What can we learn about culture from the CBA report?
What the APRA Prudential Inquiry into the Commonwealth Bank of Australia shows all too clearly is that it is not good enough to take a limited view on risk management.
The Hayne Royal Commission, the APRA Inquiry and the ASX Principles Review's proposed recognition of the fundamental importance of a company's social licence to operate, taken together, provide an opportunity to review and assess the current state of governance practice. They also invite reflection on what these current events can teach.
Often the answer seems to be that insufficient attention has been paid to elements of corporate culture measured not, in the first instance, by financial gain or loss, but in the gain or loss of trust, and with that trust, a social license to operate.
An ethical framework must sit at the heart of governance structures to guide, rather than direct, our decision-makers while maintaining organisational integrity. The framework serves as a common and authoritative point of reference for all in the organisation, and give shape to organisational culture. This framework guides directors, executives and employees alike through the "Can we? Should we?" decisions they face every day.
Corporate culture is complicated and getting it right cannot be left simply to personal leadership. It is not a set and forget process but requires constant attention.
What the APRA Inquiry into CBA tells us is that a reactive, insular and complacent culture, too reliant on a presumption of the 'good intent' of trusted colleagues and leaders, can leave an organisation stumbling into reputational disaster after disaster, even while the risk managers are giving the all clear, because, financially things are sound.
Trust is currency – companies can build up a reserve, spend a bit here and there, but they can also run the account down to empty. Governance Institute's annual Ethics Index surveys have shown that financial services is one of the least trusted sectors in Australia.
How can corporate culture be tested? For customer-facing businesses, listening to the customer voice is crucial. Trends in customer complaints are like the gasps of canaries in the coalmine - ignore them at your peril. For other types of businesses, keeping an open ear to employee feedback is important. The APRA Inquiry surveyed 10,000 CBA employees and found amongst the impressive quantity of responses an awareness of the nature of the problems within the bank. In the CBA employee survey the degree of confidence about whether they would be protected if they needed to "blow the whistle" declined relative to the seniority of the staff responding – the more junior the staff, the less certain they were of protection.
As a case study for corporate Australia, the CBA Report is an invaluable source. However, as one of the recommendations makes clear, there is no substitute for staff well-trained in governance and risk management. It does raise a question: what role should company secretaries, and governance professionals more generally, play in drawing attention to non-financial risks and cultural red-flags?