Australia is a destination favored by tourists and investors alike. We have pristine beaches and unique wildlife, and we haven’t seen an economic recession in 27 years. And while our economy continues to grow, albeit slowly, the last 12 months have seen some of Australia’s largest-listed companies publicly reprimanded for the pursuit of profit at all costs. How will this impact investor sentiment and perceptions of corporate governance?
The ¼«ÀÖÊÓƵ Trust Barometer Special Report: Institutional Investors reveals that corporate culture and companies’ roles within broader society are playing a larger role in institutional investment criteria. Put simply, we are seeing institutional investors increasingly look beyond financial metrics towards longer-term considerations like governance and culture for investment criteria.
The study found that 65 percent of investors say maintaining a healthy corporate culture and enforcing a corporate code of conduct at all levels of the company has a significant impact on trust. What has become crystal clear is that corporate culture and conduct are critical, and companies must be prepared to address these issues to ensure the future longevity and growth of their businesses.
Corporate governance in the spotlight
The Australian news agenda has been dominated by the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Along with the shocking revelations revealed over the course of the Royal Commission, which include charging financial advice clients for services they did not receive and continuing to charge deceased clients, the inquiry has also put the spotlight on lax corporate culture and governance.
In fact, thanks to the scrutiny placed on the industry, we’ve seen a very public example of the outcomes of failing corporate governance. Just two days after the release of the Royal Commission’s final report, it was reported that the former chief of staff of one Australia’s big four banks is being investigated for suspected multi-million-dollar fraud at the expense of the bank.
It is alleged that the staff member and an external contractor devised a plan to inflate invoices to the bank in order to collect the excess and cover future private expenses. According to reports, staff insiders had concerns that a culture of largesse and extravagant spending had become normalized in the division’s office. While there is no evidence to suggest that the bank’s management were involved in conspiracy, it has been argued the activities were only able to take place due to major corporate governance failures within that division.
This example highlights that without extensive scrutiny on corporate policies and procedures, companies can find themselves inadvertently dragged through the mud and facing an inevitable decline in the trust of key investors.
In the last week alone, two of Australia’s most prominent leaders in the banking sector have lost their jobs as a consequence the commission’s finding that the conduct of those under their watch was enabled by a commission-based culture and lack of adequate governance. To many commentators, and indeed regulators, this is just the tip of the iceberg. The issue of trust in the Australian banking sector — for customers, consumers and investors — is one that will be thoroughly tested in the months and years to come.
The ability of Australia’s big four banks to genuinely incorporate and demonstrate a focus on corporate culture and conduct into their corporate governance, investor relations and external communications will determine how they meet the challenges of a changing investing environment.
Fran Boase is managing director, Reputation, Sydney.
