The Banking Royal Commission Final Report may have been released months ago, but its impact, even on industries outside the financial services space, continues. In an increased regulatory environment, corporations are now looking to reassess their internal corporate governance processes.
Commissioner Kenneth Hayne made no less than 76 recommendations and 24 referrals to the Australian Securities and Investments Commission and Australian Prudential Regulatory Authority. Since that time, the report has gained full, bipartisan support and still generates discussion around what this means for the financial and insurance sector and how corporates should behave.
If your business is listed on the Australian Securities Exchange (ASX), the pressure on you to comply with regulations is arguably higher than ever. As a direct response to the widespread misconduct uncovered in the Banking Royal Commission, last month, the ASX’s Corporate Governance Council released its fourth edition of Corporate Governance Principles and Recommendations.
Here in Australia, the increasing regulatory environment may prove to be a challenging time for corporations. With this in mind, how should companies improve their corporate governance performance, in order to avoid public scrutiny, corporate watchdog fines or even a dawn raid?
The Thomson Reuters Risk Team produced a webinar with three compliance experts, which you can access from this page. Below is a snippet of their conversation.
Corporate culture is key
Regulatory Intelligence Expert at Thomson Reuters, Niall Coburn, noted that the Banking Royal Commission heavily criticised “culture deficits” among financial institutions, which corporations should want to avoid.
“Everything in your organisation and your culture must be geared to providing skillful and adequate services which are free from conflict of interest and that you look after your client,” said Coburn.
“You must improve the culture of the organisation, as culture has the ultimate effect on the conduct of all staff…from the top all the way through the organisation.”
Communication with The Board is critical
Coburn also referred to some instances highlighted in Hayne’s Report where executives mislead their boards, indicating the lack of communication between different levels of corporate hierarchy.
“It was clear that some of the boards in these financial institutions weren’t being fed really good or exact information of what was happening in the trenches. So they weren’t really receiving the extent of the misconduct, or it was watered down so they didn’t really understand the full impact,” he said.
To stop this from happening, Coburn’s advice to businesses is simple: “Keep the lines of communication open.”
Corporate governance is shared
Another expert featured in this webinar is Helen Bird, a Corporate Governance Scholar at Swinburne Law School who researches and writes on regulatory trends. Bird said that when it comes to corporate governance, the Banking Royal Commission has reminded us that individuals aren’t excluded from corporate accountability.
“[Hayne reminds us] that governance isn’t just for The Board, it’s for the whole organisation and everyone has a role in it. The buck for responsibility regarding governance stops with The Board, but everyone else has a job to contribute towards better governance overall,” said Bird.
Customers are stakeholders too
In the corporate world, company directors have traditionally been obliged to act in the best interests of their shareholders. However, Lesley Symons, Special Counsel at GRT Lawyers believes the Banking Royal Commission has shifted the focus.
“One of the key themes that has we’ve seen come out of the Commission is that the definition of key stakeholders has very much expanded now in my view and Hayne places customers squarely in the centre of that group,” said Symons.
“[Hayne is] essentially saying to the entire sector: “You need to place these customers at the centre…and act in their best interests. By acting in their best interests, you will then be complying.””
With compliance now a big issue among Australian corporates, let’s hope their legal teams are well-equipped to deal with the challenges 2019 has in store for them.
What else does the Banking Royal Commission Report have in store for Australian businesses? Access the full conversation between all three compliance experts by simply filling out the form on this page.