Flawed Corporate Culture and Director Liability

The Royal Commission has been tasked with investigating a number of matters which may be considered to be misconduct within the financial services sector. The findings have raised a number of issues within the financial services sector but have also highlighted a growing expectation within the wider community regarding what good corporate culture looks like.   

CBA's indignant fall from grace over recent months has shone a light on culture, including what it means for both the company and individual board members. The fallout has been immediate with CBA already seeing the resignation of key board members and the pressure is not over yet. The Treasurer, Scott Morrison, is calling for more heads to roll at CBA according to the Australian Financial Review saying that APRA's report ''should serve as a wake-up call for all executives and board members of other banks and financial service providers as well''. 

APRA's report found that CBA has: 

  • inadequate oversight by the board;
  • a lack of ownership of key risks and weaknesses;
  • a lack of urgency to resolve inadequacies.

APRA's report also suggested a number of recommendations for the banking giant, including:

  1. more vigorous Board and Executive Committee level governance;
  2. reinforcing accountability standards through effective remuneration practices;
  3. enhancing the authority and capability of operational risk management and compliance functions. 

More recently, however, is the unexpected fallout from the AMP questioning at the Banking Royal Commission. Revelations of dishonesty and misconduct from Australia's largest wealth manager put paper to the flame, with casualties spanning from board members to external lawyers. The revelations came over a two-day period which saw AMP admit to misleading ASIC twenty times between 2015 and 2017 over the extent of its 'fee for no service', and the submission of an alleged independent expert report which was apparently designed to limit the findings of the knowledge and involvement of the company's most senior executives. 

It has emerged that AMP made deliberate decisions to continue charging clients fees for no service despite attempts made by junior staff to convince senior management to halt the practice. The commission of an independent expert report to evidence that the practice of 'fee for no service' was not as widespread as it in fact was underwent twenty-five draft versions before it was finally submitted to ASIC, all with board oversight. 

This morning, AMP confirmed three more non-executive directors have resigned ahead of this weeks' company annual general meeting, which include the company’s longest-serving director, Patty Akopiantz. 

Although the end result for the financial service industry is still largely unknown in terms of regulatory response, one thing we do know is that penalties will be issued against those companies and directors who fail to comply with their obligations, and the punishment could be significant both internally and externally. Importantly, the source of some of these punishments come from community expectations, not direct legislation.  

AMP's statement this morning confirmed that the three outgoing non-executive directors left due to shareholder demands for the board to be held accountable. The Federal Government has more than just hinted that criminal charges will be increased to ten years jail time for those found guilty of misconduct. AMP is also facing four class actions which are gaining traction, spearheaded by Quinn Emanuel Urquhart & Sullivan. 

At the heart of the scrutiny of AMP is its culture and whether it lived up to social expectations and public proclamations. It remains to be seen if criminal action will be taken against AMP and/or its officers for their part in AMP's misconduct. 

Financial Services Updates

Financial Services Updates