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The Australian - The Deal - - News -

Do banks need a makeover?

The Deal: It’s easy to bash the banks but the is­sue does seem to be broader. How much of a prob­lem have we got?

Glenda: It’s not just the banks. We have also seen prob­lems with other com­pa­nies such as Leighton and now even Tar­get. We are now in a very po­lit­i­cally sen­si­tive pre-elec­tion at­mos­phere and the banks, with some good rea­son, have come in for a bash­ing.

Eric: We’re see­ing some in­ci­dents of banks be­hav­ing badly, par­tic­u­larly around wealth man­age­ment. And that’s re­ally im­por­tant be­cause it is deal­ing with peo­ple’s liveli­hoods, and has the po­ten­tial to lose fu­ture in­come or re­tire­ment sav­ings. Life in­sur­ance is a big one. So are these sys­temic cul­tural is­sues? I think there have been some cul­tural prob­lems go­ing on. Is that a royal com­mis­sion call? I think that’s one the in­dus­try has to un­der­stand it­self.

Andrew: There’s been this huge reg­u­la­tory ef­fort since [the GFC] to make sure that doesn’t hap­pen again. How do you as­sess the be­hav­iour of an or­gan­i­sa­tion and in­cen­tivise it to be­have eth­i­cally? There’s been a long de­bate in Aus­tralia, but also around the world, about how re­mu­ner­a­tion is struc­tured. You get mea­sured on how much profit you gen­er­ate for the or­gan­i­sa­tion. Should you get re­mu­ner­ated for bet­ter be­hav­iour, for en­forc­ing it and point­ing out wrong­do­ing of oth­ers? Should we blame the profit mo­tive? Glenda: We’re in an era where CEOs have had very clear re­mu­ner­a­tion cri­te­ria and they get their ba­sic salary and they get their bonuses and most of those are around prof­its. But how do you quan­tify these things? You have things such as em­ployee en­gage­ment, cus­tomer en­gage­ment, but a lot of things such as eth­i­cal be­hav­iour and treat­ing cus­tomers prop­erly – those re­ally can’t be mea­sured with num­bers. You can’t turn around and go, “Well, here’s a lit­tle mea­sure­ment for how eth­i­cal you are.”

Public at­ti­tudes are also chang­ing as some ex­ec­u­tives and staff down the ranks, such as traders, are find­ing out that what was ac­cept­able a few years ago is not ac­cept­able now. So there are chang­ing norms. I think it has to be lead­er­ship from the top, it has to be part of what the CEO, with the lead­ers and the com­pany it­self, is as­pir­ing to.

War­ren Buf­fett tells his man­agers, “Every time you act, what­ever de­ci­sions you make, would you be pre­pared if that de­ci­sion or that ac­tion was on the front page of The Wall Street

Journal? If it was on the front page of the pa­per, would you be com­fort­able? Would your fam­ily be com­fort­able?” In our case, what if your ac­tions were on the front page of The Aus­tralian? That’s a test that doesn’t need num­bers around it. We used to think in a time of boom growth you need reg­u­la­tors to con­trol the mar­ket. Do you ac­tu­ally need reg­u­la­tion even more in low-growth pe­ri­ods be­cause the de­sire to break the rules is stronger? Eric: It’s not so much low-growth pe­ri­ods but ac­tu­ally high­growth pe­ri­ods. That’s when the banks’ money is eas­ily made,

Eric John­ston, left, Andrew White and Glenda Kor­po­raal

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