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OECD – Building Trust : BIAC Governance Committee Vice Chair, Dr. Argüden’s remarks

OECD Forum
Trust in Business
Dr. Yılmaz Argüden, Vice Chair of BIAC Governance Committee
Wednesday 3 June, 9.00-10.30

  • I commend the OECD for addressing the issue of trust in a comprehensive manner.
  • Trust is the essence of good governance and foundation of development. Any deficiency of trust, whether in the private or public sector increases risk premium, transactions costs, enforcement and compliance costs, and thereby hindering economic development. At the same time, good governance is a culture and a climate in which such a culture flourishes. Therefore, it has to be addressed at all levels, public, private, and NGOs.
  • Restoring trust is key in all instances where there is an agency problem which may take different forms: fraud, cronyism, lethargy, risk aversion, excessive risk taking. It also requires making balanced judgements on evaluation of the risk-reward balance, short term – long term impacts, and prevention of preferential treatment of any stakeholder.
  • The areas we need to consider should not be limited to anti-corruption, but also include human rights, labour rights, environmental and social impacts, such as those addressed by the UN Global Compact.
  • At the 2014 OECD Ministerial Council Meeting, Ministers underlined the importance of rebuilding trust in governments as well as in private actors. On this basis, the OECD developed the “Trust Strategy”, which is meant to help rebuild public trust towards markets, public institutions and governments.
  • My BIAC colleague Corinne Lagache is addressing in more detail the second pillar of the Trust strategy: Trust in Business.
  • But I would like to also remind that BIAC also strongly supports the project on trust in public institutions.
  • As you know, the Trust in Public Institutions project aims to define a conceptual and statistical framework to measure trust in public institutions:
    • Efficient governance and effective enforcement of legal frameworks are important for trust among business and for the economy as a whole.
    • To operate and be successful, business depends upon stable, transparent, predictable and efficient legal frameworks. These elements are the basis for a level playing field and for a competitive, confidence-inducing business environment.
    • The fair and consistent implementation of rules is another key element for trust in business.
  • However, in 2014, BIAC launched an economic survey which revealed that only 4% of the OECD’s 2013 “Going for Growth” country-specific recommendations were fully implemented a year later, and 35% not implemented at all.
  • It is absolutely necessary to improve the effectiveness of regulatory consultation processes.
  • This is why we strongly support the OECD initiative on Measuring Regulatory Performance and its focus on three major indicators for efficient: regulatory processes: Regulatory Impact Assessment, Stakeholder Engagement, and Ex-Post Evaluation.
  • Essential internal procedural safeguards should also include transparency of the process and non-discriminatory implementation, disregarding the nationality of the parties involved, as well as fairness of enforcement actions.
  • Rule of law is an indispensable prerequisite for fostering investment and predictability for business.
  • Building and restoring trust depend on three things:
    • Clearly expressed values and principles that are in line with the priorities of the community.
    • Embedding those values and principles effectively in the day to day decisions and actions of the public sector.
    • Reporting publicly and transparently on progress and performance so that all stakeholders can form judgements, with particular emphasis on materiality as considered in the Integrated Reporting framework.
  • What we would expect from governments now is an Open Declaration of Intent for actions that aim to build trust and transparent sharing of the performance and results on a regular basis, on a similar model as the UN Global Compact requirement of annual communication on progress.
  • In sum, I would say that for markets to be able to grow and produce wealth, trust is an indispensable precondition. Without trust, governments will face difficulties to implement and secure acceptance of policies needed to address today’s challenges. Efforts to promote trust in business and trust in governments should go hand in hand.