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 by Sam Bell FIML

IML’s general manager – corporate services and research


They say a fish rots from the head. If that’s true, the stench coming from the top of some of Australia’s largest financial services companies is overwhelming. As with many pundits looking from afar, I’ve been appalled by the findings unearthed by the ongoing Hayne Royal Commission into the financial services sector. Not that it should come as a shock; over many years the industry has repeatedly broken laws and acted immorally, from the bank bill swap rate scandal to the anti-money laundering case, lax compliance breaches, poor financial advice and criminal cartel charges – these are systemic problems across an industry rather than one-off bad eggs acting in isolation.

Of course, the tax payers of Australia would be pleased to know they offer the worst offenders – the four major banks – an implicit government guarantee over their deposit base. A luxury afforded to no other non-government private or public company.

It’s an indictment on the leaders of these organisations that they accept, or willfully ignore inside their organisations, a culture that permeates “poor financial advice, dubious lending practices, mis-selling of financial products, ongoing compliance breaches and an undermining of community trust” (The Australian Prudential Regulation Authority’s words, not mine). How did it come to this?


leaders asleep at the wheel

The recent APRA report that examined the frameworks and practices in relation to governance, culture and accountability within CBA was a particular eye-opener – and a must-read for all directors and management executives. It was scathing of a board asleep at the wheel, with inadequate oversight and challenge by board members, unclear accountabilities on executive committees, overly bureaucratic decision-making that favoured collaboration rather than effective outcomes, a poorly practised risk management framework that was under resourced, and a remuneration structure that offered little punishment for senior managers when poor risk or customer outcomes materialised. 

Interestingly, the APRA report found an organisation where everyone said yes to each other. While a collegiate and trusting environment was established, it appears there was little enthusiasm to constructively challenge decisions or raise alarm at matters going on inside the bank. As a result, the report concluded, “the senior leadership was slow to recognise, and address, emerging threats to CBA’s reputation”.


we can’t trust the cosy club

No wonder community mistrust of large business is so widespread. They see enormous salaries being paid (the former AMP Chair was on $660,000 per year) to some individuals who are seemingly unaware of commonly accepted moral standards. All this at the same time as wage growth is barely outpacing the inflation rate for the majority of workers.

There is also a perception of a “directors club” operating in Australia and a raft of senior board appointments selected from a small gene pool. As Federal Treasurer Scott Morrison put it, “the public sees a club that comes with directorships in Australia that creates a coziness that’s not very helpful”. While there’s community outrage, the public are not demanding blood on the streets just yet.

It might all be too late for the younger generation. The latest Deloitte Millennial Survey identifies some worrying views on business motivations and ethics. This year’s results show that fewer than half of respondents (45%) believe business has a positive impact on society. In other words, 55% of millennials believe business has a net negative impact on society. I’m in no doubt the headlines, scandals and rotting fish that’ve been widely broadcast recently have contributed to these disturbing results.

The belief that businesses behave ethically suffered a 19% fall in the survey. Deloitte also uncovered a 30% decline in the belief that business leaders are committed to helping improve society. This all coming from our next generation of leaders.

The final outcome of the Hayne Royal Commission is anyone’s guess. There’s no doubt that as the Commission traverses its way through winter and spring there’s going to be a lot more pain inflicted on what were once some of Australia’s most trusted brands. The revelations of customer mistreatment and illegality will continue to dominate the 24-hour news cycle and further erode the community’s confidence in many of our business leaders.



Further unpacking APRA’s report into the CBA, it made 35 recommendations (all have been accepted by the CBA’s leadership team) including a more rigorous board and executive committee level governance of non-financial risks, embedding accountability standards, raising the authority of the compliance functions, and making two key changes to culture: asking the question of “should we” in relation to all dealings with and decisions on customers, and a cultural change that “moves the dial from reactive and complacent to empowered, challenging and striving for best practice in risk identification and remediation”. Sound advice.

So where to from here? Malcolm Broomhead, Chair of Orica and a non-executive director of BHP summed it up well when speaking to the Australian Institute of Company Directors, noting: “We need to somehow rebuild that trust and significant radical restructuring of boards and companies – particularly in relation to remuneration structures – is central to that process”.   



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