Overhauling corporate culture in the aftermath of the Royal Commission

Interviews

by Jessica Amir

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Australian Banking Association CEO Anna Bligh discusses the aftermath of the Royal Commission, bank staff pay and how the sector can drive cultural change.

Jessica Amir:
Thanks for tuning into the Finance News Network. Today, I'm at the Australian Banking Association (ABA) offices with the CEO, Anna Bligh. Anna, thank you so much for having us again.

Anna Bligh: Pleasure to be with you.

Jessica Amir: So first up, to the Royal Banking Commission final report that was handed down over a month ago now, for you as the CEO of the ABA, what are the key findings?

Anna Bligh: Well, the final report is a very comprehensive document. It has 76 recommendations for changes across all of banking and finance. 29 of those recommendations are specific to banking. And a number of those, seven of them directly for implementation by the Australia Banking Association. They are largely recommendations to change the banking code of practice which is administrated by the association. So it's been a very busy time. I know government is now casting their mind to how they might begin to draft legislation. I know that the opposition has been making their position public. A number of other industry associations in insurance and financial advice also looking at the parts of the part that apply to them. But if you look at it as a whole, I would see it as one of the largest comprehensiveness sector wide pieces of reform that the industry has seen in decades. It's big and it's important. I think what you will see at the end of it are much more customer focused organisations.

Jessica Amir: As you said there is so much to look and so much to take into account. But for you what are the major steps that need to take place to implement necessary change?

Anna Bligh: Our very clear priority is to get on as quickly as possible and implement the seven recommendations that are directly for us to implement. That means redrafting new clauses for our code of practice, having those submitted to ASIC for approval and then including them in the code of practice. But beyond those seven which have to be our very first priority there are almost two dozen others that require either the government to implement through legislation or the regulators through their own processes. Obviously we've got a federal election this year and it's yet to be seen whether there will be some legislation prior to the election or whether we could expect to see a lot of legislation after the election. Regardless of who wins, I would expect to see the second of this year very, very occupied by ensuring that the drafting gets done, that it gets done in a way that captures the intent and the spirit of the commissioner's recommendations. But is drafted in a way that is practicable, it be implemented and will make a difference.

Jessica Amir: Absolutely. Anna, what do you think needs to take to ensure that there's a lasting cultural shift in the industry to prevent this from happening again?

Anna Bligh: Well I think the recommendations from Commissioner Hayne are not only comprehensive but I think he has been very careful and thoughtful about those levers that will make a lasting difference. One of the things he looked at throughout the commission and its work was the impact that rewards and incentives in remunerations systems can have on people's behavior. And he recommended that significant changes should happen there. The industry had already done a report on that, and he has said the industry needs to implement that report. It will go a long way to solving that issue. So the industry itself has to really I think take the spirit of it not just implement tick, tick, tick, we've done that. But how do we take that and turn it into a real lever for cultural change so that we don't end up in a situation again where customers and their interests and their protections are not put first.

Jessica Amir: What timeframe do you think is reasonable for the industry to really make these changes?

Anna Bligh: Well there are a number of recommendations that the industry itself is responsible for and we're working very hard to get them done as quickly as possible. We would like to be in a position where they're in place at the latest by the end of this year. The government, whoever forms government after the next federal election, has a very big legislative program to implement the Royal Commission. We would like to see them move quickly but they need to draft it, consult on it, and then get it through the parliament. So industry would like certainty about the timing of that as quickly as reasonably possible. Hard to predict in an election year though. But I think the important thing for the leadership of Australian banks - whether it's the chairs and CEOs or their boards and their executive teams, the real challenge is not just to implement those recommendations. That's necessary but if you want really change it won't be sufficient. You've got to pick up the changes in the codes, the new laws, the issues that were raised in the commission and use all of those as big levers for real, lasting cultural change that will see the institution themselves protected against these sorts of problems in the future, but more importantly, customers protected from poor outcomes.

Jessica Amir: A big issue with cultural change, something that goes hand in fist is pay of staff. Today, you put out an announcement about having an overhaul. Just tell us about that.

Anna Bligh: A couple of years before the Royal Commission started banks acknowledged that in some cases their pay structures, particularly with customer facing staff, were at risk of incentivising the wrong kind of behavior. So they commissioned an independent review and that was done by Steven Sedgwick. Steven Sedgwick is a former director of the Commonwealth public service and recognised for his expertise on remuneration systems. Steven did a big and very in depth analysis and came out with 21 recommendation. Largely that banks need to move away from incentive pay, variable remuneration that was directly linked to sales targets for individual staff and move towards balanced scorecards where you could still have some financial indicators but they should over a period of time be no more than 30 per cent. Steven also recognised that would not be overnight and that big cultural shifts around remuneration would take some time. He set the target of the end of 2020 to have everything in place across all banks regardless of their size and their shape and their structures.

Banks take this so seriously that we thought we should...we're halfway through the process now, that we should go and have another really good look at 'Is the industry on track?' because this one is at the heart of a lot of the cultural change that's necessary and really important to get it right. So we commissioned Steven Sedgwick again prior to Christmas to come and have a really good look at every bank and see 'Are they on track?' He has found quite encouragingly that banks are on track for the most part to be ahead of that end of 2020 target date which is good news I think. As you would expect there's different progress in different banks. Unsurprisingly the larger the bank and the more resources, they are more likely to be a little bit ahead but that all banks as a whole are on track to meet the deadline and some to be there well and truly in advance of the deadline. The important thing about this is, it's easy to get lost in the theory, the important thing about this is...what it means is, for a customer, when they deal with their bank they can have confidence that the bank and the person that's representing the bank is there to act in their interests as the customer, not to act in the interests of their own pay packet because of the way their pay was structured in the past. So culturally I think this is a really important one and great to see progress being acknowledged by an independent review.

Jessica Amir: Anna Bligh, thank you so much. Thanks for having us again and good luck in what seems to be the ABA's busiest year ahead.

Anna Bligh: Yes, I think it's going to be a big one. But what is at stake is very important I think to every customer and frankly to the Australian economy.

Ends

Jessica Amir

Finance News Network
Jessica joined FNN in January 2017 after having worked in financial advising for seven years and in TV journalism for seven years, specialising in finance, equities and analysis. She has interviewed former Prime Ministers of Australia, Tony Abbott, Julia Gillard and Kevin Rudd and ex Treasurer Jo Hockey. Jessica has worked as a journalist with Sky News Business, ABC 1, ABC's The Business, ABC24 and has also been a regional Channel 7 and 9 TV reporter with Prime7 and Win News.