Why ASIC's shrink is not a shrink

  • By Christine St Anne

Part of the problem in the recent criticism of ASIC's move to put a psychologist in boardrooms is the lack of understanding of what organizational psychologists actually do, according to a leading risk expert. 

In June ASIC appointed organisational psychologist Elizabeth Arzadon from Kiel Advisory Group to review the governance of large businesses by sitting in on boardroom discussions. 

The move has drawn criticism from some quarters particularly around how effective a role a psychologist would play in driving governance.  

Macquarie University risk expert Professor Elizabeth Sheedy highlights that this sort of criticism is based on the lack of understanding of the role that professionals like Arzadon can play in governance. 

Newspaper reports have described Arzadon as a “shrink” of the corporate regulator, a term Sheedy describes as “pejorative”. 

Here Sheedy notes that there is confusion between what medical and organisational psychologists actually do. 

“Psychologist with a medical background are trained to help people with depression and anxiety. An organisational psychologist has a completely different form of training.  

Sheedy who has a “high regard” for Arzadon said this type of profession was well trained to tackle deeply engrained conduct issues as highlighted by the recent self-assessment reports by the financial services sector. 

In May, APRA released its report analysing the self-assessments carried out by 36 of the country’s largest banks, insurers and superannuation licensees.

The corporate regulator in fact announced that it was applying additional capital requirements to several regulated institutions after an analysis of self-assessments found material weaknesses in the governance and management of non-financial risks.

“The self-assessment reports highlighted that a lot of these organisations have a poor understanding of culture. Having someone like Elizabeth on the case is crucial. Her expertise is well suited to help directors understand their role in shaping culture.” 

Sheedy believes that there are many company directors who are open to feedback. 

“Most directors’ hearts are in the right place. They want to do better. Risk governance is incredibly difficult.

“Some of these issues like challenging an executive is hard to do.” 

Ultimately, Sheedy would like to see the ASIC move succeed by helping directors do a better job of risk governance. 

“That would be a really worthy aim. What we saw both from the prudential review of CBA and the self-assessment reports is that there are real problems at board levels.” 

Within this context, Macquarie University is launching an in-depth education program on risk governance. 

There will be two versions of the course Engage the Board that will spread over six weeks. The first version is an online open course that requires students to commit 35 hours over the period. 

The masters-level course will require students to commit 75 hours over the same period with assignments graded by the University. The course also counts towards an MBA qualification. 

Sheedy also acknowledges the increasing focus by regulators on non-financial risks, an issue also highlighted in the APRA self-assessment report. 

“Non-financial risks remain important. That is why we made the new course much more holistic and will explore both financial and non-financial risks which a lot of firms feel less comfortable with.” 

There will be a webinar on Engage the Board. Register here for details