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  • Rachel King

"It's a human system"



February marked the one-year anniversary of the end of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Naturally, all industry stakeholders are reflecting on what change approximately A$1billion of tax-payer funds and 12 months of valuable time have produced.


Many are concerned that the anticipated behavioural change the Royal Commission was expected to catalyse will not be made[1] and that human risk, the risk of loss caused by human factors, will continue to pose an expensive vulnerability to this sector.


Speaking at an industry event recently, Deputy Chair of APRA Helen Rowell, stated that the underlying issues that caused such damage to consumers and to public trust, have “not yet” been rectified because “it’s difficult to identify the underlying causes”.[2]


This statement is surprising given that Commissioner Hayne identified the “underlying causes” almost 2 years ago. In plain and simple language at the commencement of proceedings, Commissioner Hayne stated that:


“It's a human system, therefore things go wrong.”[3]


Six months later, in response to the question of ‘why’ industry participants had made the decisions they had and subsequently behaved the way they did, the Commissioner again pointed to the role that human factors played, stating that:


“...the answer seem(ed) to be greed – the pursuit of short term profit at the expense of basic standards of honesty... From the executive suite to the front line.”[4]


In light of the Commissioner’s early observations, observations that testimony during the remainder of the inquiry only seemed to validate, it’s disappointing that the response from APRA 12 months on, was not one of greater insight and progress. A welcome response to the question of whether the underlying issues that caused such damage to consumers and to public trust had been rectified, would perhaps have been:


Almost. While the underlying causes have been identified the industry, including APRA and institutions themselves, have been working hard to truly understand the drivers behind them. Once understood, this knowledge will be used to inform changes in processes, policies and systems in an intelligent, evidenced-based way that, to the very best of our human capability, mitigates the likelihood of their recurrence.


Despite being cautioned against turning immediately to the usual ‘fixes’ within this industry’s comfort zone - processes, policies and systems[5] - without first digging deeper into the ‘why’, the focus over the past 12 months has in fact, predominately been in these areas as most of the major banks’ 2019 Annual Reports[6]attest to.


The necessary education and upskilling of boards, leaders and their teams in order

understand the “underlying causes”, the human drivers and human factors, behind the decision-making and subsequent behaviours that resulted in such pain, appears to have taken a back seat.


It is human nature to leave to last what we know least about and find most challenging to change, or if possible, avoid it altogether. After all it is, as Commissioner Hayne stated, a “human system” and boards, management teams and regulators are not, as has been demonstrated time and again, immune to their own humanness.


However, despite the challenge of change, now is not the time to shy away from it. Unless a sense of urgency is maintained to drive new learning and new ways,[7] the risk that poor standards of behaviour “will continue when public attention recedes”,[8] remains high. APRA’s answer next year then, to the question of whether the underlying issues that caused such damage to consumers and to public trust have been rectified, will once again be, ‘not yet’.


Ultimately, a healthy organisational risk culture with effective organisational risk management requires a deeper understanding of the human capital that comprises them. This knowledge becomes the inputs for the following desirable outputs or outcomes:


1. Values alignment – maximum alignment between an organisation’s inherent purpose and values and those of its employees, executive team and board.


2. Individual risk management – the foundation of a healthy organisational risk culture of honesty, integrity and conscious decision-making, is the healthy risk management of self by the individuals that comprise it, starting with leaders and their teams. A foundation of rock, not sand is needed.


3. Awareness of drivers – humans are not just motivated by financial rewards. Remuneration and incentive structures that more closely match employee drivers and needs will result in increased engagement and also mitigate the risk of these motivations being satisfied in other ways.


The Royal Commission has provided a window of opportunity for real industry-wide improvement in organisational risk cultures and optimised risk management. This window can be leveraged to create a legacy of best practice in the key areas of Governance, Culture, Remuneration and Accountability or the acronym GCRA, as APRA’s Ms Rowell referred to them recently. A best practice GCRA legacy will reap not only greater financial returns for stakeholders going forward but also increase the human capital value of this industry. That is a “human system” worth striving for.


  1. [1] https://www.ft.com/content/ef7ac354-4b8c-11ea-95a0-43d18ec715f5 [2] https://www.apra.gov.au/news-and-publications/deputy-chair-helen-rowell-speech-to-australian-institute-of-company-directors [3] "Transcript of Proceedings: Day 2" (transcript). Auscript Australia Pty Limited. Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.13 March 2018. [4] Hayne, Kenneth (28 September 2018). "Interim Report: Executive summary". Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. [5] https://aicd.companydirectors.com.au/-/media/cd2/resources/advocacy/governance-leadership-centre/pdf/2019/07486-2-adv-ethics-guide-report-oct19-a4-34pp-web-v2.ashx [6] https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-reports/CBA-2019-Annual-Report.pdf, p. 4. [7] James, E. H.& Wooten, L. P. (2004). Leadership in Turbulent Times: Competencies for Thriving Amidst Crisis. Darden Business School Working Paper Series, 04-04. [8] https://www.ft.com/content/ef7ac354-4b8c-11ea-95a0-43d18ec715f5

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© 2017 Rachel King  |  HUMAN RISK