From opening remarks made to Worthy of Trust? Law, Ethics and Culture in Banking. Delivered on 21 March 2017.
Lord Thomas said,
‘[L]aw and regulation on their own will never be enough. Even when we are agreed on the principles that should apply, it has never been enough.
As reflected in the basic principles on which our law was developed, everyday business life is conducted on the assumption that you choose carefully the person with whom you do business and enter into business only with a person in whom you believe you can trust.
That is so because it is quite impossible to devise a legal or regulatory regime that can supervise the conduct of another party to a bargain.
Unless you wish to buy yourself a dispute, you would never contemplate entering into a contract with someone whom you did not trust; it is perhaps a marked feature of a failure to understand this principle that has led many to believe a good contract can solve all the problems.
That is to misunderstand the limited role that a legal or regulatory regime can achieve. The better view is that expressed by Bowen LJ in 1883: “Mercantile genius consists principally in knowing whom to trust and with whom to deal.”
Let me take the late Mr Robert Maxwell as an example of the importance of trust and the limits of regulation. In a report published in 1971, Inspectors appointed by the predecessor of the Department of Business had concluded that he was not a person who could be relied upon to exercise proper stewardship of a publicly quoted company. In 1988, when Mr Maxwell applied to the then regulator to be the chairman of the investment managers of the pension fund, he was approved. The distinguished chairman of the regulator was recorded as observing that it was “a pity that we could not exclude that crook”. He was in effect driven to that view because Mr Maxwell was the kind of man who would have challenged the regulator in court and a regulator cannot act without hard evidence. As my co-Inspector and I concluded in 2001 in the Report into Mirror Group Newspapers:
“An approval is more in the nature of a negative clearance rather than a positive approval.”
Given the limited effectiveness that law and regulation can ever hope to achieve in the fair and proper operation of markets and commerce, we cannot afford to leave work on the pillar of integrity and ethics underdeveloped.’
[Formatted for ease of reading].