Trust cannot be regulated by rules or lawmakers. It must be earned, says David Leslie, chairman and chief executive officer of Ernst & Young.

In a keynote address before The Canadian Club today, Leslie said that restoring confidence in the public markets will be achieved through solid corporate and professional leadership.

“Not long ago, the financial markets could do no wrong,” said Leslie, in his speech. “Today, words and actions from the markets are met with scepticism and distrust. To regain momentum we cannot allow this climate of distrust to continue. We must turn our energies to rebuilding trust – and we are.”

“This rebuilding must start at the top. Boards of directors, corporate leadership and those in the accounting profession must back up words with actions. We must demonstrate integrity and honesty. We must demand quality and excellence. If trust is to be rebuilt, leaders must set this ‘tone at the top,'” said Leslie.

What will not work, Leslie made clear, is an attempt to simply regulate trust back into the system. “In Canada, many have looked to groups like the Canadian Institute of Chartered Accountants, the Ontario Securities Commission and the Office of the Superintendent of Financial Institutions to somehow fix things through rules and laws alone. The fact is, they can’t. And neither can the SEC in the United States. The reason is simple. You can’t regulate trust,” he said.

The Ernst & Young CEO added that while rules are needed to create a framework or environment that supports and encourages honesty and integrity, regaining the public’s trust will ultimately be won by all stakeholders adhering to best practices – and doing their jobs. It would also be a mistake, he said, for regulators and lawmakers to overreact. Disputing the idea of mandatory audit firm rotation, he said a better suggestion is to rotate audit partners and staff, not firms.

Calling it “good news” Leslie told The Canadian Club audience that in his experience board audit committees are often ahead of the regulators. He pointed to a trend toward longer, in-camera and advance meetings by audit committees that are more often setting their own, independent agendas. “Asking questions is the main role of the audit committee. Members should be sceptical and should be encouraged to do their own due diligence,” he said.