Governance and “Spin”

August 8, 2017

The law provides for sanctions for false and misleading conduct, and the public are pretty savvy in working out corporate falsities, but there is an enormous area of grey that comes within the mysterious and ever-growing world of what is called "spin".

Should an organisation’s propensity to spin be considered as part of the governance structure? Prima facie, it probably gets down to personal responsibility and accountability, but that ignores the oft seen experience of individuals hiding behind the corporate veil.

If organisations get their PR wrong, there can be a huge price to pay, including  a severe impact on financial performance through reputational damage.

The Commonwealth Bank immediately comes to mind with their recent difficulties with the allegations by Austrac. Whilst we are yet to formally hear the bank’s side of things, this is not an isolated case in the banking sector and sadly the CBA seems to be front and centre in many of these.

How often have we heard the words “this isn’t good enough”, “we have to do better”, “our customers deserve better” and “we have implemented change,” yet bad things keep happening with shoddy lending practices, financial planning scandals, dodgy life insurance processes, et cetera.

Now it seems that money laundering has allegedly been perpetrated by CBA clients  on a grand scale with inadequate reporting of same to Austrac. However,  all the while executive bonuses continue to flow (well sort of after the recent Board meeting) and few if any individuals are held to account, other than unfortunate whistle-blowers who often seem to pay the ultimate price. In the case of the CBA, it is reported a whistle-blower was partly responsible for exposure of the events, so where were all the highly paid executives who were supposed to be running this place?

Can you imagine the impact that the latest events will have on executive time, distraction of Board time away from strategy, significant legal costs to defend their position, investigation time to work out what actually happened, the cost of rebuilding public and investor confidence, let alone the potential cost of any penalties imposed by regulators?

The strategists are undoubtedly working on a plan to show these were minor events in a huge organisation and that in terms of the overall business these were “isolated” irregularities caused by “coding errors”. However, it will be interesting to see how this is perceived in the context of assistance allegedly provided to organised crime, with more than 50,000 suspected transactions and systemic failures.

The CBA is entitled to defend itself against the current allegations, but at what point do governance systems require more than a mere “mea culpa"? Organisations must be accountable for getting their operations right, because that is what governance systems are supposed to do. Additionally, senior Bank Executives and indeed Board members, should also be held personally accountable and receive penalties that are commensurate with the positive bonuses and kudos they receive when all is going well for shareholders.

After the HIH collapse in 2001, Royal Commissioner Justice Neville Owen made the following profoundly simple observation "From time to time as I listened to the evidence about specific transactions or decisions, I found myself asking rhetorically: did anyone stand back and ask themselves the simple question - is this right?"

It is time that governance structures reconsidered the current status that  “spin” plays as an integral part of culture assessment and realign their corporate moral compass.

Things do go wrong in complex organisations, but it is how they are handled that tells us a lot about the organisation. This is where sound incident/crisis management, business continuity management and communication/stakeholder management come into play. An end to end lifecycle approach is critical. Whilst risk/fraud preventive controls are vital, they are just one piece of the puzzle. Identification controls, response and recovery controls, as well as continual improvement are just as important.

Centium has assisted many public, private and Not For Profit sector organisations in building end to end capabilities and reviewing existing practices. It often helps to have an outside party take an impartial look. To find out more about our end to end process model, contact our Fraud & Misconduct Management Practice Lead, Greg Waters, or any of our Directors (info@centium.com.au).

Author: Greg Waters, Practice Lead – Fraud & Misconduct Management, The Centium Group. www.centium.com.au

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