Howzat! Caught out by Culture

Recently the Australian cricket team was caught out in a ball tampering scandal in South Africa and as the coach, Darren Lehman announced his resignation, he said – “I’m ultimately responsible for the culture of the team.”

It would seem the Australian cricket team and the financial sector have some things in common.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has now completed round 1 of its public hearings. Several witnesses have given evidence that shows that financial services providers prioritised sales over compliance with the laws that govern financial service providers.

The global financial crisis put a keen focus on culture within the financial services industry because it exposed significant shortcomings in the governance and risk management of firms and the culture and ethics which underpin them.

After the GFC, the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority increased their focus on culture. This is because culture is seen as a key driver of conduct – that is – poor culture often leads to poor decisions and/or poor outcomes for investors and consumers.

The Australian Banking Association has taken steps to revise the Code of Banking Practice and concepts such as “responsible lending” are intended to improve the culture in the banking industry.

There is an Australian Standard on compliance – AS ISO 19600:2015 Compliance Management Systems – Guidelines. It recognises the importance of developing and maintaining a culture of compliance.

In 2015, ASIC Commissioner Greg Tanzer spoke about seven (7) drivers of culture compliance that are applicable to all organisations:

1. “Tone from the top” – the board and senior management are responsible for creating a culture where everyone has ownership and responsibility for “doing the right thing” and ensuring good outcomes for customers.
2. Cascading to the rest of the organisation – the leadership team needs to cascade the firm’s values to the rest of the organisation. They need to make sure the values are understood throughout the organisation.
3. Translating into business practices – the firm’s values of “doing the right thing” and good outcomes for customers should be incorporated into all of the businesses practices.
4. Accountability – all staff should understand the firm’s core values and that they will be rewarded or held to account for their conduct.
5. Effective communication and challenge – the firm should promote a culture of open communication and effective challenge to allow current practices to be tested, encourage a positive, critical attitude among employees and promote an environment of open and constructive engagement.
6. Recruitment, training and rewards – Good conduct and good outcomes for customers should be the focus of recruitment, training and rewards.
7. Governance and controls – under the board’s guidance, the leadership team should promote, monitor and assess the impact of the firm’s culture on conduct and make changes where necessary.

To develop and maintain a culture of compliance and customer satisfaction is not easy. The Australian Standard says it requires the active, visible and consistent commitment of the governing body, the CEO and management to a standard of behaviour that is required at every level of the organisation.

While a culture of compliance might not be easy, the alternative is often a failure to comply with the legislation. While your organisation’s breach might not be as public as the Australian cricket teams or the banking industry, the consequences could be just as damaging to your business, its reputation, its profitability and long term viability. When considering the alternatives, a  review of a firm’s culture compliance might be something that needs to appear more regularly on board room agendas.

If you have any queries regarding compliance, governance or simply need some advice before proceeding with a transaction, our firm can assist.