The prudential inquiry into Commonwealth Bank of Australia’s culture should examine whether staff feel inhibited about communicating bad news to their managers and if less sales-centric remuneration policies are being implemented in practice, says a leading risk governance experts.
After the Australian Prudential Regulation Authority said it would appoint an independent panel to investigate CBA’s governance, culture and accountability, Macquarie University professor Elizabeth Sheedy said the inquiry should set up a confidential survey of CBA staff members in order to determine what they really think about the culture created by management.
One of the key issues for the inquiry will be determining whether staff, especially junior staff, are willing to speak up. “Research we have done shows in large banks, it is a real challenge to get risk issues reported up the line because staff perceive that leaders don’t want to hear it,” she said.
Similarly, it is important to ask staff, in a confidential process, whether the principles in revised remuneration systems to put customers first are actually being promoted by managers. Like the other big banks, CBA has committed to implementing the recommendations of former Australian Public Service commissioner Stephen Sedgwick, who said in April that sales should not be the dominant component of banker incentives.
But Professor Sheedy said “there is often a big difference between policy and what happens on the ground, and staff know and will tell you if you design survey questions around whether the remuneration system is actually doing what it says it does”.
“Research I have already done has highlighted this as a big problem – in the large Australian banks, a majority of staff perceive that remuneration systems are not consistent with prudent risk management and that perception is associated with non-compliance.”
APRA said the inquiry would consider whether CBA’s “organisational structure, governance, financial objectives, remuneration and accountability frameworks are conflicting with sound risk management and compliance outcomes”.
This would examine CBA’s ‘compliance gateways’, Professor Sheedy said, referring to procedures that restrict…