Royal commission: forget fuzzy feelings, give me boring bankers any day

A promotion from the Commonwealth Bank's Opportunity Initiatives program.

I’m not a big fan of the corporate schmooze-fest. You know the sort of thing: you’re invited along for lunch or dinner, the food and wine are excellent, a number of senior managers make presentations about how good the company is, and you all go away with warm and fuzzy feelings towards the host.

I tend to avoid these events like the plague. After all, I could always be cleaning out the garage or catching up on some weird sci-fi program on Netflix.

But last year I made the mistake of attending one of these carefully planned love-ins, organised by one of the big banks. What was I thinking?

The food and wine were outstanding; the conversation not so much. I was seated next to the obscenely remunerated chief executive, who had something exciting to tell me — the bank had made its mission to implement an indigenous employment strategy “to support achieving the parity target of a 1.5 per cent indigenous workforce by 2020”.

Given that the event was being held in the context of the release of the bank’s annual financial results and a number of scandals surrounding the egregious treatment of certain customers by the bank — think financial planning, insurance claims — this was a strange conversation starter, the classic “look over there” tactic.

And I told him so. Banks should be boring financial intermediaries providing efficient services to customers on clear and reasonable terms. When they stray from this patch, they tend to lose the plot.

What happens is that managers begin to believe all the guff in the bank’s Corporate Social Responsibility statement while ignoring toxic internal cultures and perverse incentives that shape the relationship between the bank and its customers. The board and senior executives will also use these feel-good measures to demonstrate to governments that they are good corporate citizens, and no further investigation or regulation of their activities is required.

Let me run through some of these diversions from the main game which are given different ­titles, but all amount to companies wanting to be seen to do good things in the community and the right thing by their staff.

They are often outlined in expensive glossy brochures. There will always be a large team of very well-paid workers employed to develop and oversee these CSR missions. If nothing else, it tells us that these banks are excessively profitable if they can afford to spend shareholders’ funds in this way.

Take the Commonwealth Bank’s Opportunity Initiatives. (Don’t think I’m picking on the CBA; all the banks do the same.) “In 2016, we launched Opportunity Initiatives, bringing our corporate social responsibility strategy to life and setting out our plans and long-term targets on issues important to our stakeholders and to us.”

It brags about one initiative after another: $18 million invested in education, providing a financial literacy program to 2500 Indonesian women, offering Australian teaching and learning toolkits to 10,000 teachers and launching “a co-ordinated action plan to support STEM education within the education community by 2020”.

Evidently, the bank is investing 2 per cent of pre-tax profit in the community, working with the Red Cross and improving engagement with local communities. To tell you the truth, you could read most of the document and not even realise that we are talking about a bank. (It could even be about the ABC!)

It gets worse. Evidently, the bank will implement a climate policy position statement, including scenario analysis and a better understanding of the impact of climate change by the end of this year. It will also implement a sustainable property strategy, including reducing the group’s emissions to two tonnes of CO2 per full-time employee per annum by 2020. Gosh, that’s such a relief.

Needless to say, the bank is very proud of its $2.8 billion of lending to renewable energy projects, the 44 per cent of management roles held by women and the $1.5 million spent on indigenous suppliers, although this last figure does sound a bit light on. This is all you-beaut stuff, but it hasn’t prevented customers being cheated and mistreated. It hasn’t prevented the bank having to repay many millions of dollars to wealth management customers for a variety of errors. It hasn’t prevented the bank from being involved in money laundering that clearly ­violated the regulations.

Just in case you think it’s only the big banks that get up to these diversionary high jinks, you will be pleased to know that AMP is committed to gender diversity because it’s good for business. Not so good for customers, who get charged for services that were never provided, and not so good for the regulator, which was lied to on multiple occasions. And looking at the AMP share price, no good for shareholders.

But AMP corporate governance manager Karin Halliday has publicly claimed that “in addition to demonstrated links between performance and the number of women on boards, we find that when companies have more women directors, they present fewer characteristics of poor governance”. AMP has four women directors out of a total of nine, with the chair also occupied by a woman.

According to the AMP bible, “there are many ways women have an impact on AMP’s business outcomes: the way we make decisions, tackle and solve problems, foster creativity and innovation, and connect with our customers, employees, partners, communities and shareholders”.

My advice to AMP would be to hold the flow on this puerile blather. The company might also cease crowing about the fact that AMP has been named an employer of choice for gender equality by the Workplace Gender Equality Agency. (I’m not sure whether this is more embarrassing for AMP or that superfluous government agency, the WGEA.)

While it is difficult to estimate the overall extent of corporate misconduct and customer maltreatment in the financial services industry on the basis of the evidence that has so far been heard by the royal commission, I think we all get the drift.

Given half a chance, customers will be given bad advice, overcharged, charged for services they have not received and generally given a dud deal. And in many instances, the behaviour of the companies is driven by very poorly constructed incentive arrangements and weak management. Ineffective regulatory behaviour is also part of the mix.

The companies need to put all this CSR flim-flam to one side and concentrate on providing honest and value-for-money services in order to regain the trust of customers.