Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 347

Are Australian bank boards fit for purpose?

Australian banks have certainly taken criticism over the last couple of years, much of it deserved and some of it produced for the pleasure of the media. Banks have been in a never-ending cycle of public-attested mistakes. While culture and greed are often cited, I doubt this is really the case.

One area worth exploring is whether banks have the right management and governance experience for the modern business environment. This is not a question of a director’s ‘smarts’ but rather if traditional experiences are still as relevant.

Most recent bank losses have little to do with lending losses. They have been operational failures.

CBA copped a $700 million dollar fine for its “software error” causing breaches with AUSTRAC’s anti-money laundering (AML) rules.

Westpac lost its CEO and Chairman due to AML failures on small international transactions in what AUSTRAC said was due to a lack of "appropriate IT systems and automated solutions”.

In many respects, a cold analysis of banking governance suggests the above examples were accidents waiting to occur.

First, the good news. When running a heatmap over the skills of bank directors, they rate well in the core skills of ‘Risk and Audit’, ‘Economic and Financial Theory’, ‘Accounting’, ‘Industry Expertise’ and holding responsibilities in ‘Large Commercial Business’.

But times are changing at an ever-increasing pace. The required skills from a director ten years ago are not those required today. Banks now resemble huge digital machines run at high speed sitting on top of large capital bases. Staff numbers are continually cut and those remaining have more diverse and larger responsibilities.

Unfortunately, many bank directors lack some really important business experience. They don’t understand technology, they don’t have operations skills and they are light on human resource experience. These skills are thought to exist because they may have held senior roles like a CEO of a large company.

The reality is you need hands-on experience and scar tissue from being deeply involved in technology and operations to know where the subtle but real risks exist.

Technology is moving under our feet as it evolves and living with these new risks and ambiguity can only be learnt on the front line. Being a ‘good people manager’ will only give a partial credit for these complex skills.

When we look at these new skill requirements our directors are coming up short.

This second table clearly shows that banks could materially improve the diversity of skills on a board. Historically, many would argue that these skills are of second order. Directors need to know how to run big companies with large staff numbers.

But that is no longer the case. Knowing how to run technology is perhaps even more important in avoiding a scandal that makes the front page of the Australian Financial Review than in driving commercial success.

 

Donald Hellyer is Director of OpenDirector and CEO of the development company BigFuture.

 

4 Comments
Sandi
March 07, 2020

Taking the skills matrix to the next level - very useful tool.
It also adds to discussion of role of the Board and the Executive in the business management...
If Technology or HR are specific skills that are not represented on the Bank Board and they should be - not sure how a HR professional or CTO/CIO will actually get invited to join these Boards against current criteria.

Steve
March 07, 2020

Of greater concern is that the banks have become the political punching bags of the Industry Super funds. Given their recent run of mergers, they are slowly evolving into 4 pillars themselves & with close to 1 trillion in FUM & fast growing, are becoming far too powerful. Perhaps the Fed Govt should introduce anti-trust legislation to prevent them controlling Bank Boards, or any other publicly listed company.

Jonathan
March 04, 2020

Thanks Donald - another overlooked skill for bank boards is credit assessment. Insolvent banks are almost always brought down by bad lending, but few (usually none) of the directors understand how to lend money. It's like a retailer (Coles, Woolworths or Myer) having no one with retail experience on their board - it would seem an obvious oversight. Banks are very large beasts requiring a wide range of skills to be managed correctly.

Donald Hellyer
March 04, 2020

Agreed Jonathan, it just that recent losses in the banking sector have been tech related. I am sure lending losses will return again!!

 

Leave a Comment:

RELATED ARTICLES

Who gets the gold stars this bank reporting season?

The value of wealth management for Australian banks

10 reasons not to hold bank royal commission

banner

Most viewed in recent weeks

How much do you need to retire comfortably?

Two commonly asked questions are: 'How much do I need to retire' and 'How much can I afford to spend in retirement'? This is a guide to help you come up with your own numbers to suit your goals and needs.

Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

The secrets of Australia’s Berkshire Hathaway

Washington H. Soul Pattinson is an ASX top 50 stock with one of the best investment track records this country has seen. Yet, most Australians haven’t heard of it, and the company seems to prefer it that way.

How long will you live?

We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.

Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

Welcome to Firstlinks Edition 566 with weekend update

Here are 10 rules for staying happy and sharp as we age, including socialise a lot, never retire, learn a demanding skill, practice gratitude, play video games (specific ones), and be sure to reminisce.

  • 27 June 2024

Latest Updates

Investment strategies

The iron law of building wealth

The best way to lose money in markets is to chase the latest stock fad. Conversely, the best way to build wealth is by pursuing a timeless investment strategy that won’t be swayed by short-term market gyrations.

Economy

A pullback in Australian consumer spending could last years

Australian consumers have held up remarkably well amid rising interest rates and inflation. Yet, there are increasing signs that this is turning, and the weakness in consumer spending may last years, not months.

Investment strategies

The 9 most important things I've learned about investing over 40 years

The nine lessons include there is always a cycle, the crowd gets it wrong at extremes, what you pay for an investment matters a lot, markets don’t learn, and you need to know yourself to be a good investor.

Shares

Tax-loss selling creates opportunities in these 3 ASX stocks

It's that time of year when investors sell underperforming stocks at a loss to offset capital gains from profitable investments. This tax-loss selling is creating opportunities in three quality ASX stocks.

Economy

The global baby bust

Across the globe, leaders are concerned about the fallout from declining birth rates and shrinking populations. Australia, though attractive to migrants, mirrors global birth rate declines, and faces its own challenges.

Economy

Hidden card fees and why cash should make a comeback

Australians are paying almost two billion dollars in credit and debit card fees each year and the RBA wil now probe the whole payment system. What changes are needed to ensure the system is fair and transparent?

Investment strategies

Investment bonds should be considered for retirement planning

Many Australians neglect key retirement planning tools. Investment bonds are increasingly valuable as they facilitate intergenerational wealth transfer and offer strategic tax advantages, thereby enhancing financial security.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.