CBA probe uncovers ‘issues’ with board influence

The Australian Prudential Regulation Authority (APRA) released on Thursday (1 February) the progress report from the panel that it appointed to conduct a prudential inquiry into the Commonwealth Bank of Australia (CBA).

The inquiry was established last year to “examine the frameworks and practices in relation to governance, culture and accountability within the CBA Group” and to “identify any shortcomings”, after several “incidents” were brought to light that “damaged the reputation and public standing of CBA”.

The panel — comprising Dr John Laker AO, Professor Graeme Samuel AC and Jillian Broadbent AO — has not been tasked with making specific determinations regarding matters that are currently the subject of legal proceedings, regulatory actions by other regulators or customers’ individual cases. Instead, it aims to identify any shortcomings in CBA’s governance, culture and accountability and make recommendations as to how such shortcomings can be adequately addressed.

Report findings so far 

The progress report reads: “The panel is focused on identifying the key organisational and behavioural factors, or combination of factors, that can explain the public ‘fall from grace’ of an otherwise iconic and financially very successful Australian financial institution.

“The panel is seeking to understand any dynamic between CBA’s financial success and any shortcomings in its responsiveness to and management of risk.”

The progress report reveals that the panel is now “directing its attention to some particular issues that have emerged from the work to date”.

These “issues” centre around:

- board and senior executive “responsiveness to emerging risk issues and diligence in overseeing the resolution of these issues”;

- the influence on CBA’s culture of the board and senior executives;

- the complexity of policies and decision-making processes within CBA;

- the prioritisation and execution of investment in risk systems;

- capabilities and accountabilities for risk management in the organisation, particularly for operational, compliance and reputational risk;

- the “stature, maturity and resourcing of the compliance function”; and

- the responsiveness of remuneration to risk outcomes, adverse or positive.

While these issues have been identified, no solution has yet been proposed.

The panel notes in its report that “issues of governance, culture and accountability in a large financial institution are complex and interwoven, and the panel does not consider it appropriate to draw conclusions, even preliminary ones, before this work is completed and all relevant evidence collected and carefully evaluated”.

It adds: “Accordingly, the panel will reserve its substantive findings and recommendations for inclusion in the final report, which will be provided to APRA by 30 April 2018.”

10,000 documents and staff interviews

The report reveals that more than 10,000 documents — including internal staff communications, emails and correspondence, HR data, framework documents such as policies and procedures, board and board committee papers, and executive committee papers — are being reviewed as part of the inquiry.

Staff are also being interviewed for the inquiry; 60 of approximately 80 interviews with current and former CBA staff (including the CEO and other relevant CBA Group executives) have so far been conducted as part of the inquiry, covering a broad range of staff levels and functions.

Eleven focus groups have also been held with more than 100 CBA staff at management level as a means of “identifying behavioural norms that either support or detract from the effective management of risk”. 

Further, an online staff survey has been developed and made available to nearly 10,000 CBA staff across a range of levels, both in Australia and overseas. It reportedly contains a range of questions designed to understand CBA’s culture and its approach to risk management.

A “thorough and considered approach”

Speaking after the release of the progress report, APRA chairman Wayne Byres said: “As the panel has noted, issues of governance, culture and accountability in large organisations are complex to assess.

“APRA is pleased the panel is taking a thorough and considered approach to the important task it has been given.” 

The Commonwealth Bank of Australia acknowledged the release of the progress report, saying that it is “cooperating fully with the inquiry”.

CBA chairman Catherine Livingstone AO said: “We have previously stated our full support for the prudential inquiry and we recognise there is work still to be done to strengthen community trust in us.

“We’ve acknowledged there are aspects of our culture where we could improve, and we have been focused on upgrading our performance in the areas of governance, operating procedures and regulatory compliance.

“We note the panel’s acknowledgement of initiatives already underway in risk management and compliance, and this work is ongoing.”

The panel is supported by a project team of APRA staff and Oliver Wyman, a global management consultancy that specialises in culture and accountability incidents in various financial centres. 

A final report, which will outline findings and recommendations, is expected by the end of April 2018 - just weeks after Matt Comyn, who currently heads up CBA's retail bank, will take up the mantle of CEO.

[Related: CBA defends new CEO hire]