Royal Commission Reveals Systemic Banking Misconduct: Hayne's Report

The evidence presented in the first four rounds of the Royal Commission into Banking and Financial Services was harrowing.

It would be a mistake to think the appalling misbehaviour uncovered so easily by the Commission was unconnected, just a few bad apples, as the banks and their supporters had been claiming.

It’s a mistake Commissioner Hayne doesn’t make in his interim report, describing the misconduct as systemic, orchestrated as a matter of corporate policy, and against the law.

The 1980s saw a sea change in attitudes to greed, brought about by financial deregulation and the popularising of the view taught in economics classes that pursuit of individual self interest was in society’s best interest.

Rules, codes and views about what constituted good governance came to be based on a theory that gave a central role to greed, maximising shareholder returns and incentivising managers.

Boards were encouraged to think that putting shareholders first was more important than following directors duties and the law.

Bureaucratically, there was an unrelenting policy preference for self-governance, light touch regulation and cooperation with wrongdoers rather than enforcement.

It’s hard to change

Relying on good character (individual virtue) isn’t enough when corporate structures and policies facilitate systematic misconduct.

It’s impossible to buy organisational culture off the shelf. It is a product of many things.

Changing culture requires more than better professional credentialing, increased financial literacy and embedding regulators inside banks. By themselves, these measures are unlikely to be systemically effective.

We need to change the rules by which boards operate.

Containing greed requires many, many eyeballs, not just those of shareholders and consumers, but also employees, unions, customer advocacy organisations, regulators and the parliament, as well as clear and well-designed rules, active enforcement, appropriate rewards and strong consequences, and a new shared ethos of prudence, responsibility, honesty, service and fairness.

It is possible, but difficult.