Com­mon­wealth Bank held to ac­count.

As the Aus­tralian Pru­den­tial Reg­u­la­tion Author­ity re­leases a scathing re­port on the con­duct of Com­mon­wealth Bank, a band­wagon-join­ing Scott Mor­ri­son calls for more heads to roll.

The Saturday Paper - - Contents - Alex McKin­non

IT BE­CAME STAN­DARD PRAC­TICE TO BLAME EVERY­ONE BUT THE BANK IT­SELF WHEN THINGS WENT WRONG, OR ELSE SHRUG OFF PROB­LEMS EN­TIRELY.

Scott Mor­ri­son has a voice and de­meanour nat­u­rally suited to talk­back ra­dio. Be­fore be­ing dumped in 2017 from his fre­quent chats with 2GB broad­caster Ray Hadley, it was of­ten dif­fi­cult to tell the two apart as they growled at each other over some new out­rage, usu­ally re­lated to po­lit­i­cal cor­rect­ness.

Mor­ri­son chan­nelled his in­ner shock jock to great ef­fect this week, tak­ing Com­mon­wealth Bank of Aus­tralia (CBA) as his lat­est chew toy. At a press con­fer­ence to re­lease the Aus­tralian Pru­den­tial Reg­u­la­tion Author­ity’s fi­nal re­port into CBA’s work­place cul­ture and risk man­age­ment prac­tices, Mor­ri­son sounded pos­i­tively bol­shie in his new­found de­ter­mi­na­tion to hold to the fire the feet of in­ept bank­ing ex­ec­u­tives.

He heaped praise on the re­port, call­ing it “re­quired read­ing” to be placed “on the agenda of ev­ery sin­gle board meet­ing in this coun­try, re­gard­less of whether you’re a bank or not”. He warned board mem­bers of all stripes to “ask them­selves the hard ques­tions” about their com­pany’s gov­er­nance prac­tices, telling cus­tomers to “take their busi­ness some­where else” if they didn’t. He openly called on more CBA board mem­bers to re­sign, lay­ing blame at the feet of the bank’s high­est of­fice­hold­ers. He scorned the bank’s lav­ish re­mu­ner­a­tion scheme for board mem­bers, call­ing it “money for jam” that re­warded ex­ec­u­tives “even when things go wrong”.

“At the end of the day, it is up to these in­sti­tu­tions to step up. To step up. For their board mem­bers to step up. These in­sti­tu­tions have to step up to this chal­lenge,” Mor­ri­son barked. “They ex­pected bet­ter, those share­hold­ers, of board mem­bers on this oc­ca­sion, and they have been let down. Ter­ri­bly.”

When he wasn’t putting the boot in, Mor­ri­son ret­ro­spec­tively painted the govern­ment as a ter­ror of the banks all along. “The govern­ment has never shied away from ac­tu­ally fronting up,” Mor­ri­son claimed, re­fer­ring to the Big Four banks. While he cor­rectly pointed out that the APRA in­quiry, the bank levy and the Bank­ing Ex­ec­u­tive Ac­count­abil­ity Regime were all es­tab­lished be­fore the govern­ment or­dered the royal com­mis­sion, Mor­ri­son con­ve­niently for­got that pub­lic and par­lia­men­tary sup­port for a com­mis­sion largely scared the govern­ment into de­liv­er­ing those re­forms in the first place.

Still, Mor­ri­son has come a long way since 2016, when he dis­missed the idea of a royal com­mis­sion into the bank­ing sec­tor as “noth­ing but a pop­ulist whinge” that would un­der­mine in­dus­try con­fi­dence. If the com­mis­sion’s con­stant rev­e­la­tions of cor­rup­tion, un­eth­i­cal prac­tices and ru­ined lives weren’t enough to make him change his tune, the in­com­pe­tence and ar­ro­gance de­tailed in the APRA re­port would make a con­vert out of any­one.

APRA chose not to re­hash the many scan­dals that have plagued CBA in re­cent years, although it did note that the bank had “fallen from grace” in the pub­lic eye. The re­port fo­cused on how the bank works be­hind the scenes, try­ing to di­ag­nose how such a large, suc­cess­ful and pre­vi­ously well-re­garded in­sti­tu­tion could stuff up so badly.

In a nut­shell, APRA iden­ti­fied the prob­lem as fol­lows: “CBA’s con­tin­ued fi­nan­cial suc­cess dulled the senses of the in­sti­tu­tion”. The bank, in other words, be­gan to be­lieve its own hype. As prof­its scaled ever more dizzy­ing heights, “a wide­spread sense of com­pla­cency” took hold “from the top down”. The per­for­mance of the bal­ance sheet fos­tered “a col­lec­tive be­lief within the in­sti­tu­tion that CBA was well run”.

That be­lief would man­i­fest it­self in myr­iad ways. Em­ploy­ees through­out the bank, from the board down, be­came un­able “to iden­tify who is ac­count­able when things have gone wrong”. The bank was slow to recog­nise its own mis­takes, and “of­ten had to be prompted by scru­tiny from in­ter­nal au­dit, the me­dia, a reg­u­la­tor or an­other ex­ter­nal party” to rec­tify them.

Front­line staff were far more likely to be held ac­count­able over in­di­vid­ual cases of wrong­do­ing than se­nior man­age­ment fig­ures were for chronic, on­go­ing prob­lems. While the bank took pride in its high cus­tomer sat­is­fac­tion rat­ings, it did not pay suf­fi­cient at­ten­tion to “vul­ner­a­ble cus­tomers and in­di­vid­ual, se­ri­ous com­plaints”.

The bank’s strong fi­nan­cial per­for­mance en­sured se­nior ex­ec­u­tives be­came vir­tu­ally un­touch­able. The board ef­fec­tively aban­doned its duty to make pay con­tin­gent on per­for­mance, ap­prov­ing bonuses and raises as a mat­ter of course. Se­nior staff came to act as though they were en­ti­tled to au­to­matic bonuses, re­gard­less of whether they were do­ing their jobs ef­fec­tively. APRA noted that while “claw­back”, or or­der­ing ex­ec­u­tives to pay back bonuses for poor be­hav­iour, is not typ­i­cally prac­tised by Aus­tralian fi­nan­cial in­sti­tu­tions, it “could be a par­tic­u­larly ef­fec­tive tool for cases of se­ri­ous mis­con­duct”.

But APRA re­served its harsh­est words for CBA’s cul­ture, which it de­scribed as one of “en­ti­tle­ment over gen­uine ac­count­abil­ity”. It spoke of “a per­va­sive sense of ‘chronic ease’” within the bank, lead­ing to “a wide­spread ten­dency to­wards com­pla­cency and re­ac­tiv­ity”. APRA found “a gen­uine lack of ap­pre­ci­a­tion for [the] im­por­tance” of re­flect­ing on mis­takes, and an ab­sence of “fore­sight, cu­rios­ity, crit­i­cal think­ing and ques­tion­ing” among se­nior man­age­ment.

CBA’s be­lief in its own in­vul­ner­a­bil­ity fos­tered an at­ti­tude of en­ti­tle­ment and buck-pass­ing that is dif­fi­cult to over­state. The bank’s at­ti­tude when deal­ing with reg­u­la­tors be­came openly child­ish. APRA heard “of oc­ca­sions where CBA would in­sist on hear­ing why it was legally re­quired to take ac­tion be­fore it would do so” and of the bank rou­tinely be­ing “dis­mis­sive” of its reg­u­la­tory obli­ga­tions.

It be­came stan­dard prac­tice to blame every­one but the bank it­self when things went wrong, or else shrug off prob­lems en­tirely. At a loss to ex­plain their role in scan­dals, se­nior ex­ec­u­tives would of­fer up ex­pla­na­tions “along the lines of ‘we did the best we could’ ”. Ex­ec­u­tives were more likely to blame ex­ter­nal fac­tors such as “shifts in so­cial ex­pec­ta­tions, ris­ing reg­u­la­tory de­mands and un­bal­anced po­lit­i­cal and me­dia scru­tiny” than ad­mit to short­com­ings within the or­gan­i­sa­tion. Staff would of­fer “com­mon re­frains of ‘it’s big and com­pli­cated’, or ‘it’s not al­ways easy’” in re­sponse to mis­takes or prob­lems go­ing un­ad­dressed.

Lower-level staff noted that se­nior fig­ures went un­pun­ished for fail­ing in their obli­ga­tions, and ended up mim­ick­ing their su­pe­ri­ors rather than rock­ing the boat. An at­ti­tude of “don’t chal­lenge [and] don’t ask too many ques­tions” be­came “a sym­bol of what is ap­pro­pri­ate be­hav­iour”. One em­ployee told the reg­u­la­tor that it was widely un­der­stood within the bank that “if every­one has good in­tent, you won’t get pun­ished”.

De­spite the re­port’s harsh words, it re­mains to be seen whether CBA will suf­fer more se­ri­ous con­se­quences. APRA has im­posed an en­force­able un­der­tak­ing on the bank to im­ple­ment the re­port’s 35 rec­om­men­da­tions, as well as an ad­di­tional $1 bil­lion in cap­i­tal re­quire­ment un­til they are met. While CBA ex­ec­u­tives are ex­pected to take fur­ther pay cuts later this year, chief ex­ec­u­tive Matt Comyn and chair Cather­ine Liv­ing­stone have re­sisted calls for more heads to roll.

Real change may end up start­ing from the bot­tom. Jeff Mor­ris, a for­mer CBA fi­nan­cial plan­ner, was one of the “Three Fer­rets” who turned whistle­blower in 2008, alert­ing the Aus­tralian Se­cu­ri­ties and In­vest­ments Com­mis­sion (ASIC) to what he called “a high-level man­age­ment con­spir­acy” to cover up the malfea­sance of a rogue fi­nan­cial plan­ner. After years of be­ing frus­trated by ASIC’s in­ac­tion, and hav­ing filed a Fair Work claim after hav­ing his pay cut off in 2012 and al­legedly re­ceiv­ing a death threat, Mor­ris went pub­lic.

It was Mor­ris’s work with Na­tion­als Se­na­tor John “Wacka” Wil­liams that led to the 2013 Se­nate in­quiry ex­pos­ing ASIC’s in­do­lence in the face of fraud and cor­rup­tion al­le­ga­tions at CBA. His tes­ti­mony formed the bedrock of the

ABC’s Four Cor­ners and Fair­fax’s “Bank­ing Bad”, a Gold Walk­ley-win­ning 2014 ex­posé of CBA’s profit-at-all-costs cul­ture.

Mor­ris be­lieves APRA has val­i­dated what he has been say­ing for years about CBA. Speak­ing to the ABC shortly after the re­port’s re­lease, Mor­ris said the reg­u­la­tor “cap­tured the essence of the man­age­ment cul­ture of CBA”, and praised them for “telling it like it is”.

De­spite his treat­ment by CBA, Mor­ris is op­ti­mistic that the bank’s cul­ture will change now that the lid has been lifted – not be­cause it wants to, but be­cause it has to. He called the APRA re­port “a ter­rific op­por­tu­nity” for CBA, purely be­cause “there’s so much scope for im­prove­ment”.

“Given the pub­lic ex­po­sure that this has at­tracted, I think every­one in the or­gan­i­sa­tion will be look­ing in. There will be more push­back now from staff; it won’t be as easy to get them to do the wrong thing. The bad ap­ples who used to be pro­tected by the man­age­ment will be ex­posed. The other staff won’t tol­er­ate that.”

Scott Mor­ri­son is here now, wait­ing

• to take credit.

ALEX McKIN­NON is Schwartz Me­dia’s morn­ing edi­tor, and a for­mer edi­tor of Jun­kee.

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