When is the regulator the government’s best friend?


Clear laws, independent regulators and independent courts of appeal make for good governance. They also help government to keep politics out of important and controversial decisions. The British debate on News Corp’s proposed takeover of BSkyB is a case in point. This long running process has been tied in with the political debate in a way that undermines good decision-making.  See for example here. To avoid this problem, the takeover should be evaluated by proper authorities (presumably the OFT as a merger regulator and OfCom as the relevant communications regulator) with the politicians able to rightly say “it is out of our hands”.

There are (at least) four lessons for other jurisdictions here.

First, get your processes clearly in place before the politically controversial decision needs to be made. It is too late once the merger arrives to make the political decision about how the merger is evaluated – because it is then a ‘political decision’.

Second, independence of the regulators and the courts is paramount. We have had plenty of controversial takeovers in Australia where politicians have beaten their chest and made (sometimes outrageous) statements about what the decision should be. The regulators and courts have to be immune to this politically-motivated barracking. Note that this independence helps and protects the politicians as well as the decision-making process.

The third point: Politicians, like Ulysses, must ‘tie themselves to the mast’ to avoid the ‘Siren call’ of interference and intervention. In Australia there are a number of places where the ropes holding the politicians are loose (or non-existent). FIRB decisions on foreign investment and NCC decisions on declaration are two examples.

Of course, politicians will need to make a show of tearing off the ropes. So the fourth point: The political constraints must be tight enough so that regulatory and court decisions are made before legislative change. This then allows legislative change to be modified after the politically pressing decision is past. Hopefully this leads to better laws rather than laws that are designed for political expediency. A good example is Australia’s ‘bank signalling’ laws. My views on this are well known. Now that the political heat over banking has died down, federal parliament should re-examine the laws, broaden the ‘good bit’ (private price communications) and remove the unworkable bit (public signalling).

Politicians will always get caught up in the heat-of-the-moment battle around controversial issues. Smart politicians will recognise this as a problem and set up systems to constrain themselves from future impetuous actions.

Finally, declaration of potential conflict of interest, I am a member of the NCC as well as the regulator, ERAWA.

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