NAB culture fix may be a decade away yet, says Ken Henry

National Australia Bank chairman Ken Henry has warned that it may take a decade to fix the lender­’s broken culture.

‘Public tolerance (is) zero’: NAB chairman Ken Henry leaves the banking royal commission in Melbourne yesterday. Picture: David Geraghty

National Australia Bank chairman Ken Henry has warned that it may take a decade to fix the lender­’s broken culture, providing insight into the scale of the cultur­al overhaul needed across the natio­n’s biggest banks.

Dr Henry and NAB chief executive Andre­w Thorburn were dragged over coals yesterday at the Hayne royal commission on how they would stamp out bad behaviou­r and fix failings, including continuing charging fees for customers that had died.

Senior counsel assisting, Row­ena Orr QC, took Dr Henry to task over vague statements — such as “Win Together” — that NAB hopes will govern behaviours and values for its 33,000 staff and change the bank.

She also peppered Dr Henry, Treasury secretary under the Howard and Rudd govern­ments, with questions about how NAB would measure any change and how long it would take.

“It could be 10 years,” Dr Henry said in response. “I hope not. But I wouldn’t be at all surprise­d. That would not be unusual for organisations that seek to embed challenge in cultures.”

Dr Henry is the second major bank chairman to front commissioner Kenneth Hayne, after the Commonwealth Bank’s Catherine Livingstone last week.

Ms Orr backed Dr Henry into a corner when he admitted the bank was yet to sort out how to measure improvements in culture. He had a few suggestions though on how it could be done.

Dr Henry highlighted the difficulty of the task by saying that since he joined the bank’s board, the compliance risk rating was “red” — or the worst measure — for every month except one.

“We embed this culture, that cannot be red,” he said. “We will know we’ve got a healthy culture when we see things like fewer incide­nts of non-compliance.”

On regulatory risk, he said the rating reported to the board was currently “amber” and that needed to change. Dr Henry joined the NAB board seven years ago and became chairman in late 2015, a period that has included scandal­s such as charging fees to dead ­people and having loan introduc­ers rort its system to pocket more commissions.

Ms Orr — who was at times frustrated by the length of Dr Henry’s answers — will continue to question him today.

“A better culture would have prevented some of the practices we’ve seen,” he said, but he cautione­d that a board could only lead and encourage a better culture­, not ensure it.

He also said he believed the role of corporate boards in Australia had moved beyond just an accountability to shareholders, to reflect customers and the broader community. “In my view, the publi­c tolerance of that (shareholder) model of accountability has pretty much been eroded to zero,” Dr Henry added.

Earlier, Mr Thorburn told the inquiry he did not know how much of up to $600 million in fees reaped from customers who got nothing in return might have to be paid back if the bank extended its existing compensation scheme.

Meanwhile, Ms Orr delved into Dr Henry’s view of how involve­d regulators needed to be. He said culture was better overseen by the Australian Prudential Regulation Authority, which had already taken steps, over the ­corporate regulator.

“Through its leadership of the industry through its supervisory practices, APRA can influence the culture of institutions. And I think it is occupying that space,” he said.

In May, APRA issued a scathing report on CBA’s culture, processes and governance that prompted the bank’s rivals to undertake reviews. Dr Henry said NAB’s self-assessm­ent showed it was dealing with problems it ­labelled “cultural inhibitors”. They included poor systems, not enough focus on “getting it right” for customers, not listening enough to regulators and not consistently resolving issues.

Ms Orr asked Dr Henry to explai­n some of NAB’s new employ­ee principles, including “Be Bold” and “Win Together”, and quizzed him as to why the bank didn’t have a direct focus on accountability in its new mantra, the way its rivals did. “I don’t think we need to call it out as a separate value,” the chairma­n replied.