I would hazard a guess that many industries have practices that, if exposed publicly, would not meet current community standards. Most notably, recent disclosures of the misuse of private data have resulted in immediate political and community backlash, as have the revelations emerging from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Any industry that interacts with the community, even if only as a taxpayer, is now on notice — the era of accountability and transparency is well and truly here.
As a long-time participant in the financial services industry, every revelation causes me to reflect on root causes of the failures being exposed. Remuneration and bonus structures that drive poor consumer outcomes. Risk frameworks that prioritise legal compliance over ethical decision-making. Gaps in board oversight of major regulatory change and restitution projects. Whistleblowing arrangements that fail to support and encourage whistleblowing. Hiring practices that omit consideration of character. Lack of board-level accountability for, and oversight of, culture.
There is also a question about the role of subsidiary boards that oversee various businesses due to licensing requirements; whether these boards have been enabled to meet their fiduciary responsibilities will no doubt be considered as part of the Royal Commission.
One solution is for organisations to rethink the prevailing belief that doing the right thing involves first-mover disadvantage. In the short term, it may reduce market share and cause financial strain — but in the longer term, value will be preserved and reputation risk moderated.
But we need to look past the organisation — at the way regulatory frameworks are shaped by stakeholders. There have been many significant regulatory reforms — FSR (financial services review) and FOFA (future of financial advice) were the most significant. These often intense negotiations involved many groups with different agendas, which meant many concessions, with consumers not always the winner.
We need to go deeper, to look at the way performance and accountability has been driven by short-termism. Monthly and quarterly performance tables in the media, fund managers not remunerated on the “long game”, and institutional investors failing to push back on the disclosure of short-term rather than longer horizons. And the need for change is not just in the financial services industry. Many other industries should pay close heed to what is happening.