IOG at IPAC 2019 Conference – Winnipeg

8 minute read

Remarks from IOG President Toby Fyfe on panel: “Making Better Regulations: Tools and Techniques that are Transforming Policy Analysis and Development”

By Toby Fyfe – President of the IOG

Governments and regulatory organizations are facing a disruptive environment.

Surveys indicate that trust in public institutions is in decline. IPSOS tells us that 60% of Canadians have little to no confidence in government.

There is a growing belief among much of the civil society that our public institutions – including regulators who are often seen as unaccountable, out of touch, and captured by the industry they are allegedly regulating – are no longer able to achieve public policy goals and to protect the health, safety, and well-being of citizens.

In short, many regulators no longer have the trust of either the citizens they serve or the stakeholders with whom they work.

This is the context for regulatory modernization. In the last few years alone, reform initiatives have been launched in the United States, the U.K., Australia, and New Zealand, to name a few outside of Canada.

Governments typically want regulators to support competitiveness with other jurisdictions, encourage innovation, protect citizens, and remove obstacles to economic growth in response to fast moving technological and business disruption across the developed world.

Yet regulatory reform is perhaps one of the most difficult promises for a government to fulfill in a way that is meaningful for those who are subject to regulation, and for those who benefit from it.

The consequences of regulatory failures are often significant and long lasting – in terms of economic well-being, human health, and damage to the environment.

This makes it more critical than ever that governments’ regulatory modernization initiatives take account of and build trust in their ability to do the job.

By way of illustration, I would like to touch upon two current issues, both of which are front and center on the public agenda. In these two scenarios, regulators face challenges in relation to their alignment with public governance principles. A question that remains to be answered, and one that I put forward today for discussion, is whether governments and regulators are adequately responding to the important public governance challenges in the regulatory arena.

NEB / CER and Pipeline approvals

The first is Canada’s legislative and regulatory process for making decisions on large energy projects such as pipelines, and the role of the National Energy Board.

As many are aware, the government’s expert panel on the NEB modernization listed many concerns about the Board’s alignment with public governance principles.

For example, in terms of mandate and role, they reported that NEB hearings had become “an inadequate de facto forum for debates about Canada’s energy policy and climate change” for both industry and environmental groups.

On transparency, the expert panel reported hearing of an NEB “that limits public engagement…does not explain or account for many of its decisions, and generally operates in ways that seem unduly opaque.”

They also observed that the NEB “has fundamentally lost the confidence of many Canadians” and saw “major issues around how the NEB works with Indigenous peoples and the public, and how its processes can limit and even exclude the input of important parts of Canadian society.”

The government chose to create a “new” body – the Canadian Energy Regulator – with Bill C-69 that addressed issues of governance, engagement, and Indigenous participation, all with the goal of improving trust.

Key governance changes between the NEB and the CER included:

● expanding the diversity of representation and expertise on the CER Board and Commissioners, including requiring indigenous representation;

● separating the roles of the board and executive; and

● providing for independent commissioners with responsibility for “timely, inclusive and transparent decision making”

In terms of engagement, the CER is now mandated to:

● “facilitate broader public policy discussions and public engagement outside of the traditional hearing process … to give Canadians more opportunities to debate pressing issues that are beyond the scope of a project’s review”;

● engage with the public outside the hearing process; and

● expand the factors in its “public interest determination” to include environmental, social, safety, health, and socio-economic issues, gender-based impacts, indigenous impacts and climate change”

The CER is also mandated to expand Indigenous participation in many ways. Examples include:

● establishing an Indigenous advisory committee

● requiring consideration of Indigenous knowledge; and

● building capacity and enhance funding for indigenous participation.

While the governance challenges facing the energy regulator were not in dispute, there remains much controversy as to whether the government has found the right balance and solutions through Bill C-69.

FAA (Federal Aviation Administration) Certification of Boeing’s 737MAX

I’ll touch on another issue which raises different, but equally important public governance concerns. It is also instructive of how disruptive changes such as the immediate digital availability of public information represents a game-changing development for regulators. These changes illustrate that perceived gaps on public governance issues can immediately and permanently undermine legitimacy and public trust in even the most sophisticated and well-known regulators.

Anyone who travels on airplanes can probably name the company and model of plane they would not want to fly on today – it is of course the Boeing 737 MAX. Following its certification by the FAA in March 2017, reportedly in the context of stiff time to market competition between Boeing and Airbus, the MAX was the fastest selling plane in Boeing’s history. This all changed with the crash of two new 737 MAX planes in quick succession, where all passengers aboard perished. These events led to the MAX being grounded across the world by airlines, regulators from many jurisdictions, and finally the FAA in March of this year. The timelines for recertification of the 737 MAX have since been extended on multiple occasions.

One of the most authoritative pieces of investigative reporting on the 737 MAX was done by the Seattle Times, which was headlined “Flawed analysis, failed oversight: How Boeing, FAA certified the suspect 737 MAX flight control system.” Chesley “Sully” Sullenberger, the famed American Airlines pilot who safely landed in the Hudson river, stated: “These crashes are demonstrable evidence that our current system of aircraft design and certification has failed us. These accidents should never have happened.”

This tragic chain of events has surfaced deep concerns about the FAA’s fulfillment of its role in terms of public governance and citizen trust, its ability to perform effectively, its potentially conflicted role in its accountability for public safety, and its transparency around accident investigations.

Evidence to date points to several important regulatory governance failures. One relates to the FAA’s reliance on Boeing itself to “self-certify” the new 737 MAX flight safety system, reportedly due to constraints in both resources and expertise.

Another key issue relates the principle of transparency. Did the FAA act in a sufficiently timely and precautionary way to protect public safety in relation to the groundings, both after Lion Air (the first crash) and following the crash of the second plane on March 10, 2019? Could commercial considerations have influenced the FAA’s delayed actions?

In the aftermath, it has been noted that:

The flying public and aviation followers, all of whom could access detailed flight altitude data through free mobile apps, were able to see the striking similarities of the erratic plane maneuvers which occurred directly prior to the two plane crashes, and draw conclusions themselves. Immediately after the second crash, this led to thousands of passengers making personal decisions not to fly on the 737 MAX, which was quickly reflected in the decisions of many national airlines to stop flying the 737 MAX prior to the issuance of any guidance from the FAA or Boeing.

Between March 10 and March 12, 2019, 25 civil aviation authorities in China, Indonesia, Singapore, India, South Korea, Europe, Australia and Malaysia all took action to ground the 737 MAX in their areas of jurisdiction.

In contrast, following the second crash, on March 11, 2019 the FAA publicly and exceptionally issued a “continued air-worthiness notification”. On March 12, the FAA stated it had “no basis to order grounding the 737 MAX” and no data to justify such action.

On March 13, as the certifying regulator for the 737MAX, the FAA was one of the last major aviation authorities to ground the plane.

Although the full implications for the FAA from a public governance perspective are still evolving, notable actions by the US government to date have included:

● An audit of the FAA certification process by the US Office of the Inspector General

● Congressional inquiries being initiated by the House and the Senate into the certification of the 737 MAX

● The FBI joining a criminal investigation into the certification and the issuance of a Grand Jury subpoena for certification information about the MAX

Among the public governance related questions which have come to the forefront to date are:

● Whether President Donald Trump’s choice to appoint former commercial pilot and airline lobbyist Dan Elwell as acting Administrator of the FAA was appropriate to the role of leadership of the FAA.

● Whether the mandate of the FAA should be reoriented along the lines of the European Aviation Safety Agency (EASA) which is “a purely safety-oriented agency”

● Whether the FAA’s long-standing reliance on employees of airplane manufacturers to do government-required safety inspections as planes are being designed or assembled places it in a conflict of interest.

● Whether FAA’s delegation of certification of the flight safety system to Boeing employees was appropriate.

Conclusion

For elected officials, a potential takeaway from the experience of the NEB and the FAA is that public governance principles in the design and implementation of any regulatory modernization need to be considered if public trust in the regulator is to be maintained.

There is no easy, “one size fits all” approach for ensuring the success of regulatory modernization, and ensuring that meaningful results are achieved necessarily requires the active and sustained involvement of elected government leaders and senior government officials in addition to regulatory organizations.

I hope that some of my comments today have helped to raise awareness of the importance of considering key public governance principles in the context of designing a substantive and successful regulatory transformation process. Thank you for reading.