ANZ chief Shayne Elliott highlights need to lead by example

ANZ chief Shayne Elliott has lamented that a mix of big salaries and lax oversight can lead to ‘explosive’ failings.

Treasury Secretary John Fraser said he had once resigned over ‘a matter of culture’.

ANZ chief Shayne Elliott has lamented that the heady mix of big salaries and lax oversight can lead to “explosive” failings in banks, putting the onus on leaders to set the culture and live it every day.

“Unfortunately, when you get a lot of young men together and you throw lots of money at them and without the right leadership, things can go wrong,” said Mr ­Elliott, who has been battling damaging allegations about the bank’s markets business, involving drug-taking and strip clubs.

“It’s ultimately about leadership and being seen to walk the talk and lead by example ... we’re going back to basics and making it clear what our purpose is as an ­organisation. It’s not just to make money for shareholders.”

The comments at a business lunch in Melbourne coincided with a speech by Treasury Secretary John Fraser in which he called on banks to be wary of pandering to shareholders’ short-term desires, claiming it can breed poor culture.

“Creating a better culture can be difficult in an environment that focuses unduly on nearer term interests of shareholders alone. We see the results of this play out every day,” he said at the Australian Securities and Investments Commission’s annual forum in Sydney. “And history has shown the potentially catastrophic consequences when the actions of self-interested private actors in financial institutions morph into pure selfishness and greed.”

Mr Fraser, a former chairman and chief of UBS Global Asset Management, said forming and maintaining a “robust institutional culture” would be critical to success amid digital disruption, unconventional monetary policies and slower growth in China.

“I am not afraid to say that I have worked for an institution that had a mixed record on culture in earlier times. Indeed, I have even resigned over a matter of culture,” he said, without elaborating.

“I am very glad to say that, having recognised that there were major governance and cultural problems, the institution undertook sweeping reforms that have restored their reputation and improved their performance.”

Culture and governance are a major focus of the Australian banking regulator and ASIC in the wake of several scandals in the banks’ institutional divisions, life insurance and financial planning.

Opening its conference on Monday, ASIC chairman Greg Medcraft released a review of Australia’s 12 biggest fund managers, finding several failings.

“Time and time again, we have seen firms blaming it on a few bad apples driving bad outcomes for consumers, rather than taking responsibility by looking more closely at their organisation,” he said.

Recalling the demise of audit firm Arthur Andersen after signing off the accounts of Enron, Mr Fraser said it was “ultimately very difficult to regulate against cultural failings” and leaders were responsible for culture. He said attempting to regulate individual behaviours could be “very counter-productive”. “It can create a narrow compliance culture, effectively absolving institutions of their ethical responsibilities — the ‘if something isn’t explicitly forbidden, then it must be all right’ mindset,” he said.

Mr Fraser said while Australia learnt from the royal commission into the collapse of HIH Insurance in the early 2000s and fared well through the global ­financial crisis, “we have certainly not been immune” from cultural shortcomings.