It’s just not enough

Townsville Bulletin - - NEWS - TERRY McCRANN

YES­TER­DAY’S move by the Com­mon­wealth Bank board to slash the bonuses paid to CEO Ian Narev and the en­tire se­nior ex­ec­u­tive man­age­ment group – and in­deed, their own board fees – was ap­pro­pri­ate, pro­por­tion­ate and timely. It was also not enough.

There has to be a “se­cond leg” – spe­cific, harsher, penal­ties ap­plied to the pay of the key line ex­ec­u­tives who had di­rect re­spon­si­bil­ity for the ar­eas caught in the Aus­trac de­ba­cle. This was of course pri­mar­ily – but im­por­tantly, not ex­clu­sively – cen­tred on the so- called “in­tel­li­gent” ATMs.

The two key ex­ec­u­tives most di­rectly in the fir­ing line – that word is not used loosely – are Matt Comyn, the head of the re­tail bank and touted as a po­ten­tial suc­ces­sor to Narev ( bluntly, cat­e­gor­i­cally, no longer), and David White­ing, the chief in­for­ma­tion of­fi­cer.

A third top exec, chief risk of­fi­cer David Co­hen, should also ar­guably in­cur a sim­i­lar ad­di­tional penalty. In all cases that would – should – be done by elim­i­nat­ing their long- term bonuses for at least one year.

And of course there’s Narev. The “bounc­ing buck” of re­spon­si­bil­ity goes from desk to desk up the se­nior ex­ec­u­tive group, but fi­nally lands, and stays, on his desk.

As such, he has to take a spe­cific hair­cut as well. As I sug­gested yester- day, it would be best if he ac­tu­ally vol­un­teered the penalty.

I am pre­sum­ing that the board, led by the chair­man Cather­ine Liv­ing­stone, not only fully un­der­stands this, but in­deed has ac­tu­ally acted, and it is in­tended this will be dis­closed in the for­mal re­mu­ner­a­tion re­port next week.

One would also have to pre­sume that there is no way in the world that Narev will get through to­day’s for­mal profit brief­ings without be­ing asked specif­i­cally about this. Again, I would pre­sume he would have the ap­pro­pri­ate an­swer.

Read prop­erly, this is all im­plicit in what was said and not said in Liv­ing­stone’s state­ment yes­ter­day.

Yes­ter­day’s across- the- board cut was about col­lec­tive re­spon­si­bil­ity for the brand dam­age and in­deed, quite sim­ply, shared bad cor­po­rate be­hav­iour. As Liv­ing­stone specif­i­cally stated: the “over­rid­ing con­sid­er­a­tion of the board was the col­lec­tive ac­count­abil­ity of se­nior man­age­ment for the over­all rep­u­ta­tion of the group”. The board also shared ac­count­abil­ity.

There was no ref­er­ence to spe­cific in­di­vid­ual re­spon­si­bil­ity for be­hav­iour and events, which quite sim­ply, one way or the other, are go­ing to cost the CBA at least tens of mil­lions of dol­lars and quite pos­si­bly hun­dreds of mil­lions.

There has to be an in­di­vid­ual ex­ec­u­tive ac­count­abil­ity, ob­vi­ously not just at the level of se­nior ex­ec­u­tive man­age­ment.

It would have been lu­di­crously in­ap­pro­pri­ate and func­tion­ally in­ept to ( try to) post­pone this group ac­count­abil­ity un­til all the judg­ments and con­clu­sions were in.

In­deed, it was more sen­si­ble for Liv­ing­stone to make yes­ter­day’s state­ment ahead of and sep­a­rate from to­day’s profit re­port, in­stead of as I wrote yes­ter­day, with it.

All much the same ap­plies to any more di­rect ex­ec­u­tive ac­count­ing.

There can and will be rea­son­able ar­gu­ments over the ex­tent of CBA’s cul­pa­bil­ity and over in­di­vid­ual ex­ec­u­tive fail­ure or just re­spon­si­bil­ity – and so the ex­tent of the Aus­trac penal­ties – but there can be ab­so­lutely no doubt CBA is done for all money on the ba­sic fail­ings which were ones of ab­so­lute li­a­bil­ity.

So, spe­cific ex­ec­u­tive pay penal­ties should be im­posed now. Do­ing so is also a mat­ter of ba­sic fair­ness to all the other ex­ec­u­tives, who have copped the shared re­spon­si­bil­ity but had no part in the is­sues that caused the de­ba­cle.

What might be termed the “third leg” of ac­count­abil­ity – any ac­tual spe­cific ex­ec­u­tive sack­ings – can and should be played out on a more con­sid­ered ba­sis.

This be­comes even more im­por­tant in the con­text of Narev’s fu­ture as CEO.

Now, CBA is be­ing done for all money en­tirely on its own. None of the other three big banks have been pinged – so far – by Aus­trac.

Just maybe that’s be­cause they lim­ited cash de­posits to sums less than the $ 10,000 Aus­trac re­port­ing thresh­old, while CBA tempted both fate and tech­nol­ogy by al­low­ing in­di­vid­ual de­posits up to $ 20,000.

Liv­ing­stone closed her state­ment yes­ter­day with the crisp state­ment that Narev “re­tains the full con­fi­dence of the board”.

It was im­por­tant to make that clear. It was also en­tirely ap­pro­pri­ate. The sug­ges­tions that Narev should be sacked were and are hy­per­bolic me­dia ( and or) hys­te­ria.

Noth­ing that has sur­faced – and not just in re­la­tion to this but the other mat­ters of con­tro­versy around CBA – con­sti­tutes ei­ther in­di­vid­u­ally or even col­lec­tively a CEO sack­ing of­fence.

The pri­mary ( but not only) re­spon­si­bil­ity of a CEO is cor­po­rate suc­cess. We are go­ing to see ev­i­dence of that, in spades, to­day when CBA un­veils a profit of around $ 10 bil­lion.

Yes, profit is not the only met­ric for judg­ing a CEO, but it is cer­tainly the start­ing met­ric. And to state this is to ac­cept that banks are par­tic­u­larly com­plex. How was the profit achieved?

There is no ba­sis for a board to sack Narev.

That said, he’s been CEO for seven years. He’s not go­ing to be CEO for an­other seven. That sug­gests his con­tin­ued ten­ure will be some­where be­tween one and four or so years.

There is one tick­lish is­sue: Narev is slated to be­come chair­man of the Aus­tralian Bankers’ As­so­ci­a­tion at the end of the year.

That is ar­guably no longer ei­ther sen­si­ble or func­tional, both be­cause of CBA’s fail­ings and the way the rest of the in­dus­try is in­creas­ingly blam­ing it for bank­ing’s bad im­age, seem­ingly all tum­bling in­ex­orably to­wards a ( com­pletely un­nec­es­sary, po­lit­i­cally cyn­i­cal, stupid and po­ten­tially harm­ful) royal com­mis­sion.

If Narev can’t be chair­man of the ABA, how long can he stay CEO of the CBA?

CBA head Ian Narev.

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