Face the press
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