The ghosts at the Commission

Like naughty schoolboys, the CEOs and Chairs of the largest banks this week, will line up outside of Headmaster Hayne’s office door to be brought in and caned for bringing disgrace on their venerable institutions.

And the school prefects (APRA and ASIC) will also be given an ear-bashing by the fearsome Head of Discipline, Rowena Orr QC, for letting the school bullies get away with it.

Then, undoubtedly, a very stern (last chance) letter will be sent to parents which will probably result in even more punishment of the miscreants, like taking away their iPads for a month, or at least for a few days – OK, until tomorrow.

But surely the grown-ups are at least partly responsible for the descent into such woeful behaviour?

Of course, they are! However, they are not going to face the music, and will not be hauled up before the Headmaster to explain why they have tolerated such bad behaviour for so long.

The horrendous misconduct unearthed by the Royal Commission, reveals a gross failure of corporate governance by the leadership of the largest banks.

However, those responsible - or ‘accountable’ in terms of the new BEAR legislation – the directors of the largest banks, get off scot-free. No need to turn up and apologise to the public for years of abuse by their firms, just silence.

They are the ghosts at the Commission, the unseen (and untouched) perpetrators of the chaos.

There were many submissions made from the industry in response to questions raised in the interim report. Most agreed that good corporate governance had broken down in the banking system.

For example, the directors’ trade union, the Australian Institute of Company Directors (AICD), wrung its collective hands, admitting that the directors of the major institutions, most of whom are members of the AICD, had let the side down badly.

Those responsible - or ‘accountable’ in terms of the new BEAR legislation – the directors of the largest banks, get off scot-free. No need to turn up and apologise to the public for years of abuse by their firms, just silence

The AICD expressed “its deep concern with the conduct revealed during the hearings, [which ...] runs contrary to the community's legitimate expectations of corporate behaviour”.

While acknowledging the misconduct “is inextricably connected with personal or institutional gain; deficiencies in governance and risk management; and corporate culture”, the AICD baulked at actually doing anything, claiming that additional regulation is just not needed.

The AICD repeated its standard mantra that good governance and a sound corporate culture depends on the board setting ‘the tone from the top' in establishing behavioural standards.  

However, the membership organisation did not give any suggestions about what to do about directors who don’t learn the tune, other than recommending that the lacerating of the Commonwealth Bank board in the APRA inquiry into money laundering should be “required reading for directors”.  Boy, that’s being really tough?

It’s all too hard

The submission by Federal Treasury was pretty blunt starting off with: “primary responsibility for misconduct lies with financial firms, their boards and senior executive teams” but then dithered about what to do, worrying that "the challenge is that meaningful simplification would take time, careful planning, and political will across the Parliament and over the medium term”. In other words, it’s all too hard. It appears that Treasury’s one big idea to solve the problem is to expand the new BEAR legislation to all and sundry.

The submissions by APRA and ASIC were pure Oliver Twist – More! More money, more responsibility, more staff and both now want to cooperate rather than compete on implementing more BEAR.

The banks also weighed in with their submissions to the Commission.

National Australia Bank mostly ignored the governance issue saying it would be handled in time, by a new parent/teacher body, the Combined Industry Forum (CIF). They did, however, announce that the BEAR had already forced them to change their remuneration policies to introduce deferral of bonuses for more managers.  Not really such a big change to force cultural change?

It appears that Treasury’s one big idea to solve the problem is to expand the new BEAR legislation to all and sundry

Westpac did not ignore the governance issue but said it was, prompted by APRA, undertaking a governance review which “when available, will prompt further self-reflection by Westpac to identify changes to its business, operations and governance”. In other words, don’t call us, we will call you!

In its submission, ANZ showed it was supportive of governance, announcing a new accountability and governance framework. But then shoots itself in both feet claiming that: “APRA's prudential standard on governance, CPS 510, has been and continues to be effective in improving governance practices across the industry”. Really, after what has been revealed in the Commission?

In its submission, CBA crucified by the recent APRA inquiry, also said they were ‘working on it’ but then relied on the “it’s all too hard” defence, claiming “a complex interplay of organisational and cultural factors”.

So, the stage is set at the Commission for the final act.

The bank CEOs and Chairs are going to turn up to the anticipated shellacking with their ‘still working on it’ defences.  Meanwhile the directors who hired them and who are ultimately responsible for how banks are run, will be back in their boardrooms watching TV, doubtless with a bunch of CVs on the table, just in case, like AMP, their CEO gets embarrassed by Justice Hayne.

 

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