An act of utter corporate bastardry – but there was no alternative. When the Commonwealth Bank’s new duo of chairman Catherine Livingstone and CEO Matt Comyn used their spell at the Hayne Royal Commission this month to hang their predecessors (and by inference seven recently-replaced board members) out to dry, their aim was not just to save their own skins; the bank’s commercial status depended on evidence not only that the dramatic change in the bank’s culture required by this year’s damning report by the Australian Prudential Regulation Authority was being implemented, but also that the Royal Commission’s savaging of the bank’s malpractice was being effectively dealt with and that there had been a reversal of what the new CEO described as a mindset of ‘an obstructionist approach to dealing with regulators’. Senior staff have since revealed that many of the concerns raised by Apra about the bank were grievances they had previously unsuccessfully tried to communicate to management; internal reform has already seen nine of the 12 executive leadership team replaced.
In what goes well beyond the normal board renewal process, by January all of the seven Australia-based directors appointed before March 2015 will have been replaced, three of them this year, another only 14 months ago and two in 2016 after CBA’s troubles began to mount. Two continuing overseas-based directors, appointed in 2014, are the only ones that have lasted as long as four and a half years. So what was the pressure, and where did it come from, to force CBA to concede in this year’s annual report that ‘the board has been particularly focussed on changing its composition, policies and practices…. on shaping a more accountable culture that not only supports achievement of our business strategies but also drives decisions that are lawful, ethical and responsible and that lead to better customer and risk outcomes’. The inference that these objectives did not previously exist, along with Livingstone’s apology for ‘the issues we have faced and are committed to addressing’, explains the need for the savage ‘renewal’ of the board – but not what forced directors to do so.
It seems that the pressure to fix up CBA’s damaged image by not only dumping the chairman, CEO, all the Australian board members and most senior executives but also by convincing the highly respected Livingstone to, in her words, ‘risk my reputation’ by taking on the chairmanship, were the very same large (and rapidly growing) institutional investors like superannuation funds, that had helped cause the problems in the first place. There is some merit in the view of veteran market commentator Bob Gottliebsen who recently blamed pressure from these institutional shareholders for the reversal in bank culture over the past decade away from the sensible self-interest involved in looking after customers for maximising profit (and shareholder returns to the benefit of these institutions) at any cost.
Which of these institutions actually pulled the strings by demanding the board make as clean a break from the tainted past as possible is a secret known only to the bank, and under new legislation, perhaps to the regulators. This special group of ‘owners’ who are really managing someone else’s money are hidden behind the nominee companies that dominate CBA’s share register. Their defensive need to protect the value of the investment in CBA they have made on behalf of their customers has replaced their previous concentration on pressuring the bank into maximising profits and dividends. This secret exercise of power over banks (and corporate Australia) by institutional managements acting for the real beneficiaries, probably needs examination.
However, the Hayne Commission’s list of CBA scandals means there can be no doubt about the need for CBA to clean up its image. Despite the legal nit-picking to be expected of lawyers in a financial enquiry, it is clear that Livingstone’s view as a new director two years ago that ‘management did not have the capacity to respond’ to the crises facing the bank, was correct, reinforced by the 2015 response to internal concerns about CBA’s sale of junk consumer insurance products, to ‘temper your sense of justice’. In the revolution within CBA, justice has been done.