100 million reasons not to trust corporate Australia

Insight

It really does speak to the depths of a company’s pockets, albeit the country’s biggest, when a Board can reduce bonus payments for its senior executives by $100 million in response to failures of compliance and conduct.

Last week it was revealed in the Commonwealth Bank’s Annual Report both the magnitude of bonus payments, and the combined impact of the AUSTRAC settlement and findings of the Australian Prudential Regulation Authority’s (APRA) prudential inquiry.

In total, some 400 current and former senior executives and managers forfeited around $100 million collectively as a result of these events. A sobering thought when you consider that is around a quarter of a million dollars each, assuming uniform distribution which we know is most definitely not the case in the apex structure of C suite short and long-term reward rights.

The Board, and the Chair of the remuneration committee, Sir David Higgins, have undoubtedly done the right thing here. They should be applauded for their actions, made all the more important in the hot reputational spotlight of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

I’m not going to jump on a populist bandwagon of decrying the size and structure of bonus arrangements in corporate Australia. However, the situation at CBA does raise a very uncomfortable question about the relationship between ethics, morals and financial incentives.

CBA’s highly sophisticated, mark-to-market performance incentive scheme is designed to drive the behaviours of its 400 most senior people. So how is it that this system was able to allow, and even cultivate, a culture where breaches of anti-money laundering and counter-terrorism financing laws were able to occur, and then not be properly reported?

A point rammed home by the banking regulator, APRA, in its report into CBA’s culture and accountability where it found "a widespread sense of complacency, a reactive stance in dealing with risks, being insular and not learning from experience and mistakes."

Maybe it’s time to look at the impact of remuneration models on the culture of a business and whether they drive a perverse outcome of devaluing less tangible things like doing what is right, accountability, service and excellence - all CBA values.

Sadly, it’s not a massive stretch to imagine that if it wasn’t for the good work of AUSTRAC and APRA, the latest CBA Annual Report could easily have been touting the bank’s position as a pillar of the Australian community and the outstanding financial management of its team in delivering an NPAT of $9.2 billion. The payment of $100 million in performance bonuses listed somewhere in the back of the report a vindication of the hard work in delivering outstanding returns to shareholders.

If corporate Australia wants to win our trust back, it probably needs to take some personal responsibility for its behaviour, and not rely on regulators and Royal Commissions to uncover the seedy sides of their culture for them to fix.