Elizabeth Knight quotes prime minister Malcolm Turnbull speaking at Westpac’s 199th birthday lunch:
Meanwhile Turnbull – himself a former head of the Australian chapter of Goldman Sachs – told those attending the Westpac lunch that bank culture must shift from one that traditionally had been all about profit to one that took into account broader social responsibility.
Remuneration and promotion cannot any longer be based solely on direct financial contribution to the bottom line.
While bank bosses have been talking the same kind of talk for a while now, the growing number of instances where the behaviour of the banks had fallen short as a result of the drive to increase profit (and personal bonuses derived from making returns) are becoming harder to explain away using the excuse of a few bad apples.
“We expect our bankers to have higher standards, we expect them always, rigorously, to put their customers’ interests first – to deal with their depositors and their borrowers, with those they advise and those with whom they transact in precisely the same way they would have them deal with them,” he said.
Turnbull has hit on a key risk area for banks: remuneration structures that reward short-term profit objectives promote a risk-taking culture. Bank deals often look impressive at the start only to sour later. Incentives that encourage employee share purchases align staff interests with those of shareholders — a prudent, long-term outlook — while share options and bonus schemes encourage a short-term focus, aggressive risk-taking and divisional rivalry that can damage long-term value.
APRA may consider remuneration structures as outside their risk management ambit but it is time for a re-think. Toxic management culture is the biggest risk of all.
“Only when the tide goes out do you discover who’s been swimming naked.” ~ Warren Buffett