Royal commission forces boards to change their ways

The royal commission has forced boards to rethink how they challenge management, Citigroup chairman Sam Mostyn says.

Citigroup chairman Sam Mostyn. Picture: David Geraghty

The Hayne royal commission into financial services had forced boardrooms across Australia to rethink how they challenge management and keep tabs on corporate culture, Citigroup Australia chairman Sam Mostyn said ­yesterday.

Speaking at The Australian and BHP’s Competitive Advantage forum in Sydney yesterday, Ms Mostyn, one of the nation’s most experienced directors, said that on almost every issue that had been prosecuted in the royal commission, there was a focus on what a board knew, how it challenged management and how it investigated issues.

“The nature of challenge is changing over time,” she said.

“It is not comfortable being in boardrooms necessarily … because we are not there to just say yes to management but to provide an appropriate challenge on behalf of the shareholders and the company at large.

“I think we are all getting much better and many companies are already very good at this.”

The Citibank chairman has also argued that customer issues that never previously made it to a board were now the focus of board examination.

“Board directors will tell you that we no longer accept the smoothing of customer information that comes to us, that the averages no longer matter to us,” she said.

“Boards are now really interested in how do we find out more about those customers issues.”

Ms Mostyn, also a director of Mirvac, Transurban and Virgin Australia, said that each board she was on had been through the process of looking at the financial regulator’s review of CBA and what it said about the behaviour of the board and senior management.

“All the boards I am on have tested ourselves, with the help of some of our external suppliers, to see how we fit against that criteria that the CBA was judged and it has meant changes,” she said.

She said companies should have learnt lessons from the royal commission into the insurance sector in 2003 that followed the collapse of HIH Insurance.

“That royal commission found executives and boards wanting in exactly the same way we are now re-prosecuting 15 years later with another royal commission (into financial services),” Ms Mostyn said.

“That (insurance) royal commission said, ‘would you please just do the right thing’. There were plenty of signals and people (still) didn’t behave so well.”

Alison Kitchen, national chair of KPMG, told the forum one of the most dramatic things to come out of the royal commission came after the round on superannuation and the discussion about conflict of interests and industry funds.

“The flow of funds from banking wealth companies to industry super funds has been measured in the billions of dollars,” she said.

“That is customers voting with their feet because they don’t believe that companies are looking after the interests of customers.”

Ms Kitchen also referred to a recent CEDA report that highlighted that Australians felt they had not benefited from sustained economic growth in the country.

“People are frustrated and disappointed and they are getting increasingly vocalised. I think that is going to continue to grow,” she said.

Micheal Coleman, non-executive director at the Australian Institute of Company Directors, added that one key concern the royal commission raised for boards this week concerned minute taking.

Earlier this week Commonwealth Bank chairman Catherine Livingstone was challenged at the Hayne royal commission for having a different recollection of comments made at a board meeting to what the minutes recorded.

“If we actually find ourselves in a situation where the minutes have to be crafted in such a way that actually identify every single point of agreement and disagreement in the meeting, who has challenged whom, and what the response has been, it will make the whole thing almost impossible.”

Ms Mostyn said that another clear lesson of the royal commission was that boards must rethink their investigation of risk.

“It is not just reading the risk report but sighting the person who is responsible for risk — that’s capital risk, liquidity risk, operational risk,” she said.

“It is about investigating quite deeply the human side of that and getting down to the bottom of it — a root cause that the board understands as opposed to accepting the risk report, ticking it and moving on.”

Ms Mostyn said one of the greatest changes she had seen was an increase in female directors, which changed the nature of board meetings.

“This isn’t just about gender numbers — this is about accessing more and more experienced women alongside men who can participate in those conversations and bring different aspects,” she said.