Will the bank chairmen step up, step down or be sacked?

Will the bank chairmen step up, step down or be sacked?

Scott Morrison says bank boards need to step up, but maybe it would be better if they actually stepped down, starting with the chairmen?

CBA’s tattered reputation took another blow today when APRA released this report on governance, culture and accountability at the bank. It will certainly increase the heat on CBA but the Treasurer was quick to extend his warning to the boards of other banks and indeed all listed companies.

We’ve already seen AMP’s Chairman, CEO and Chief Legal Counsel resign following revelations of conduct some of which counsel for the Royal Commission suggested could be criminal. There is no suggestion that boards of banks have acted criminally but revelations from the Royal Commission and going back some years confirm there are significant cultural problems within all the banks. Ultimately the boards and in particular the chairmen must take responsibility for the culture of the organisations they lead.

The question that now has to be asked is “are these the right people to lead the real cultural change that is needed or is a new broom required?

Two years ago Joanne Gray wrote an excellent article in the AFR’s Boss Magazine that revealed the attitudes and thinking of the chairmen of the big four banks. Gray interviewed the chairmen shortly after CBA’s Comminsure scandal broke which was also when the call for a royal commission was beginning to gain momentum. Each chairman spoke candidly about culture, the role of the board, the role of ASIC, managing customer conflict and the duty of care.

One of the four, CBA’s David Turner, is no longer in the role but in making an assessment as to whether the others – David Gonski, Lindsay Maxsted and Ken Henry are the best people to take their banks forward, the following quotes from Gray’s article may inform your opinion:

Lindsay Maxsted – appointed to Westpac board in 2008 & made chairman in 2011.

“What’s this about a royal commission or there’s a huge problem in banks? There’s no culture problem in banks”

“When banks sell the financial products they manufacture themselves customers get far better outcomes from some of those products which are seen to be vertically integrated than off the shelf elsewhere”

“At Westpac the board relies on external sources to find out what’s going on. While board members often encounter staff at site visits and official functions, more regular interactions would be counter productive. The board leads by example, staff don’t see the board very often but whatever interaction they have, they need to see them behaving”

“You can’t make us accountable for every one of 38,000 people doing the right thing everyday, what a lot of nonsense!”

“The focus should be on ASIC because customer protection is in its mandate. You don’t need a royal commission for that, you need to know if ASIC is doing its job properly”

ANZ’s David Gonski – appointed chairman in early 2014.

“While all the banks have had problems, it is media stories that have fed the negative public sentiment, not individuals’ bad experiences”

“Is it incumbent on the board to go right down the echelons of a 52,000 FTE company? I would say it isn’t”

“Directors should be more like role models, admired for their personal ethics”

NAB’s Ken Henry – appointed as chairman in 2015.

“When something goes wrong, the finger is going to be pointed at the board. So it’s a responsibility that we cannot escape. My view is that we should embrace the responsibility”

“Corporate leaders have responsibility for the culture of organisations and they all kind of know it, but they are struggling with how to do it and how to be effective”

CBA’s David Turner – departed as Chairman in early 2017 after 11 years on the board including 7 as chairman.

“the Comminsure scandal would not damage customer satisfaction long term. There is always a slight dip when these events take place and then the recovery is reasonably quick”.

Turner went out on a limb when he told the 2015 AGM the bank was “striving to be the ethical bank, the bank others look up to for honesty, transparency, decency, good management and openness”. But of all the banks, CBA has become known as the least ethical, honest and transparent bank but interestingly it remains by some margin the most profitable.

So will bank chairmen and directors step up, step down or be sacked? Ultimately this is a decision for the shareholders. Each bank will forge its own way but they can ill afford to pay lip service to the need for change as has been done in the past. This time it’s different. Bank boards can’t wait for the findings of the Royal Commission. The pressure is only going to build. Coming into an election, the banks will cop it from both sides. ASIC’s role has been questioned so it can be expected to be more prominent.

On May 21st, the Royal Commission will be back in the headlines when it addresses misconduct in SME banking. Stay tuned for further customer horror stories concerning Bankwest, agribusinesses and property developers and more. Kenneth Hayne QC has received over 4500 submissions and two thirds of these relates to banking compared to less than 20 per cent for financial planning and superannuation.

And at some point the Royal Commission is likely to call on the bank chairmen, directors and CEOs to face the music. In the meantime many questions remain unanswered including:

Are boards and their chairmen up for the challenge?
Are they the right people for the job?
If they were all sacked or resigned would that be a positive or a negative?
Is it fair to hold current directors responsible for decisions or omissions by the predecessors who have flown the coop?
How will we know that new chairmen and directors will be any different or better given that the current ones will be appointing their replacements?
Who in their right mind would want to take on such challenges anyway?
CBA’s response to the APRA report is that it has “embraced the report as a critical but fair assessment of the issues facing us and we will act on its recommendations”. At least now it seems banks are no longer in resistance mode.

We need to hear from the all the bank chairmen about what they are going to do about fixing our broken banking system but more importantly, regardless of whether they personally stay or go, the chairmen and directors of all the banks need to step up. They are on notice – failure to respond will ensure that politicians, regulators and consumers will render the banks irrelevant within a decade.

Interested in your thoughts


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