As the Australian Prudential Regulation Authority releases a scathing report on the conduct of Commonwealth Bank, a bandwagon-joining Scott Morrison calls for more heads to roll. By Alex McKinnon.

Commonwealth Bank held to account

Scott Morrison has a voice and demeanour naturally suited to talkback radio. Before being dumped in 2017 from his frequent chats with 2GB broadcaster Ray Hadley, it was often difficult to tell the two apart as they growled at each other over some new outrage, usually related to political correctness.

Morrison channelled his inner shock jock to great effect this week, taking Commonwealth Bank of Australia (CBA) as his latest chew toy. At a press conference to release the Australian Prudential Regulation Authority’s final report into CBA’s workplace culture and risk management practices, Morrison sounded positively bolshie in his newfound determination to hold to the fire the feet of inept banking executives.

He heaped praise on the report, calling it “required reading” to be placed “on the agenda of every single board meeting in this country, regardless of whether you’re a bank or not”. He warned board members of all stripes to “ask themselves the hard questions” about their company’s governance practices, telling customers to “take their business somewhere else” if they didn’t. He openly called on more CBA board members to resign, laying blame at the feet of the bank’s highest officeholders. He scorned the bank’s lavish remuneration scheme for board members, calling it “money for jam” that rewarded executives “even when things go wrong”.

“At the end of the day, it is up to these institutions to step up. To step up. For their board members to step up. These institutions have to step up to this challenge,” Morrison barked. “They expected better, those shareholders, of board members on this occasion, and they have been let down. Terribly.”

When he wasn’t putting the boot in, Morrison retrospectively painted the government as a terror of the banks all along. “The government has never shied away from actually fronting up,” Morrison claimed, referring to the Big Four banks. While he correctly pointed out that the APRA inquiry, the bank levy and the Banking Executive Accountability Regime were all established before the government ordered the royal commission, Morrison conveniently forgot that public and parliamentary support for a commission largely scared the government into delivering those reforms in the first place.

Still, Morrison has come a long way since 2016, when he dismissed the idea of a royal commission into the banking sector as “nothing but a populist whinge” that would undermine industry confidence. If the commission’s constant revelations of corruption, unethical practices and ruined lives weren’t enough to make him change his tune, the incompetence and arrogance detailed in the APRA report would make a convert out of anyone.

APRA chose not to rehash the many scandals that have plagued CBA in recent years, although it did note that the bank had “fallen from grace” in the public eye. The report focused on how the bank works behind the scenes, trying to diagnose how such a large, successful and previously well-regarded institution could stuff up so badly.

In a nutshell, APRA identified the problem as follows: “CBA’s continued financial success dulled the senses of the institution”. The bank, in other words, began to believe its own hype. As profits scaled ever more dizzying heights, “a widespread sense of complacency” took hold “from the top down”. The performance of the balance sheet fostered “a collective belief within the institution that CBA was well run”.

That belief would manifest itself in myriad ways. Employees throughout the bank, from the board down, became unable “to identify who is accountable when things have gone wrong”. The bank was slow to recognise its own mistakes, and “often had to be prompted by scrutiny from internal audit, the media, a regulator or another external party” to rectify them.

Frontline staff were far more likely to be held accountable over individual cases of wrongdoing than senior management figures were for chronic, ongoing problems. While the bank took pride in its high customer satisfaction ratings, it did not pay sufficient attention to “vulnerable customers and individual, serious complaints”.

The bank’s strong financial performance ensured senior executives became virtually untouchable. The board effectively abandoned its duty to make pay contingent on performance, approving bonuses and raises as a matter of course. Senior staff came to act as though they were entitled to automatic bonuses, regardless of whether they were doing their jobs effectively. APRA noted that while “clawback”, or ordering executives to pay back bonuses for poor behaviour, is not typically practised by Australian financial institutions, it “could be a particularly effective tool for cases of serious misconduct”.

But APRA reserved its harshest words for CBA’s culture, which it described as one of “entitlement over genuine accountability”. It spoke of “a pervasive sense of ‘chronic ease’ ” within the bank, leading to “a widespread tendency towards complacency and reactivity”. APRA found “a genuine lack of appreciation for [the] importance” of reflecting on mistakes, and an absence of “foresight, curiosity, critical thinking and questioning” among senior management.

CBA’s belief in its own invulnerability fostered an attitude of entitlement and buck-passing that is difficult to overstate. The bank’s attitude when dealing with regulators became openly childish. APRA heard “of occasions where CBA would insist on hearing why it was legally required to take action before it would do so” and of the bank routinely being “dismissive” of its regulatory obligations.

It became standard practice to blame everyone but the bank itself when things went wrong, or else shrug off problems entirely. At a loss to explain their role in scandals, senior executives would offer up explanations “along the lines of ‘we did the best we could’ ”. Executives were more likely to blame external factors such as “shifts in social expectations, rising regulatory demands and unbalanced political and media scrutiny” than admit to shortcomings within the organisation. Staff would offer “common refrains of ‘it’s big and complicated’, or ‘it’s not always easy’ ” in response to mistakes or problems going unaddressed.

Lower-level staff noted that senior figures went unpunished for failing in their obligations, and ended up mimicking their superiors rather than rocking the boat. An attitude of “don’t challenge [and] don’t ask too many questions” became “a symbol of what is appropriate behaviour”. One employee told the regulator that it was widely understood within the bank that “if everyone has good intent, you won’t get punished”.

Despite the report’s harsh words, it remains to be seen whether CBA will suffer more serious consequences. APRA has imposed an enforceable undertaking on the bank to implement the report’s 35 recommendations, as well as an additional $1 billion in capital requirement until they are met. While CBA executives are expected to take further pay cuts later this year, chief executive Matt Comyn and chair Catherine Livingstone have resisted calls for more heads to roll.

Real change may end up starting from the bottom. Jeff Morris, a former CBA financial planner, was one of the “Three Ferrets” who turned whistleblower in 2008, alerting the Australian Securities and Investments Commission (ASIC) to what he called “a high-level management conspiracy” to cover up the malfeasance of a rogue financial planner. After years of being frustrated by ASIC’s inaction, and having filed a Fair Work claim after having his pay cut off in 2012 and allegedly receiving a death threat, Morris went public.

It was Morris’s work with Nationals Senator John “Wacka” Williams that led to the 2013 Senate inquiry exposing ASIC’s indolence in the face of fraud and corruption allegations at CBA. His testimony formed the bedrock of the ABC’s Four Corners and Fairfax’s “Banking Bad”, a Gold Walkley-winning 2014 exposé of CBA’s profit-at-all-costs culture.

Morris believes APRA has validated what he has been saying for years about CBA. Speaking to the ABC shortly after the report’s release, Morris said the regulator “captured the essence of the management culture of CBA”, and praised them for “telling it like it is”.

Despite his treatment by CBA, Morris is optimistic that the bank’s culture will change now that the lid has been lifted – not because it wants to, but because it has to. He called the APRA report “a terrific opportunity” for CBA, purely because “there’s so much scope for improvement”.

“Given the public exposure that this has attracted, I think everyone in the organisation will be looking in. There will be more pushback now from staff; it won’t be as easy to get them to do the wrong thing. The bad apples who used to be protected by the management will be exposed. The other staff won’t tolerate that.”

Scott Morrison is here now, waiting to take credit.

This article was first published in the print edition of The Saturday Paper on May 5, 2018 as "Tossed balances and scrambled execs".

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