Acting in the public interest – a framework for analysis - ICAEW

By and large producers operate in smaller, more focused and influential groups than consumers.As ‘the law of diminishing returns relates to group size’ 63 it follows that producer protection,or at least protection of those with well organised interest groups (considered further below)will prevail over the consumer’s interest. Research on environmental policy in a numberof countries, albeit limited in nature, has given support to Stigler’s theory, suggesting thatelectoral concerns have a significant influence on environmental policy. 643.2.3 ErrorsIn addition to making the ‘wrong’ decision as a result of self-interest, we can all make mistakes,and that applies even to those who seek to serve the public interest. For example, some haveargued that US accounting standard-setters have moved away from conservatism towardsmark-to-market accounting, without considering how managers could and would react, partlyleading to Enron’s illusory profits. 65 There continue to be arguments about whether this form ofaccounting contributed to the 2008 banking crisis or not. 66Even when not applying a consequentialist approach, in which, in essence, the end justifies themeans, consideration of the expected, and later the actual, impact is informative and conduciveto good decisions.Learning, and being seen to learn, from experience is an important part of explaining andjustifying a decision. Past errors, new information or changes in values can contribute to a needto change views.3.3 A threats and safeguards approachWe have put forward a hypothesis that those advocating an action ‘in the public interest’should assume that they are being presumed to be acting in their own interests and will needto seek to demonstrate that this is not the case. We have noted above that there can be avariety of specific or general causes why people might particularly have cause to doubt thepublic interest argument. There can also, depending on for example remit and authority, bedifferent reasons why the public interest needs to be invoked in the first place.We referred above to an approach adopted in many professional accountancy codes of ethics,known as the principles based threats and safeguards approach. In essence, a framework isprovided to allow the professionals to determine likely potential threats to compliance with theethical principles and what safeguards can be applied to address these. If there are no effectivesafeguards, the work should not be undertaken.A similar approach can be followed here with advocates of public interest measures consideringthreats and safeguards by asking themselves a number of key questions.First, when analysing threats to belief by the relevant public that our action is in the public interest:1. Is our remit and authority consistent with what is being proposed?2. Are there specific past or present circumstances which could cause doubt about our motives?3. Is there anything that would compromise objectivity?Second, when considering what safeguards might be applied to counter suggestions of self-interest:4. Have lessons been learned from past specific events that suggested the public interestwas not being pursued? What changes have been, or can be, made to counter these – forexample different procedures, personnel, changed remit, independent oversight? Havethese been explained?5. Have we been clear about the consequences for us and those associated with us of theaction proposed, favourable or otherwise?6. Have we followed a reasonable and transparent process in making the decision on what isthe best public interest outcome and how to implement it?7. As an important sense check on the process, do we really understand our rationale fordeciding what action we favour and why it is in the public interest? Can we explain itand why it is relevant and proportional to frequency and impact of the issue in question– proportionality becoming particularly important in societies where the extent ofintervention and regulation is often questioned?63Pelzman, quoted in Tanguay, Lanoie and Moreau, ‘Environmental policy, public interest and political market’.64Tanguay, Lanoie and Moreau, ibid.65Watts, ‘What has the Invisible Hand Achieved?’66For example, The Guardian, ‘Bank of England official calls for bespoke accounting standards for banks’.22Credentials for invoking the public interest