Banking on transparent relationships

One of the more startling revelations to come out of the Royal Commission into misconduct in the Banking, Superannuation and Financial Services Industry emerged in mid-March when the management of the Commonwealth Bank of Australia (CBA) was accused of having told its board one thing and the Australian Securities & Investments Commission (ASIC) something radically different.

It all had to do with CBA’s add-on insurance product that, under the Credit Card Plus banner, was sold to some customers who, because they were unemployed at the time of purchase, could never make a claim.

The bank executives knew there were some 64,000 affected customers – a figure that would rise to 100,000 following further investigation – but chose to greatly dilute the magnitude by advising ASIC that there were 27,800 cases.
While we are not told what management divulged to the board, the accusation immediately raises three possible themes from a governance perspective: the board’s role in questioning, monitoring and supervising the organisation; the need for open and transparent relationships between the executive and the board; and CBA’s faithfulness to its commendable corporate values.

On the first theme, if we assume that the executives had been honest with the board, it is reasonable to deduce that the board should have been mindful of the seriousness of a matter that, in line with good practice, would need to be reported to ASIC as the corporate regulator.

You would think, too, that the board would have robustly questioned the executive team and gone on to keep an eagle eye on what was subsequently packaged and sent to ASIC.

Then again, it is fair to assume that, as per the accusation levelled at the Banking Royal Commission, the executive understood the magnitude of the issue but wilfully chose to downplay its enormity when reporting to the board.

That’s an instant red flag as it suggests a deeper malaise – a less than open and transparent relationship between the executive and the board.

Such an environment often arises when a board is by nature highly critical of any errors and is known to chastise offenders. A wary executive’s response is to either hide the facts or finesse them to a standard they believe will be acceptable to the board.

Good chairs are vital in overcoming the “let’s not tell them, we can fix this ourselves and no-one will be any the wiser” hurdle as they tend to adopt and articulate a “we’re all in this together” approach. They appreciate that even with the best intentions – and in the best organisations – things can and will go wrong.

And when they do, castigation and finger-pointing need to take a back seat to a collective approach that, entrenched in openness and transparency, seeks a solution.

But perhaps the most profound question is this:

How did CBA, with its universally admirable set of corporate values that everyone from top to bottom is expected to live by, choose this course of action?

The uncomfortable truth is that the very role models across CBA failed to live by the bank’s core values of integrity, collaboration, excellence, accountability and service.

Until next time,
Kate.

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