The litany of scandals plaguing the Commonwealth Bank from financial planning to money laundering has exposed a business with varying culture problems or sub cultures and there is no easy fix.
This is the assessment of Professor Dimity Kingsford Smith, director of the Centre for Law Markets and Regulation (CLMR), University of New South Wales Law.
Speaking ahead of the CLMR summit later this month on the topic of culture and regulation, Kingsford Smith said the current cultural problems impacting CBA are complex.
Part of the issue is that a large complex business like CBA has separate functions, and these will likely have variations or sub-cultures that may experience failures in ethics and conduct.
The bank’s business units including financial planning, retail banking, CommInsure and dealing rooms which have been implicated in a range of scandals from bad advice, to money laundering, to rate rigging.
According to Kingsford Smith, these units may have particular sub cultures.
The work of the Board, new chief executive and senior leadership will be to address attitudes and beliefs leading to these cultural pockets with regulatory concerns and even a sense of ambivalence.
The fact that there are problems in a number of areas highlights that the bank may have an organisational problem with culture.
“In the past, it was put down to having a few bad apples. But the regulatory action against various parts of CBA’s businesses has exposed non-compliant behaviour likely related to subcultures in those parts of the business.”
A structural overhaul?
“In many organisations, the response to addressing cultural problems is to let some people go and hire new teams that will change the underlying values of the organisation. This requires big restructuring programs,” she said.
Indeed, when CBA promoted Matt Comyn – a 19-year veteran of the bank – to replace outgoing chief Ian Narev - there was criticism that an external appointment was needed in order to overhaul management and the culture.
While there was merit in hiring an external executive, Kingsford Smith said that there is “no one size all” fit to the solution, adding that simply removing senior management would not necessarily lead to an overhaul of the cultural problem.
“For a large business to tackle culture, businesses need to change staff values, the way their staff are remunerated and change the organisation’s understanding of the purpose of financial transactions especially for retail customers.”
Here she means that frontline staff selling to and advising customers must adopt a prudent approach to managing their client’s money without unnecessary risks despite the potential high returns.
That is why initiatives such as the Banking and Finance Oath, a project led by the Ethics Centre with the support of industry was important as it promoted the importance of individual responsibility in upholding ethical standards.
Lessons from Johnson & Johnson
Dimity said the bank will also face further costs through its conduct failures, already revealed in its first-half profit of $4.8 billion.
She added that ongoing regulatory security will also weigh on the bank both in reputation and the bottom line, highlighting that “basic ethical settings” in linking conduct to shareholder value can be found in the credo adopted by pharmaceutical giant Johnson & Johnson.
The Johnson & Johnson credo aims to uphold the multinational’s values in all parts of business and with all its stakeholders including the medical community, its staff, customers, regulators and shareholders.
“I understand that Johnson & Johnson is not a perfect company. The business has had to confront ethical issues with its products but as a credo, it ensures that doing the right thing for all stakeholders will deliver for shareholders.”
According to Kingsford Smith, it will take a “generational change” in CBA to see a cultural shift that adheres to the ethics demanded by good governance and is willing to “bet significant real estate” on the fact that Comyn won’t be able to change that culture.
“As the saying goes, it’s difficult for a leopard to change their spots. While the other big banks have had their share of conduct issues, CBA has the highest number of scandals."