Submission to the Royal Commission into Misconduct in the Banking, superannuation and financial services industry.
In this Submission to the Royal Commission Board Advisor and Corporate Governance Specialist, Geoff Nunn, explores the possibility that the configuration of Executive Remuneration in the “Big Four” banks in Australia, and other financial services organisations which follow a similar model, might be implicated in instances of negative corporate social behaviour that has been reported in recent years.
See also: Board Hot Spots 2018-2019
Banking Royal Commission Final Report 1.2.2019
Royal Commissioner Hayne and his team have done an extraordinary job over the past 12 months. Events have moved a long way from the Inquiry that we didn’t need to have to one of stark revelations of corporate misconduct. Revelations so confronting they have challenged some of the values underpinning our market driven economy and model of corporate governance.
With the skill of a master tactician, Commissioner Hayne has crafted the Final Report in in a balanced and thoughtful manner. Some longer term market fallout is inevitable as the industry confronts a level of reform and tightening of regulatory requirements. Many have argued he has used a soft touch by not calling for structural separation. Nor has he called for changes to Sections 180-184 of the Corporations Act along UK lines although this may well emerge through the work of the implementation task force.
Hayne holds boards and executive teams directly accountable for the conduct of their organisations and challenges them to re-focus their approach. He points out that social licence is not an entitlement. The prospect of civil and criminal charges loom and recommendations have been passed to the regulators. Directors, CEOs and executives remain on tenterhooks as the regulators and possibly the Commonwealth DPP consider how to proceed.
The Report has profound implications for directors across all industry sectors. It provides them with a unique, once in a generation, opportunity to examine their own conduct and that of their organisations:
“Because it is the entities, their boards and senior executives who bear primary responsibility for what has happened, close attention must be given to their culture, their governance and their remuneration practices.” Royal Commission Final Report Page 4
In our latest Governance Update (out shortly)uwe focus on four key opportunities for directors:
The opportunity for boards to reflect on their own processes, with external facilitation, and to find creative ways to engage in authentic dialogue about the issues identified in the Final Report.
The opportunity for boards to focus on ethics, credibility and reputation. The 2019 Edelman Barometer shows Australia still lags on trust on our institutions. An Edelman of the Financial Services Sector in Australia at the moment would show very negative sentiment. See Page 4.
The opportunity for some larger corporates to consider the establishment of a board “Stakeholder Relations Committee” (as is occurring in some countries) to oversight the corporation’s stakeholder engagement program. See Page 5.
The opportunity for boards to review their executive remuneration strategy and move to a simpler, more balanced model See Page 5.
All boards are reflecting on the recommendations in the Final Report and governance implications for their organisations. We are here to help you deal with this effectively.
Geoff Nunn: 0418 595 107, firstname.lastname@example.org
Di Percy: 0438 177 281, email@example.com