The AICD has said repeatedly that unacceptable practices across the financial sector have come to light during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Misleading regulators, charging people for products and services they did not receive, failing to compensate people in a timely manner — all these practices are unacceptable. What we have heard in the hearings are accounts of individuals who have ignored their fiduciary responsibilities and acted in their self-interest and not in the interest of their client. Financial advisers are alleged to have proposed investment strategies with no reasonable prospect of a positive return, an unethical behaviour and without integrity.
This is a question of integrity not just incentives.
This is a question of integrity not just incentives. While the focus is on the Royal Commission, integrity is a governance challenge across every sector of the economy. In community organisations — faith-based or aged care for example — and in government we have witnessed equally unacceptable behaviours. The culture of any organisation must focus on calling out and remedying individual and systemic bad behaviours. Commissioner Kenneth Hayne AC commented that, “In understanding the culture of an organisation, it is relevant to know whether it positively shows its employees how commonly accepted moral standards apply and are to be given effect in commonly encountered circumstances”.
Boards set the moral compass of their organisations. The AICD’s education program clearly focuses responsibility for culture with the board. It is a tenet of our curriculum that “the tone is set from the top”.
In the face of the Royal Commission and APRA report, the AICD faces an important challenge. What more can we do to foster the transparency, timeliness and accountability that the community expects? And what more can we do to improve governance and help boards to deliver on that accountability? How can we help a board be confident that in communicating the “tone from the top” they have their organisation focused on the right outcomes, achieved the right way?
There will be important common lessons to be taken from the Royal Commission and once it reports, we will formally incorporate these lessons into AICD’s policies, educational programs and resources for members. This is the process we followed with the Royal Commission into Institutional Responses to Child Sexual Abuse, leading to the creation of a new course, Governing for the Protection of Vulnerable People, which we will be piloting in Melbourne later this month.
We have produced a range of resources around the issues of culture and trust that directors can immediately use, including corporate governance expert Bob Garratt’s The Fish Rots from the Head, which is widely used as a guide to shaping corporate culture at organisations around the world. Extracts from AICD’s Australian Governance Summit focused on winning back trust are available on the AICD website, along with other videos and articles on the topic. And we are undertaking a growing number of advisory assignments to support boards developing their response to emerging governance issues.
As the Royal Commission continues, Company Director will explore emerging issues and provide practical insights for our members. For this month, we also are offering complimentary access to webinars covering director duties, the latest regulatory updates and the director’s role in measuring and managing culture.
In closing, I am impelled to affirm our commitment to diversity. The governance issues facing the financial services sector are not a matter of gender. Both men and women have presided over corporate and cultural failures. The evidence is clear that gender diversity, and diversity generally, is good for organisations, both in terms of performance and culture. The APRA report into the CBA highlights a lack of dissent or “overly collegial” culture, but the term “groupthink” has been in use since 1952.
Boards need a range of skills, experience and perspectives to provide effective oversight of their organisations, particularly as we confront rapid changes in technology and science, and the challenges associated with the work and workplace of the future.