We should have cut bonuses, CBA chair tells commission

Catherine Livingstone said the lender’s board should have taken a harsher approach to punishing ­executives.

Hollie AdamsCatherine Livingstone leaves the commission hearing in Sydney yesterday: ‘Perhaps we should have made that public’. Picture: Hollie Adams

Commonwealth Bank chairman Catherine Livingstone said the lender’s board should have taken a harsher approach to punishing ­executives, including stripping them of bonuses, as she made embarrassing admissions about compliance failings and pay decisions.

On day three of the Hayne royal commission’s policy round, Ms Livingstone was grilled on the issues of pay and accountability, and shown compliance reports from 2016 containing explosive revelations about how CBA viewed these issues.

In a summary of the bank’s compliance blunders two years ago, the board was told $114.9 million had been set aside to deal with its fee-for-no-service problem and the issue was described as “closed”.

Counsel assisting the commission Rowena Orr QC launched a broadside at Ms Livingstone, pointing out the board had a limited real knowledge of the compliance issues. She added that since 2011 CBA “had never reduced” an executive’s short-term bonus for compliance issues, unless those issues were publicly aired by the media.

Ms Livingstone said in hindsight the board reports showed more should have been done and executives should have been hit harder by bonus cuts or receiving zero bonuses.

“The processes and the remuneration outcomes for 2016 was patently inadequate,” Ms Livingstone said. “There are individuals here for whom the level of award was not appropriate, in light of the risk matters which, as you pointed out, were on foot in the group at the time.”

Documents tendered showed the board had some awareness of a host of compliance matters, including CBA charging fees for not providing services, selling consumers junk insurance and compliance breaches of its anti-money-laundering obligations.

In fierce questioning over accountability, Ms Livingstone also revealed former CBA chairman David Turner had this year declined a board request to repay 40 per cent of his fees to reflect his part in the scandals engulfing the bank.

“In retrospect, yes, perhaps we should have made that public,” she said when asked if the request to Mr Turner should have been disclosed in CBA’s annual report.

Feedback she received from other board members suggested Mr Turner had communicated that he “didn’t recognise” the CBA board that was taken to task in a scathing report by the prudential regulator in a May report.

Ms Orr took further issue with a report submitted to the CBA board in 2016 by head of risk David Cohen, saying: “Despite all of those (compliance) issues, we see that Mr Cohen did not believe that there were any risk issues or risk behaviours that would suggest the short-term incentive awards should be modified in any way. You were part of that decision (as a non-executive director).”

Ms Livingstone argued she had attended only two board meetings at that time, after joining in 2016, prior to pay decisions being made.

Ms Livingstone’s accountability and memory came under further scrutiny after she reaffirmed that she had raised concerns about alarming audit reports in 2016.

But her account was unclear on Tuesday about which board meeting she raised the failed audits at, and Ms Livingstone attempted to clarify her position yesterday.

“It was at the October board meeting that I challenged management in relation to the AML/CTF (anti-money laundering/counter terrorism financing) reports,” she said.

Her version of events was seriously questioned by Ms Orr who said her recollection was not supported by board minutes.

Ms Orr tendered a document of the board minutes and said there was “no reference” to Ms Livingstone raising the matter or receiving a response.