Royal Commission Shakes Corporate Governance | Automic Group

Corporate Australia is today digesting the final report of Kenneth Hayne in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Service Industry. While the Commission’s focus was on banks and financial services providers, the recommendations in the report have wide ranging consequences for corporate governance approaches in every sector. No company director can afford to ignore them.

The report finds that “there can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their board and senior management”[1].

Chapter 6 of the report deals with culture, governance and remuneration, noting that they are closely tied together with remuneration and governance informing and reinforcing the culture of an entity. The report calls for every financial services entity, whether named in the report or not, to look to its culture and review its governance and the way that it manages regulatory, compliance and conduct risks.

While the report’s focus is on financial services entities, every Australian company that takes corporate governance seriously should be considering the Commission’s report and whether its own board is adequately supervising processes that maintain sound culture and governance.

Key questions for boards that are posed by the Commission include:

• Is there adequate oversight and challenge by the board and its gatekeeper committees of emerging non‑financial risks?
• Is it clear who is accountable for risks and how they are to be held accountable?
• Are issues, incidents and risks identified quickly, referred up the management chain, and then managed and resolved urgently? Or is bureaucracy getting in the way?
• Is enough attention being given to compliance? Is it working in practice? Or is it just ‘box-ticking’?
• Do compensation, incentive or remuneration practices recognise and penalise poor conduct? How does the remuneration framework apply when there are poor risk outcomes or there are poor customer outcomes? Do senior managers and above feel the sting?

The role of the board was expressly considered by the Commission, which noted that while the board should not be involved in day-to-day management of a company, the board must ensure that it is receiving high quality reporting and is challenging management and holding it accountable as part of the board’s superintendence of the company.

Contact Us

If your board, your risk committee or your remuneration committee would like assistance in understanding the implications of the report and managing your institutional response to it, including considering your own corporate governance framework, Automic Group’s corporate governance specialists are here to help. Please contact us at 1300 288 664 or via email alistair@www.automicgroup.com.au

Alistair McKeough, Solicitor Principal

References

[1] Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report, Volume 1, p 333