Bs by e-International Publishing House, Ltd., UK. This is an open access article under the CC BYNC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer–review under responsibility of AMER (Association of Malaysian Environment-Behaviour Researchers), ABRA (Association of Behavioural Researchers on Asians/Africans/Arabians) and cE-Bs (Centre for Environment-Behaviour Studies), Faculty of Architecture, Planning & Surveying, Universiti Teknologi MARA, Malaysia. DOI: https://doi.org/10.21834/ebpj.v6i18.3091

Who generated the loopholes? A case study of corporate tax advisors’ regulatory capture over anti-tax avoidance legislation in Finland

Recently welfare economists and international political economy scholars have increasingly discussed how the corporations seek profits by corroding policies that tackle tax avoidance and undermine public interest. This article contributes to these discussions on so-called regulatory captures in the global wealth chains by providing a comprehensive case study on anti-tax avoidance legislative processes in Finland. The author analyzes the statements that various stakeholders provided during several phases of enacting the interest deduction limitation rule that targets so-called thin capitalization arrangements. Because of this specific research material, the author is able to undertake a nuanced analysis in describing how and whose statements made the difference from the draft version of legislation to the final wording of the law. The evidence suggests corporate interest groups and tax advisory firms influenced the content of the rule as notable tax base eroding loopholes have been included in the Finnish anti-tax avoidance rule. The author also assesses remedies of regulatory captures.

Twin Peaks 2.0: Avoiding Influence Over an Australian Financial Regulator Assessment Authority

Globally, financial system regulators are susceptible to deliberate and inadvertent influence by the industry that they oversee and, hence, are also susceptible to acting to benefit the industry rather than the public interest – a phenomenon known as ‘regulatory capture’. Australia, arguably, has an optimal model of financial system regulation (a ‘Twin Peaks’ model) comprising separate regulators for prudential soundness on the one hand, and market conduct and consumer protection on the other. However, the current design of the Twin Peaks model has not been sufficient to prevent and address prolonged and systemic misconduct that culminated in a public Royal Commission of Inquiry into misconduct in the industry. Subsequent to the Royal Commission and other inquiries, the Department of Treasury has proposed legislation to establish an Assessment Authority to assess the effectiveness of the Twin Peaks regulators. The proposal includes enquiries by an Assessment Authority into the regulators’ independence, so as to identify instances of, and thereby mitigate, their capture. As with all financial system regulators, the Assessment Authority itself may be susceptible to regulatory capture, either by the Twin Peaks regulators, or by the financial industry. Thus, this paper poses the question: how can the new Assessment Authority be optimally constituted by legislation, and operated, to effectively oversee the effectiveness of the regulators, but itself remain insulated from the influence of the regulators and industry? We analyse the primary sources of influence over financial system regulators that the Assessment Authority will likely face and recommend ways in which a robust design of the Assessment Authority can mitigate those sources of influence. In doing so, we adopt an inter-disciplinary approach, drawing upon not only regulatory theory but also for the first time in relation to this question, organisational psychology. Our findings address gaps in the proposed legislation currently before Federal Parliament and propose methods by which those gaps may be filled, in order to ensure that this important reform to Australia’s financial regulatory regime has the greatest chance of success.

Media Capture

Interest in the problem of “media capture,” as well as academic research on this subject, has grown tremendously since 2015. Worries about media bias and the influence of owners and advertisers have been around since at least the 1800s. What has changed is the rise of autocratic governments that seek to shape public opinion and the financial troubles facing many media outlets. This has made it easier, and cheaper, for oligarchs to buy struggling outlets, giving rise to media capture. Financial woes have also shaped the incentives for such takeovers. Previously, media owners may have had financial motives but, as profit margins are squeezed, the main reason to own an outlet is to further one’s political agenda. Hence the fear that capture is worsening. The term “media capture” was first defined by a small group of economists at the beginning of the 21st century. These economists built on previous theories of regulatory capture often associated with George Stigler. Stigler used the term to explain why, instead of regulators doing their jobs, they become allied with the entities they were meant to be regulating. For the first few years, the term was not known widely in the journalism and communication fields but that has now changed. Indeed, it was political scientist Alina Mungiu-Pippidi (for more information, see: Mungiu-Pippidi, Alina. 2008. “How Media and Politics Shape Each Other in the New Europe.” In: Karol Jakubowicz and Miklós Sükösd, eds. Finding the Right Place on the Map: Central and Eastern European Media Change in a Global Perspective, Chicago: Intellect, pp. 87–100), who came up with a widely used working definition of media capture, describing it as a situation in which the news media are controlled “either directly by governments or by vested interests networked with politics” (p. 91). In this definition, it is important to focus not just on “government” but on “vested interests.” Thinking about how the state of media capture has evolved, Mungiu-Pippidi has refined her definition to distinguish between outcomes and mechanisms, noting that capture is the outcome and problems like self-censorship or soft-pressures are mechanisms by which capture is achieved. Other definitions include political scientists Daniel Hallin and Paolo Mancini’s descriptions of “instrumentalization of the media,” while economist Maria Petrova defines media capture as “one possible form of institutional subversion used by the rich to grasp benefits in the struggle for resources in an economy” (Petrova, Maria. 2008. Inequality and Media Capture. Journal of Public Economics 92:187). The author thanks Chloe Oldham and Sofia Bennett for their research.

"Part of the Solution:" Food Corporation Strategies for Regulatory Capture and Legitimacy

Background: For decades, the food industry has sought to deflect criticisms of its products and block public health legislation through a range of offensive and defensive strategies. More recently, food corporations have moved on to present themselves as "part of the solution" to the health problems their products cause. This strategic approach is characterised by appeasement, co-option and partnership, and involves incremental concessions and attempts to partner with health actors. This paper details how corporate practices have evolved and changed over the past two decades and gives some definition to what this new political economy signifies for the wider behaviours of corporations producing and selling harmful commodities. Methods: This paper draws on public health and political science literature to classify the food industry’s "part of the solution" strategy into three broad components: regulatory responses and capture; relationship building; and market strategies. We detail the key characteristics and consequences of each component. Results: The three components of the food industry’s "part of the solution" strategy all involve elements of appeasement and co-option. They also improve the political environment and resources of the food industry. Regulatory responses offer incremental concessions that seek to maintain corporate influence over governance processes and minimise the threat of regulations; relationship building fosters access to health and government stakeholders, and opportunities to acquire and maintain channels of direct influence; and market strategies to make products and portfolios healthier bolster the market share and revenue of food corporations while improving their public image. Conclusion: Rather being a signal of lost position and power, the food industry’s repositioning as "part of the solution" has created a highly profitable political economy of ‘healthy’ food production, alongside continued production of unhealthy commodities, a strategy in which it is also less burdensome and conflictual for corporations to exercise political power and influence.

How to Restrain Regulatory Capture and Promote Green Innovation in China. An Analysis Based on Evolutionary Game Theory

In response to severe environmental challenges, green innovation (GI) has been thoroughly considered by various governments. Although China has promulgated many environmental policies to promote environmental governance, regulatory capture and the lack of independent external supervisors lead to a challenging future. This study employs an evolutionary game method to explore how the policy burden and media affect decision-making between local governments and manufacturing enterprises. On this basis, the simulation method is used to examine critical factors that affect regulatory capture and GI. The results show that the policy burden is the main factor that causes regulatory capture. When the policy burden exceeds a certain threshold, it will cause regulatory capture and hinder GI. Moreover, media, as an external supervisor, can restrain regulatory capture and promote GI significantly. Specifically, when the capacity of media supervision is high enough, due to the positive role of the media, it will inhibit the negative effects of policy burdens. Finally, combined with the different development stages of China’s green industry, the corresponding policy recommendations are given. These results extend the research of regulatory capture and provide a reference for governments to promote environmental governance in practice.