Opinion

Loss of character and moral compass behind banking scandals

More than just better regulation & the threat of longer sentences will be required if customers' trust is to be restored

By Gordon Preece

April 27 2018The revelations of the Banking Royal Commission have so far yielded much tortuously teased out truth, but we await further revelations about how justice and reconciliation are to be achieved.

Even former merchant banker and Royal Commission sceptic, Malcolm Turnbull, has turned decisively bearish about the banks’ behaviour. Treasurer Scott Morrison, who ridiculed the call for a Commission, seems now to be self-appointed judge and jury, and has increased fines and jail sentences. Meanwhile Bill Shorten gloats and rightly demands reparations for victims.

But what will be the fruits of the commission in terms of ongoing corporate character? Is the answer just to punish a few bad apples, including rogue financial advisers? Or is the problem a biased wheel on the barrow, leading the whole sector in a reckless and erratic pursuit of profit before people?

Amongst the recent revelations, including before the Commission, the Commonwealth Bank and AMP have been most shamed, costing them their CEOs, albeit with golden parachutes and soft landings.

The Commonwealth Bank was once government-owned, with exclusive access to schools, and their little green piggybanks. It has done little to rein in ill-educated and reckless financial advisers and their cavalier attitude to retirees’ savings.

Comminsure’s outdated, pedantic and legalistic medical standards deprived many of timely care, some with deadly consequences. Comminsure has now been sold off at a massive write-down in value, ironically not pleasing the pampered shareholders the company favoured over its customers.

Further, 50,000 plus cases of money laundering via ATM transactions were allowed. Austrac is taking legal action. But the head of that Commonwealth Bank department, Matt Comyn, was unanimously chosen CEO. The dereliction of duty by three divisions of the company proves that these are not merely bad apples but a systemically biased barrow.

As I write, AMP, formerly Australian Mutual Provident, has been seen to have spectacularly failed to live up to its name. There is nothing ‘mutual’ or ‘provident’ about its recent actions right up to the highest levels. It has been shown to be a serial liar, having lied more than 20 times to regulator ASIC. It has been caught as red-handed as our cricketers, for document – not ball – tampering, involving 700 document exchanges and much doctoring, with board approval, of a supposedly independent Clayton Utz report.

Other banks, ANZ (which admittedly runs excellent financial literacy programs with the Brotherhood of St Laurence), Westpac and NAB have been charged for rate rigging, although Westpac continues to fight charges. NAB has been nabbed for a bribery and fraud ring. According to an ASIC report, about 200,000 bank customers were regularly rorted of a total $178 million for non-existent advice across the sector. Fee-for-no-service policies climaxed in a person being billed for years after their death.

After this catalogue of corruption and incompetence, business journalist Stephen Bartholomeusz rightly asks, “Why do people park their ethics in the driveway as they go to work?” (The Age, Business, April 20). He questions the common wisdom that it is due to the incendiary, turbo-charged incentive system in higher finance that nice family people become moral monsters at work. Perhaps they just have a ‘conscience vote’ view of morality – as applying to private ‘moral issues’, birth, death, sexuality, refugees – not the centre of work and public life, seen as amoral, or a ‘morality-free zone’. Business is business.

Bartholomeusz sees a more subtle process of siloed, insulated people formation operating in corporate institutions. He is on the right track, although he doesn’t go as far as theologian Reinhold Niebuhr. Niebuhr’s Moral Man, Immoral Society (1932) unpacks why good people do bad things, especially for a corporate entity they are committed to. It subtly shapes their conscience, wrestling it into submission to a corporate consciousness out of misplaced loyalty. This gives horrific, dehumanising acts a veneer of respectability.

For every case of ‘The Wisdom of Crowds’, there are at least equal numbers of their folly. Niebuhr seems to be on the same page here as the great Dane, Lutheran philosopher Soren Kierkegaard. They would both be impressed at the individual integrity and courage of those who’ve blown the whistle on bullying banks.

How should these systemic problems be addressed? Sociologist Philip Sampson notes two key responses to banking crises: “moralistic, and administrative”. First, moralism looks for a scapegoat, a universally human response analysed in Rene Girard’s The Scapegoat. Greed is the cause and greedy bankers its incarnation. Get rid of the lot! Stick them in jail! Let’s have more punitive punishments! Scott Morrison has increased maximum prison time to 10 years for individuals and increased fines to up to $210 million for companies. The government is beefing up ASIC’s powers.

Business journalist Adele Ferguson, who has reported on many bank malpractices, and Melbourne Anglican and Melbourne University Corporate Law professor Ian Ramsey, agree that ASIC already has powerful tools but often fails to use them, especially against the big end of town. Like the tax office, small business is their favoured prey.

Second, Sampson sees the administrative or regulative response as nostalgically seeking to restore traditional prudential banking through legal and bureaucratic processes. However, he says, “traditional banking relied on a world of paternalistic trust that will never return. The level of personal knowledge, of community stability, and of adding machines no longer exists. The detailed state regulation required may not only be ineffective, it could also increase state power and weaken banking independence.”

But Alan Fels, former Australian Competition and Consumer Commission chair, advocates forcing banks to sell off their relatively recently (mid-nineties) acquired financial advisory and wealth management businesses, because of endemic conflicts of interest, and mixing objective, professional advice with promoting and selling bank-owned products.

Laws such as the Oxham-Sarbannes law in the US, which separate traditional banking from the newer more speculative forms, had some useful effects, until Bill Clinton foolishly threw them out, preparing the way for the GFC.

Australian banks have generally been much better regulated than in the US. Australia’s avoiding the GFC was largely due to a trio of Christians. Ian Harper played a key role in the Wallis Banking Inquiry and Reserve Bank Governor Glenn Stevens kept a steady hand on the wheel. Kevin Rudd decisively pumped up the economy as Joseph Stiglitz lauded last month.

Rules are necessary but must be applied with timely wisdom and judgement. Regulation is necessary but insufficient. It cannot provide an inner moral compass or character, the virtues embodied in names such as Prudential or Provident. These are urgently needed if trust and transparency are to be restored.

Dr Gordon Preece is Director of the Centre for Research in Religion and Social Policy, University of Divinity (www.centrerasp.org), Director of Ethos (www.ethos.org.au), and minister at Yarraville Anglican. He also chairs the Melbourne Anglican Social Responsibilities Committee. These organisations are partnering in the Faith & Work Award dinner at Ridley College on 28/5 on Higher Finance, to be addressed by awardee Glenn Stevens and Professor Ian Harper.