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Shareholders pivotal role in restoring trust and integrity in financial services

As the horror stories of unconscionable conduct continue to unfold in the third round of the Hayne Royal Commission, shareholders – institutional and retail – have a pivotal role to play in restoring trust and confidence in the financial services sector, claims Governance Institute of Australia.

“It is well documented that culture must be driven from the top and that this is the responsibility of directors and the executive leadership,” said Governance Institute Chief Executive Steven Burrell.

“But shareholders also have an important role in assisting this process. They can use their power to put pressure on boards and senior management to instil the sort of good corporate culture and proper governance that would not have allowed the gross misconduct now being uncovered by the Hayne Royal Commission to occur.”

“In many cases shareholders are also customers and victims of a poor culture where the wrong incentives and remuneration structures and a lack of transparency have brought the sector into such disrepute.”

“Shareholders can demand greater transparency about the business models, incentives and remuneration packages and if they don’t like what they see, they can do something about it by exercising their right to vote,” Mr Burrell said.

“In my experience, most people would prefer to do the right thing. It is only when you have a remuneration framework that is devoid of transparency, sound governance and risk management that a culture of ‘’close the deal at all costs” without asking yourself:  is this the right thing to do?” can thrive.”

“There is a lot of good governance in Australia; well-governed organisations do not make news for their governance. However, it has become evident that some of Australia’s biggest banking and financial services companies need to take a hard look at their cultures – how they are organised, what incentives their employees are chasing, what behaviour these incentives drive and how closely their leadership is monitoring their organisation,” said Mr Burrell.

“We need engaged, curious and courageous boards, directors and executives who are also highly skilled, not just in their business specialisations but in good governance and risk management practices, so they can ask the right questions and notice red flags.”

“And we need shareholders to make sure the right people are in place to ensure this happens,” he said.

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