CBA branded ‘complacent, reactive, insular’ in damning report

CBA chairman Catherine Livingstone has been forced to defend the choice of an insider CEO to lead an overhaul of culture.

CBA chairman Catherine Livingstone and CEO Matt Comyn. Picture: AAP

Commonwealth Bank chairman Catherine Livingstone has been forced to defend the board’s choice of an insider chief executive in Matt Comyn to lead an overhaul of culture and governance after a scathing report found the bank’s string of record profits dulled board and management’s senses to risk and bred a complacent culture that was at times “dismissive” of regulators.

The Australian Prudential Regulation Authority has ordered an overhaul of the bank’s culture, governance and accountability that will take three years to complete, with 35 recommendations from an expert panel, and imposed a $1 billion capital penalty in the wake of the Austrac money-laundering scandal.

The report, led by former APRA chairman John Laker, found the cultural failings extended right up to the board of the country’s biggest bank with a “widespread sense of complacency, a reactive stance in dealing with risks, being insular and not learning from experiences and mistakes”.

It also noted “an overly collegial and collaborative working environment” that lessened the opportunity for constructive criticism or timely decision-making.

Scott Morrison seized on the “damning” report yesterday to demand more board and management changes at the nation’s biggest bank and said it should serve as a warning to directors and management at other banks and companies around the country.

“(APRA) found there was a complacent culture, dismissive of regulators, an ineffective board that lacked zeal and failed to provide oversight, a lack of accountability and ownership of key risks by senior executives, a remuneration framework that had no bite, and that they were reactive, slow, and had under-resourced systems and processes internally,” the Treasurer said.

“I want to stress while the CBA is a sound financial institution ... that rap sheet that I’ve just read out from APRA is damning.”

CBA has been at the centre of a series of scandals dating back to 2008, including mis-selling of margin loans to retail customers to invest in financial products recommended by Storm Financial; misconduct by financial advisers in Commonwealth Financial Planning; fees charged for no service in financial advice; use of an outdated definition of heart attack in insurance products sold by Comm­Insure; anti-money-laundering breaches and Austrac court action; and mis-selling of credit card insurance.

The scandals spanned several divisions of the bank, including CBA’s biggest — retail banking — which was headed by Mr Comyn from 2012 until he became chief executive last month, replacing Ian Narev, who brought forward his departure in the wake of the Austrac scandal.

But Ms Livingstone said the APRA report strengthened the case for appointing Mr Comyn.

“Matt has an intimate knowledge of the bank, particularly of the RBS (retail banking services) group, and has demonstrated that he is someone who gets things done — in particular, the way he stepped up at the time of the Austrac proceedings at the time they were lodged and took responsibility not just for his own area, but for areas outside his responsibility, and he acted quickly and with resolve,” she said.

Ms Livingstone said the board had also taken into account his work in a customer-focused “better outcomes” program and in improving engagement with the community.

“So it is a combination of the ability to determine what needs to be done and act, as well as true empathy for the customer and the community, (that) reinforces the reasons we chose Matt as the CEO.”

Mr Comyn was one of few senior executives to survive a purge of the bank’s senior ranks that included the heads of its institutional and wealth management divisions, and he is in the process of hiring five senior executives to build his leadership team.

He said he was considering both internal and external appointments for those roles and did not have a “predisposition for one or the other”.

“I am very focused on getting the right people on the executive leadership team, who I will work closely with to ensure we deliver and earn back the trust of customers and the community,” he said.

Among the findings of the APRA-backed review were that:

• CBA had inadequate oversight and challenge by CBA’s board and its committees of emerging non-financial risks.

• CBA has been reactive — rather than proactive and pre-emptive — in dealing with risks.

• Overly complex and bureaucratic decision-making processes favoured collaboration over ­timely and effective outcomes.

• The compliance function was immature and under-resourced.

• The remuneration framework had little sting for senior managers and above when poor risk or customer outcomes materialised.

• There is a perception that media coverage is inherently unfair, inclining staff to not listen and give excuses, and further reinforcing a complacent mindset.

Ms Livingstone said the report was “both upfront and confronting” about the ways the bank had failed its customers and weakened trust in the organisation, but provided a clear road map to fix it.

“We are committed to implementing in full the recommendations of the APRA report and the board and management are now undertaking a comprehensive response,” Ms Livingstone said.

Mr Comyn said the reports were consistent with his own thoughts on what had “gone wrong” at CBA.

“My assessment is consistent with what you will read in this report,” he said.

“We have become complacent, we allow good intent and collegiality to matter more than accountability and follow-through.

“Our capabilities in risk and compliance simply weren’t good enough and we didn’t listen hard enough to our unhappiest customers and therefore missed the deeper root causes.”

Mr Comyn said he planned to make 500 copies of the report for senior leaders at the bank and would single out specific criticisms before asking them to read the report and consider what could be done to fix it.

“Some of our leaders may think the report is unfair, some will think it describes CBA and other people, but not them and their teams,” Mr Comyn said. “I will make it clear that this report describes the bank, it describes me and it describes everyone of us.”