ANZ discovers source of its non-financial risk is a ‘good news’ culture and lack of speaking up
ANZ staff are reluctant to challenge or question bank leaders and a tendency toward good news has stifled opportunities to speak up, a report into non-financial risk concluded.
ANZ is worse than its peers at non-financial risk management, compelling the bank to acknowledge it has a “good news” culture that prevents staff from speaking up.
The major lender on Friday published a “root cause analysis” it carried out with consulting firm McKinsey into the weaknesses associated with its non-financial risk practices. It was triggered by enforcement action launched by the prudential regulator in April, which resulted in the bank having to hold an additional $250m capital overlay.
The report identified six fundamental problems inside ANZ including its good news culture that prevents problems from being identified and fans a tendency for staff to “stay in their lane”.
“ANZ’s ‘good news’ culture can mask problems, diminishing awareness and preventing ANZ’s decision makers from recognising emerging risks or understanding the full scope of issues,” the document said.
The siloed nature of the bank also drew criticism, leading to assumptions that problems will be addressed by someone else, as it is not common to “challenge or ask questions about areas outside their immediate area of responsibility”.
Further issues of concern include a reluctance to test senior leaders, complacency, insularity and a lack of urgency in reacting to known issues.
The latter often led to further problems down the line, “primarily when problems become too large to ignore”. “This contributes to problems persisting over long periods of time and becoming complex and challenging to resolve,” the document said.
The report called for a “stronger ‘tone from the top’ to inspire the right behaviours” among staff.
It also criticised ANZ staff for delivering projects in a “mechanical way” without sustainable outcomes. “Projects are stood up quickly at ANZ, but they are often left unfinished as teams and funding are reallocated before outcomes are achieved and sustained,” it said.
It acknowledged that these internal problems spanning culture, accountability, governance, capabilities, policies and execution across the organisation had an impact on customers.
“ANZ’s deficiencies in these practices have led to poor outcomes for some of its customers,” the document said.
McKinsey drew up a “root cause plan” to address these problems that has been approved by the Australian Prudential Regulation Authority. Promontory will mark its progress on the plan, with the company noting that a key element for success will depend on buy-in from the board and senior executives.
On Monday, at ANZ’s full-year result, chief executive Nuno Matos said that changing the culture would not happen overnight.
“We expect this work to take three years with the first year dedicated to design followed by two years to implement and embed,” he told investors.
Mr Matos said he was ultimately personally responsible for managing and executing the program, holding weekly meetings with his executive team to “oversee progress, drive accountability, and remove roadblocks”.
During the bank’s 2030 strategy day in mid-October, Mr Matos said that Les Vance would report directly to him on the progress made on improving its risk culture.
In April, APRA imposed a court-enforceable undertaking on ANZ over concerns about its non-financial risk management practices and risk culture.
The bank was also slugged with a record $240m fine by the corporate regulator in September for incorrectly reporting bond trading data and engaging in widespread misconduct across products and services which impacted 65,000 customers.
In response, ANZ wiped nearly $32m from its C-suite, with former CEO Shayne Elliott missing out on $13.5m.
ANZ people and culture committee chair Holly Kramer noted Mr Elliott had been found accountable for various non-financial risk failures and also strife in the retail division, which had charged fees to dead customers and failed to handle hardship applications.
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