Maybe the easiest thing to do about the banks would just be to nationalise them. At the moment they are semi-government public authorities anyway.
Politicians hold press conferences telling the banks the prices they should charge for their products. Under the so-called “Banking and Executive Accountability Regime”, a government-appointed committee (the Australian Prudential Regulation Authority) decides who the banks can employ and how much they’re paid. The structure of the financial sector is decided by the government, and banks are of course prevented by the government from going broke.
Australia’s business community tends to regard the banks as a special case and has generally abandoned the banks to fight their own battles. The attitude from CEOs in other industries has been that because banks get the benefit of government regulation they also have to bear the costs of complying with that regulation. Many CEOs prefer to talk about topics like climate change, Indigenous recognition in the constitution, and board diversity targets than engage in fundamental questions such as whether a private-sector company has the right to choose its own staff and choose the manner of their remuneration.
Given that the government and government-appointed regulators already regulate so much of what banks do, it’s inevitable that eventually attempts would be made to regulate their “culture”. Which is exactly what has happened.
In the wake of allegations as to how the Commonwealth Bank managed alleged money-laundering, the Australian Prudential Regulation Authority established a “Prudential Inquiry into the CBA” to examine the bank’s “framework and practices in relation to governance, culture and accountability”. The 109-page report of the Inquiry with its 35 recommendations was made public this week. Matt Comyn, the new Commonwealth Bank CEO, immediately announced “we will fully implement the recommendations of the report” and he would forgo his short-term incentive remuneration.
Realistically, Comyn and his chairman Catherine Livingstone had no choice but to surrender to APRA, especially while the bank is in the middle of a royal commission, and as it was likely they knew there would be front-page news stories in the following days about the CBA losing the records of nearly 20 million accounts.
In an ideal world Comyn and Livingstone would have told APRA to go jump. The idea that government regulators should require the CBA to “ensure that its senior leaders are capable of cascading the desired tone at the top in a personal and authentic manner” (Recommendation 28) is laughable – if it wasn’t so dangerous.
Ambiguous and vague
The responsibility of the directors of the CBA is to obey the law. And any law, regulation, or rule which the government expects a citizen to abide by, whether as a pedestrian crossing the street or as a CEO of a $100 billion bank, must be clear and comprehensible.
Attempting to regulate corporate culture breaches the rule of law because regulators are imposing rules which are ambiguous, vague and open to multiple and conflicting interpretations. How Matt Comyn and Catherine Livingstone can prove to APRA they are “authentic” and that “Senior leaders reinforce key behaviours of increasing self-reflection, giving and receiving constructive challenge [sic] and dealing with conflict effectively” (Recommendation 27) is anyone’s guess. Regulating for something as inchoate as “culture” basically allows regulators to impose their own personal standards and opinions without the democratic mandate of legislation.
Much of what’s in the Inquiry report might be not unhelpful for CBA directors. But it’s not APRA’s job to act as glorified management consultants.
It speaks volumes about the general hopelessness of so many of this country’s business leaders that government regulation of a company’s “culture” is accepted without even a whimper. Those CEOs who think the government will want only to regulate the culture of companies in the finance industry will be in for a rude shock when Bill Shorten as prime minister appoints Sally McManus to report on the culture of companies in some other sector of the economy.
Australia’s business community is quite rightly exercised by the threat posed to free market capitalism in this country by the ACTU, GetUp!, and George Soros – but the regulation of corporate culture by the government is in the long term no less of a threat to the future of private enterprise.