Long-serving Commonwealth Bank board members have been asleep at the wheel during the corporate giant’s long string of scandals, consumer advocates say.
The former treasurer Peter Costello has also slammed boards for being “complacent” in their duties since emerging from the global financial crisis relatively unscathed.
On Wednesday CBA was the subject of yet another scandal. BuzzFeed Australia exposed how it lost 12m historical customer statements but failed to tell the public.
Other revelations span back to at least 2009, when 14,000 investors were dudded by the collapse of Storm Financial. CBA has since been accused of breaching money laundering laws, bribery, forgery, a failure to provide advertised fee waivers, the provision of shoddy financial planning advice, complicity in an elaborate Ponzi scheme, unethical behaviour to avoid CommInsure insurance payouts and the fees-for-no-service scandal.
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The prudential regulator this week issued a damning report on flaws with the bank’s culture and criticised the board for “inadequate oversight” of emerging risks.
Two of CBA’s current board non-executive directors – Shirish Apte and David Higgins – have sat on the board since 2014, while Brian Long and Andrew Mohl have been members since 2010 and 2008 respectively.
Apte, the chair of the risk committee, lives in Singapore. Last year, non-executive board members were paid between $272,277 and $351,464, according to CBA’s annual report.
On Thursday Costello said bank boards needed to take partial blame for the sector’s failings. He also criticised the use of overseas directors on risk committees.
“Some of these boards became complacent,” he said, according to Fairfax. “To me one of the biggest risks facing a bank would be regulatory failure. Because if you fail to adhere to the law, not only are you letting your customer down but as we see now you face immense reputational risk.
The Consumer Action Law Centre has made a submission to the royal commission, urging it to consider whether the directors of banks breached their duties by failing to prevent “systemic breaches of financial services law”.
Asked whether the CBA board had fallen asleep at the wheel, the centre’s chief executive, Gerard Brody, told Guardian Australia: “I think that’s fair to say. And I think that the report put out by [the Australian Prudential Regulation Authority] this week confirms that.
“One of the key roles of the board is to manage organisational risk, or have systems to manage organisational risk. That’s where they’ve failed.
“I think these numerous incidents at Commonwealth Bank – from Storm Financial to financial planning, to the fee-for-no-service, to the CommInsure issues, the credit card insurance ones as well – it appears the board has had inadequate systems to make sure lessons were learnt, things were fixed properly and preventative measures were put in place to make sure it wouldn’t happen again.”
The Australian Shareholders Association said much of the board at CBA was relatively new, which lessened their accountability for past scandals.
Allan Goldin, the ASA’s New South Wales company monitoring committee chairman, said CBA’s chairwoman and new chief executive had “said all the right things” following APRA’s report. But Goldin said the bank needed to demonstrate what real steps it had taken in the wake of the crises.
“How many people have been fired? Let’s get down to basics,” Goldin told Guardian Australia. “When any of these scandals [occurs], it’s like ‘three financial planners are no longer with us, 10 financial planners are no longer with us’. That’s nothing. It’s who was the financial planner’s boss, is he still there?
“If you discover that people have been doing something wrong, yes you put procedures in to make sure it doesn’t happen again. But you also make a lesson. You say, ‘You’ve done wrong, you know you were doing wrong. Get out.’”
Commonwealth Bank announced last year that it would strip the board of 20% of their fees. That is less than the 25% announced by AMP this week.
Helen Bird, a corporate governance expert at Swinburne University, believes Apra could have taken tougher action against CBA. In a piece for the Conversation, she wrote that conditions could have been placed on CBA’s banking licence and board members and executives removed.
Bird said bonuses for CBA executives should be limited until the bank proves it has met Apra’s recommendations.
“The reasons I would push that is because it drives the performance,” she told Guardian Australia. “If you want them to comply with the undertaking, that’s the way you drive it.”
The enforceable undertaking between Apra and CBA did allow for bonuses to be withheld. But Bird said the public would not be privy to whether that actually occurred, something she said was “troubling”.
