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BFCSA: CBA ‘blocked ethics scrutiny’ Cultural Review 2015 then BARRED!

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CBA ‘blocked ethics scrutiny’

The Australian 12:00am March 7, 2019

Michael Roddan


Commonwealth Bank was the subject of a wide-ranging cultural review by the St James Ethics Centre in 2015, but then barred the organisation from overseeing the implementation of any response to its findings.

Ethics Centre director Simon Longstaff yesterday said his organisation produced a “thick” report that had never been released publicly on the cultural failings at the nation’s largest bank, two years before the Australian Prudential Regulation Authority was forced to conduct a wholesale review of CBA’s culture and governance in the wake of the money laundering scandal.

Speaking at an industry forum in Sydney, Mr Longstaff said the report was given to the APRA committee, led by former regulator John Laker, but the Ethics Centre was blocked from understanding whether the bank responded to the first report’s findings.

“It didn’t look at the whole of the CBA — it should have perhaps had a slightly broader remit,” Mr Longstaff said. “There were ample opportunities to address the areas that had weakness,” he said.

The Ethics Centre review followed the financial planning scandal at the bank, and came before the CommInsure life insurance debacle and the landmark lawsuit from the anti-money laundering regulator Austrac, which accused the bank of breaking the law more than 50,000 times.

“We weren’t involved in any of the implementations,” Mr Longstaff said. “There was a response [by CBA] but when I sought further and better particulars about that response, because I was asked to brief the Laker committee, that opportunity was declined to me,” he said. “I don’t know where or not there was a whole lot of panicking going on. If I’m absolutely candid, there were people within the CBA more concerned about risk management and not having the expressed view about what had been recommended and what had been done than they were about other considerations.”

APRA last May punished CBA with a $1 billion capital penalty after the damning review — led Mr Laker, company director Jillian Broadbent and former competition tsar Graeme Samuel — found the bank guilty of “complacency”, having a “reactive stance”, being insular and not learning from experiences and mistakes.

The comments from Mr Longstaff come amid a broader debate about the influence of institutional shareholders pushing companies to overhaul governance, environmental commitments or social positions, and the rise of activist shareholder engagement.

Deep divisions between unions and big business have resurfaced after Josh Frydenberg asked the prudential regulator whether it had the power to ensure union-appointed super trustees did not pursue political objectives at the expense of members’ interests.

Activist investor Gabriel Radzyminski said the governance issues in the major banks were well known to shareholders and observers before the financial services royal commission picked apart the sector’s failings, but the tough questions had not been put to bank leaders.

Mr Radzyminski said it was important that companies made themselves open to listening to shareholder concerns. “Shareholders want the company to thrive — they’re not the enemy,” Mr Radzyminski said.

Company director Gary Weiss said companies needed to present their financial information more clearly and simply so investors could better gauge the health of a business.

“I think a fundamental tenet has to be openness with shareholders, not always just telling shareholders what they would like to hear,” Mr Weiss said.

Mr Longstaff said directors often turned a blind eye to the reality of the culture in their organisations. “It takes a rare board and rare group of chief executives to look in that mirror,” he said.

“There are factors to do with a certain group of directors, mostly men my age and older, who, because they’ve grown up in a world where they’ve been successful with their particular knowledge and experience, when you present them with something new, they look away. They just don’t want to face into it,” Mr Longstaff said.

“I made some gross generalisations there, of course. Not every director is like this. Why has Australia been so slow to understand the underpinnings of these issues and ultimately culture grows out of ethical underpinnings — those are the reasons,” he said.


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