Why Due Diligence is now a 'Categorical Imperative'

WA adopts WHS legislation with criminal manslaughter provisions
NZ charges 13 under HSWA over White Island eruption that killed 22

The adoption of the model WHS legislation in Australasia is now practically complete with the passing of the act by the Western Australian parliament.  Whilst yet to be proclaimed, the WA version includes criminal manslaughter provisions with a maximum penalty of 20 years for individuals.

Victoria is now formally the only state not to have adopted the model WHS Act, although this is practically inconsequential, as the due diligence concept to demonstrate SFAIRP (so far as is reasonably practicable) is embodied in the 2004 OHS Act, and the criminal manslaughter provisions of same commenced on the 1^st of July this year.

New Zealand adopted the model WHS legislation in the form of the Health and Safety at Work Act 2015. Judging by the number of commissions R2A has had in NZ in 2020, it has come as a bit of a surprise to many, particularly to those using the hazard-based approach of target levels of risk and safety such as ALARP (as low as reasonably practicable), that these have been completed superseded by the new legislation and cannot demonstrate safety due diligence.

New Zealand has not presently adopted the criminal manslaughter provisions being introduced into Australia, but it did include the significant penalties for recklessness (knew or made or let it happen) with up to 5 years jail for individuals.

In all Australasian jurisdictions, regulators appear prosecutorially active with a number of cases presently under investigation and before the courts. For example, the White Island volcano incident in New Zealand which killed 22. Ten parties and 3 individuals have been charged.

Perhaps what has surprised many in NZ is the observation by NZ Worksafe, that for critical (kill or maim) hazards like volcanic eruptions, it only has to be reasonably foreseeable, not actually have happened before. That is, the fact that the hazard has not occurred before is not sufficient to warrant not thinking about it any further.

All in all, due diligence has become endemic, to the point that it has become, in the philosopher Immanuel Kant’s terms, a categorical imperative.

That is, our parliamentarians and judges seem to have decided that due diligence is universal in its application and creates a moral justification for action. This also means the converse, that failure to act demands sanction against the failed decision maker, which is being increasingly tested in our courts.

Why the philosophy of compliance will always fail

A very popular pastime of Australian parliaments is to pass legislation and regulation on the basis that, once it becomes the law, everyone will comply and it will, therefore, be effective.A concomitant result is that many boards and their legal advisers conduct compliance audits to confirm that these legal obligations have been met and, having done so, declare that they are ethically robust, safe and societally responsible.This is a flawed philosophy at many levels.

• First, the sheer number and extent of laws and regulations in Australia means that the actual possibility of demonstrating compliance with each and every one is a logical impossibility. 

  Conceptually, the philosophy of compliance suggests that the more laws and regulations the better, even if the cost to demonstrate compliance continues to increase.

• Second, in safety terms, mere compliance can never make anything safe.

  It is simply not possible for our parliaments and regulators to predict in advance all the possible existing concerns, let alone the circumstances of possible future problems.The objective should be to understand the purpose of something and to meet that need. Compliance is a secondary aspect.For a simple example: Pool fencing is designed to prevent children drowning, not to satisfy a building surveyor, although this may be necessary to satisfy society that it has been done properly.

• Third, compliance has always been about ensuring minimums; controlling the worst excesses.

  It is seldom about promoting the best that we-can-do.The behaviour of the financial sector, the sex scandals in religious orders and the mistreatment in aged care are cases in point. From a societal viewpoint, the horrendous matters reported in the various Royal Commissions simply ought not to have happened.But, will increased legislation and regulation prevent such dreadful things from re-occurring in the future? Or is there a better way?

Interestingly, the engineers seem to have always understood this.

The Code of Ethics of Engineers Australia has always emphasised that the interest of society comes before sectional interests.These basic understandings, as articulated, for example, by the managing director of a major Australian Consulting Engineering firm to a young engineer in the 1970s, include:

1. S/he who pays you is your client.

A simple rule. Often overlooked. Having a building certifiers paid for by the developer easily leads to lazy certification. A better approach would be to have the (future) owners pay for the certification. The possibility of a conflict of interest would be functionally reduced by design.

2. No kickbacks.

A lot or rules and regulations can be written about this. But if a professional adviser does not understand that a hidden commission is morally indefensible, there is a problem that no amount of regulation can fix. It may not be illegal to pay a spotter’s fee, but it’s certainly morally suspect.

3. Stick to your area of competence.

Don’t provide advice or opinions without adequate knowledge. Does this really need legislation and regulation?

4. Be responsible for your own negligence.

That is, recognise that you can’t always be right. Amongst other things, advisers need professional indemnity insurance, in part, to remedy honest mistakes.

5. Give credit where credit is due.

That is, don’t take credit for what others have achieved.

 There is nothing new or novel about these basic understandings. But rather than legislating and regulating with a list of things not-to-do, it may be better to re-design the commercial environment so that virtuous behaviour is rewarded.Certainly, the old ACEA (Association of Consulting Engineers, Australia) used to do this. ACEA required that member firms were controlled by directors who were bound by the Engineers’ Code of Ethics.This meant that in the event of a decision between the best interests of the consulting firm and the client’s, the client’s interests normally held sway.

Why Risk changed to Due Diligence & Why it’s become so Important

At our April launch of the 11^th Edition of Engineering Due Diligence textbook, I discussed how the service of Risk Reviews has changed to Due Diligence and why it’s become so important for Australian organisations.

But to start, I need to go back to 1996. The R2A team and I were conducting risk reviews on large scale engineering projects, such as double deck suburban trains and traction interlocking in NSW, and why the power lines in Tasmania didn't need to comply with CB1 & AS7000, and why the risk management standard didn't work in these situations.And, what we kept finding was that as engineers we talked about high consequence, low likelihood (rare) events, and then we’d argue the case with the financial people over the cost of precautions we suggested should be in place, we’d always lose the argument.However, when lawyers were standing with us saying, 'what the engineers are saying makes sense - it's a good idea', then the ‘force’ was with us and what we as engineers suggested was done.

As a result, in the 2000s we started flipping the process around and would lead with the legal argument first and then support this with the engineering argument. And every time we did that, we won.

It was at this stage we started changing from Risk and Reliability to Due Diligence Engineers, because it was always necessary to run with the due diligence first to make our case.

Since we made this fundamental change in service and became more involved in delivering high level work, that is, due diligence, it has also become part of the Australian governance framework.Due diligence has become endemic in Australian legislation. In corporations’ law; directors must demonstrate diligence to ensure, for example, that a business pays its bills when they fall due. It's in WHS Legislation. It's in Environmental Legislation. Due diligence is now required to demonstrate good corporate governance.And what I mean by that is that there’s a swirl of ideas that run around our parliaments. Our politicians pick the ideas they think are good ones. One of these was the notion of due diligence that was picked up from the judicial, case (common) law system.There’s an interesting legal case on the topic going back to 1932: Donoghue vs Stevenson; the Snail in the Bottle. When making his decision, the Brisbane-born English law lord, Lord Aitken said that the principle to adopt is; do unto others as you would have done unto you.The do unto others principle (the principle of reciprocity) was nothing new; it’s been a part of major philosophies and religions for over 2000 years.Our parliamentarians took the do unto others idea and incorporated it into Acts, Regulations and Codes of Practice as the notion of Due Diligence.That is, due diligence has become endemic in Australian legislation and in case law, to the point that it has become, in the philosopher Immanuel Kant’s terms, a categorical imperative. That is, our parliamentarians and judges seem to have decided that due diligence is universal in its application and creates a moral justification for action. This also means the converse, that failure to act demands sanction against the failed decision maker. I discuss this further along with two examples in the article What are the Unintended Consequences of Due Diligence.To learn more about Engineering Due Diligence and the tools we teach at our two-day workshop, you can purchase our text resource here.If you’d like to discuss we can help you make diligent decisions that are safe, effective and compliant, we’d love to hear from you. Contact us today.