The Institute of Directors produced a neat summary of the key governance issues arising from the Australian review of misconduct in the Financial Services sector. It’s worth a read.
I struggle a bit with this word: “conduct” sounds so innocuous. It is much easier to understand once you put “mis” in front of it. I prefer what the Internet community (among others) call it; ‘being a dick’.
The financialisation of our economy drives a wedge between lenders and borrowers, which sows the seeds of unethical behaviour. Here are some of the excuses I’ve heard from the sector for behaviours that would be much harder in the real economy*.
As a Director, if you hear (or even worse, think) these things it’s time to take a hard look at the situation
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my shareholders demand it
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{insert competitor name} does it
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if I don’t do it, someone else will
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“historical returns are no indication of future performance”
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it’s only tiny in the grand scheme of things
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it’s not my fault if they are too stupid to make a better decision
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they can afford it
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it’s just how it is / I’m a realist (like that’s something to be proud of)
But a lot of these are code for “my bonus / next job depends on it”. One of the easiest ways to identify systemic conduct issues is to simply look at the reward structures in place. I’ve encountered a curious reluctance to do this in my travels, as if how a person is paid is somehow more sacrosanct than, say, protecting vulnerable people from aggressive sales practices.
It’s somewhere Boards (and regulators) should not fear to tread. And frankly if you have a CE who demands a reward structure that makes you uncomfortable, then maybe it’s time they went.
Read the summary of the IoD’s report. It’s a pretty simple message: the board (as part of its duty to the company) must have a zero tolerance policy for structures and systems that drive bad behaviour. And maybe a good place to start would be paying people in a way that rewards decency.
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*But not unheard of: Tobacco, Pharma etc. all have their examples.