Boards warned on risks

Customers need to be treated fairly: taskforce

THE corporate watchdog has warned that company boards need to better oversee and manage non-financial risks such as conduct and compliance risk.

The Australian Securities and Investments Commission yesterday released the 56-page report of its Corporate Governance Taskforce, which was given special government funding after the financial services royal commission.

ASIC chairman James Shipton (pictured) launched the report with a keynote address to the Australian Institute of Company Directors, telling them that non-financial risk – such as the risk of not treating customers fairly or not following the rules – was often buried in dense, voluminous reports presented to corporate boards.

“We have seen first-hand that poorly overseen and managed non-financial risks can result in systemic misconduct and hundreds of millions of dollars of consumer losses,” Mr Shipton said.

“That’s hundreds of millions of ‘other people’s’ dollars,” plus the considerable remediation costs and reputational damage.

“This in turn impacts future cash flows, asset values, intangible asset values and thus, ultimately, the profitability and longevity of a company,” Mr Shipton said.

He said that just as the global financial crisis was a watershed moment for banks to focus on financial risks, “now is a watershed time for companies to significantly improve their focus on non-financial risks”.

The taskforce reviewed the governance procedures into Australia’s seven largest financial services companies – ANZ, Commonwealth, NAB and Westpac banks, plus AMP, IOOF and IAG – and said it found several shortcomings.

But the report did not identify which companies were deficient, saying the taskforce was trying to drive improvement on an organisational level and appreciated the institutions’ willingness to have their governance practices observed and critiqued. The taskforce recommended that boards require reporting from management that placed nonfinancial risks in a clear hierarchy and prioritisation, and that board risk committees meet more regularly and effectively.

“Of most concern was that we found that management was often operating outside of board-approved risk appetites for non-financial risks for months, and in some cases years, at a time, without any serious attempt by boards to rein them in,” Mr Shipton said.