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What are we learning from royal commissions and inquiries?

  • The various royal commissions and inquiries clearly show that boards need to address the problem of culture and its primary and idiosyncratic effects on quality standards within organisations.
  • The impact on governance from any outcomes of aged care royal commission, and also from the recent banking royal commission, will have implications for board members of all organisations.
  • In the face of inquiries aged care directors should jealously guard the cultural health of their organisation without becoming overwhelmed.

Working steadily with broad coercive powers, numerous and highly visible royal commissions in Australia, have uncovered shocking examples of corrupted cultures in organisations that must be concentrating the minds of directors everywhere.

The Royal Commission into Aged Care Quality and Safety began hearings in Adelaide last month (just as calls for a recently announced separate royal commission into abuse in the disability sector gathered force) to investigate standards and practices within the sector and ‘any matter reasonably incidental … that [the commissioners] believe is reasonably relevant to the inquiry’.1

The commissioners will submit their final report in April next year.

Acknowledging the dedication of those in the sector, Commissioner Briggs noted, ‘there has been a rising torrent of concern that the aged care system is faltering in certain areas of safety and quality and that it may not be fit for purpose.’2 Over one million people currently receive aged care services in Australia with 64 per cent of the providers being single facility operations.3 The impact on governance from any outcomes of aged care royal commission, and also from the recent banking royal commission, will have implications for board members of all organisations.

The banking royal commission

As one commission begins another concludes, only weeks since Commissioner Kenneth Hayne delivered his report on the banking sector where he singled out National Australia Bank’s CEO Andrew Thorburn and well-respected professional director and chairman Ken Henry as representatives of an organisation he was ‘not persuaded’ was ‘willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly.’4

The commission uncovered, among other issues, fees charged by the banks for no services, failures to inform customers about the value of commissions to mortgage brokers and charges to the deceased for life insurance. The terms of reference, required Hayne to determine if misconduct, falling short of community standards, was attributable to particular culture and governance practices and the result of other practices, including risk management, recruitment and remuneration practices.

Hayne found that ‘everything that is said in this report is to be understood in the light of that one undeniable fact: it is those who engaged in misconduct who are responsible for what they did and for the consequences that followed.’ Adding further, ‘because that is so, every financial services entity, named in the commission’s reports or not, must look to its culture… In looking at culture and governance, every entity must consider how it manages regulatory, compliance and conduct risks.’5 This, surely, must resonate with all organisations providing regulated services to the public.

The Bergin Inquiry

Similarly, in NSW, it is impossible to ignore the parallels of failings of corporate cultures discovered in the findings of the banking royal commission and the inquiry into the NSW State Branch of the RSL (the Bergin Inquiry) because of the valuable insights they provide as to how boards should address the problem of culture and its primary and idiosyncratic effects on quality standards within organisations.

The Bergin Inquiry found significant breaches of fiduciary duty at a board level within its aged care subsidiary, LifeCare, particularly highlighting a shift in culture over decades leading to a catastrophic drift toward declining levels of accountability, which, at its most egregiousness, included unauthorised director remuneration and inappropriate perks of office.

In hearings, directors were asked to give evidence about their decision to award themselves consultancy fees seemingly to evade the prohibition, under its constitution, of not remunerating directors as directors.

The constitution stipulated that directors may not ‘be paid any fees for their ordinary service as directors,’ but that ‘each director is entitled to be paid for all expenses incurred … in carrying out the duties of a director.’

The Bergin inquiry found that, despite advice to amend the constitution, the board resolved unanimously to pay all directors for ‘consulting services’. Payments were then justified on the basis that directors attended committee meetings, which is surprising. Generally, committee meetings might be considered as part of a director’s usual duties, though one director, who received payment, in fact did not sit on a committee.

Recommendations were made to the inquiry suggesting the appointment of independent skill-based directors, rotation of elected directors, board membership of at least a director with accounting experience and one with aged and clinical care experience, a diverse and appropriately skilled board, accountability to the members, and that any remuneration of directors must be made without conflict of interest and comply with a Directors Remuneration Policy.6 Significantly, the report included the need for development of a culture of compliance with ethical and legal responsibilities by clear communication and leadership.7

Culture and leadership go hand-in-hand. Bergin recognised the ‘enormous efforts that have been made [by the new board of RSL LifeCare which has accepted the recommendations] … to rid themselves of the leaders who let them down and the compromised structures and practices that fostered toxic cultures and created dysfunctional systems,’. She made it clear RSL LifeCare’s right to fundraise in NSW hung in the balance, noting that, if the culture had been different and not so ingrained, some of the awful consequences might have been avoided.8

According to Dominique Hogan-Doran, SC, who specialises in public inquiries involving governance and cultural integrity issues, ‘NFP directors have an even greater structural reliance on management than for profits, and often defer to management in a trusting manner that can be misguided.’

The Bergin Inquiry made 29 recommendations, including the referral of former and current directors and the CEO to ASIC, and investigations are ongoing. In addition, only a month before Commissioner Hayne released his report, the former New South Wales RSL State President and Director of LifeCare was arrested and charged with fraud.9

Because the RSL and its related bodies are registered with the ACNC, its power was enlivened. It is not generally the case, but the ACNC has published its reasons on its website for the enforceable undertakings it entered into with RSL LifeCare and the RSL.

Fallout from the banking royal commission

A fundamental tenet of being a director requires individuals act in good faith and avoid self-interest. In addition to duties under the Corporations Act 2001 or the ACNC Act 2012 and Regulations, aged care providers have overriding duties under state and federal law including the Aged Care Act 1997 and various charters and principles including the Charter of Care Recipients Rights and Responsibilities as well as Accreditation Standards.

Criticism of statutory authorities responsible for enforcing punishment of breaches of statutory obligations (including director’s duties) has been acute in the banking royal commission’s report and supervising authorities in aged care should expect tough questions as hearings continue throughout the year. Noting corporate Australia’s notorious short-term memory Graeme Samuel (Chair of the recently appointed panel conducting a capability review of the Australian Prudential Regulation Authority) said, it ‘tends to fall asleep again, become complacent and lapse into old behaviour,’ requiring regulators ‘to be constantly on the job to ensure corporate Australia heeds the wake-up call to change its culture, governance and remuneration practices.’10

No doubt this applies to the aged care sector. The banking royal commission stated: ‘But it now must be accepted that regulators have an important role to play in supervision of these matters. Supervision must extend beyond financial risk to non-financial risk and that requires attention to culture, governance and remuneration.’11

On one level, fallout from the banking royal commission has resulted in the resignation of Thorburn, Henry, AMP’s chair, Catherine Brenner and many other board members, but it may have deeper significance following 24 recommendations to the DPP of bank officers, and for increased statutory user oversights where criminal and civil penalties have been significantly increased.

ASIC has tended to negotiate rather than litigate corporate breaches since at least 2005.12 It is likely that regulators will tend to undertake prosecutions where they might once have negotiated an outcome.  This is now preferred government policy.

Cultural intervention can and should be an early priority — making the organisation more compliant and attractive.

ASIC deputy chair Peter Kell foreshadowed commencement of proceedings in August last year. Potential criminal proceedings against officers at AMP were reported last month.13 In February, the Government announced the establishment of an inquiry in three years to ensure banks ‘have improved their behavior.’

Address cultural issues aged care organisations now

The problem is also one of great risk for organisations in the aged care sector, producing as it does catastrophic consequences when commissions of inquiry investigate or regulatory authorities find their teeth. This risk will most likely influence stakeholders including funding bodies and donors in the long-term.

The catastrophic effects of cultural drift and bad governance that struck the NSW RSL continues to reverberate with board resignations and court proceedings. An attempt by the NSW RSL to adopt a new constitution aimed at entrenching an improved, consultative culture, increasing transparency and legal compliance, reportedly in the hope of restoring the organisation’s fundraising capabilities, was defeated in December 2018, but will be voted on again in May 2019.

Aged care has no fundamental place of security for the economy, though its users represent the most vulnerable. The Royal Commission into Institutional Responses to Child Sexual Abuse exposed cultural failings where the recipients of services are vulnerable people who may be unable or too frightened to make complaints. It showed the increased level of reputational damage and fall from grace of organisations involved in providing services to the vulnerable.

Directors must address cultural issues within their organisations in a focused and forensic manner particularly by looking at communication between an organisation and its regulators. It’s a salient point that the banking royal commission found the NAB lacked reference to communications that related to oversight.

As change comes in response to these crises, there will be greater roles for internal auditing in monitoring the health of an organisation’s culture. One way to do this is to look at indicators such as complaint reports, client satisfaction survey levels of care, and protection of whistleblowers.14 Cultural intervention can and should be an early priority — making the organisation more compliant and attractive. Because culture changes slowly over time there is every incentive to start now.15

For at least one aged care provider the Royal Commission into Aged Care Quality and Safety has served as a catalyst to strengthen its strategic focus on workforce and sector capacity to improve training and employment conditions. Rosemary Bishop of 3 Bridges Community, says ‘it’s an opportunity to professionalise our workforce, which means qualifications, conditions and pay rates will all need to improve.’

Murray Baird, assistant commissioner and general counsel at the Australian Charities and Not-For-Profits Commission, stresses the need for directors to jealously guard the cultural health of their organisation, without becoming overwhelmed, saying, ‘Boards should not, however, be paralysed with the enormity of their tasks’.

  1. Royal Commission into Aged Care Quality and Safety transcript, day one Friday, 18 January 2019, p 3.
  3. Australian Government Aged Care Financing Authority, Annual Report on the funding and financing of the aged care sector 2016 as reported in the Governance Institute’s publication: ‘Adding value to governance in aged care’, January 2019.
  4. Final Report Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
  5. Ibid
  6. Holman Webb Lawyers, Stage 1 Report, principal author Alison Choy-Flannigan.
  7. of the Inquiry under the Charitable Fundraising Act 1991, p 486.
  8. Ibid page 293.
  9. Final Report Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, p 332.
  10. of the Inquiry under the Charitable Fundraising Act 1991, p 137.
  12. Reported in the Australian Financial Review, 5 February 2019.
  13. Final Report Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Vol I, p 153
  14. Discussed by Kevin McCann in the Governance Institute webinar, ‘Unpacking the Hayne Royal Commission’ streamed on 12 February 2018.
  15. Kazenbach JR, Kronley C and Steffen I, ‘Culture Change that Sticks’ Harvard Business Review, July — August 2012.

Jonathan Casson is a speaker at Governance Institute’s Not-for-Profit Discussion Group in Sydney on Wednesday 29th May and Wednesday 28th August.

Jonathan Casson can be contacted on 0414 909 832 or by email at

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