Gareth Hutchens 

The biggest banking scandal is that everyone knew – but still did nothing

Evidence from Commonwealth chiefs at royal commission reveals failed culture that highly paid staff and regulators failed to fix
  
  

Commonwealth bank chair Catherine Livingstone leaves the royal commission hearing in Sydney this week.
Commonwealth bank chair Catherine Livingstone leaves the royal commission hearing in Sydney this week. Photograph: Ben Rushton/AAP

After all the scandals plaguing Commonwealth Bank in recent years – the Austrac money-laundering scandal, the CommInsure scandal – the bank dumped its chief executive and overhauled its board, hiring Catherine Livingstone, a doyenne of Australia’s boardroom class, as its new chair in 2017.

This week she gave evidence to the banking royal commission, saying that she knew she was putting her reputation on the line when she joined CBA and was determined to turn the bank around.

But the cross-examination of this highly regarded professional, who was brought in to clean the place up, exposed the shortcomings of the industry for all to see.

For example, that after CBA received a highly critical report this year from the Australian Prudential Regulation Authority (Apra), which identified egregious management weakness at the bank in recent years, the board had asked its former chairman, David Turner, to return 40% of his fees from his last 12 months.

Turner had refused. And what did Livingstone do about it? She didn’t bother disclosing the incident in CBA’s recent remuneration report, so shareholders were kept in the dark.

Senior counsel assisting the royal commission, Rowena Orr QC, asked Livingstone why she didn’t share the information with shareholders.

Livingstone replied: “Because the former chair did not agree to return any of his fees.”

Orr said: “Could I ask you to consider now whether that’s a message that you think should be sent publicly, that you made a decision as a board to request the former chair to return 40% of his fees?”

Livingstone replied: “In retrospect, yes, perhaps we should have made that public.”

It was telling that a professional like Livingstone didn’t feel the need to be transparent with shareholders about significant developments inside her boardroom.

Other evidence revealed repeated management failures at the bank, including that senior executives ignored warnings about excessive mortgage broker commissions, mis-selling of insurance products and compliance requirements.

In his evidence to the commission this week, CBA’s chief executive, Matt Comyn, admitted that the bank’s management culture needed to change but it was very hard to do so.

This, remember, is Australia’s biggest company by market capitalisation, one that has made billions of dollars in profits in recent years and has paid fat dividends to its shareholders.

But it’s not just CBA. Similar problems have been revealed at other banks such as Westpac (Australia’s third biggest company) and NAB, and deep-seated problems have been revealed about the way Australians buy financial advice, insurance and superannuation.

It has taken a royal commission to expose the issues behind the scandal, which should have been sorted out long ago by the industry’s highly paid executives and regulators.

But, as Comyn’s evidence showed this week, perhaps the biggest scandal is that everyone knew a long time ago that management standards were poor.

One story from 2016 is very telling. Back then the Turnbull government was fighting very hard to force all superannuation funds to appoint more independent directors in an effort to stymie union power on industry super boards.

In late November that year, a forum was held in a theatre in Parliament House attended by representatives from the super industry, particularly industry super funds. Many of them had travelled from overseas for the occasion. Serious people. The type of people who invest billions of dollars in big infrastructure projects globally, and know how to handle money.

The Liberal MP Kelly O’Dwyer delivered a speech that was a textbook example of misreading an audience.

She told them superannuation funds – and by that she meant industry funds – were not governed to the same standard as major banks and life insurance companies. It drew laughter from the crowd.

“Are you serious?” one audience member said. “She’s got to be joking,” said another.

Peter Collins, who was a former leader of the NSW Liberal party and who had subsequently worked in the industry fund sector, told Guardian Australia that O’Dwyer’s comments were laughable.

“If super funds had been responsible for systemic failures in financial advice, failure to pass on interest rate cuts, excessive executive remuneration and other forms of profit gouging by banks, there would have been a royal commission into super funds in a flash,” he said at the time.

“It is abhorrent and unacceptable in the minds of most Australians that the standards for super funds should be the same as those tolerated for the banks.”

 

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