Regaining trust in a post royal commission world
The victims at the heart of the cases raised at the Hayne royal commission might consider it an understatement to conclude there is a need for greater levels of professionalism in the financial services sector. Indeed, as the results of our recent Ethics Index show, there is much work to do if the financial services sector is to regain the trust of its customers.
Remedying the wrongs uncovered by the royal commission will require organisations to take meaningful steps to ensure their workforce is guided by the right governance and risk mechanisms. This is about putting the right structures and practises in place to enable a business to operate in a way that is ethical and fair.
Governance Institute is the only independent professional association in Australia with a sole focus on whole-of-organisation governance. By ‘whole-of-organisation’ that means we firmly believe that all employees — from the staff room to the boardroom — must work collectively under a framework that meets the community’s expectations regarding the required standards of professionalism.
Meaningful steps to regaining trust
The Hayne royal commission provides an important backdrop to our ongoing education of members regarding best practices in culture and ethics. These are the areas we are telling our 7,500 members and subscribers they must firmly focus on if the industry is to recover in the wake of the scandals unearthed during the round 6 of hearings on insurance.
1. The voice of the customer must be elevated inside all organisations
Customer centricity have long been buzzwords inside Australian financial institutions, however the concept of customer has been used as a way to explain ‘what our products can do for you’. The definition of ‘customer needs’ must evolve to a broader definition to acknowledge a financial organisation’s duty of care towards its customers.
2. Remuneration structures that reward the right behaviour
Throughout this round of hearings, we’ve heard about unethical remuneration and commission structures. Organisations must consider the kinds of behaviour and culture their remuneration incentive practices are creating. Are these practices aligned to their customer’s voice? Do they reward the behaviour necessary to meet an organisation’s duty of care, as well as its growth or sales targets?
3. Boards must take more ownership of culture
Boards need to take more ownership for their organisation’s culture and make sure they have effective oversight of this culture. This requires boards to be sufficiently focused on non-financial risks — not just on profits and sales.
4. Informed boards
To oversee and assess an organisation’s culture effectively, a board must receive the information they require to have a clear and transparent view of an organisation’s ethical performance. This can be as practical as getting the right person in front of the board when they need to understand key issues and ensuring a sense of urgency when it comes to following up and resolving identified issues.
5. Can we? Should we?
In its Prudential Inquiry into the CBA, APRA called for CBA to inject into its DNA the question ‘should we’ when assessing dealings and decisions regarding customers. An environment should be fostered within an organisation that enables this question to be asked across all levels in organisations.
There is still more to come as the Hayne royal commission continues its work. Already there is a sense that regaining the trust of customers may prove to be more difficult than we first anticipated. Remedying the wrongs uncovered by the royal commission is likely to take some time, but in our view the pathway to redemption is clear.
It’s time to get more serious about governance.