Banking Misconduct is the Symptom not the Cause!

In its first few weeks, the Royal Commission into Misconduct in the Financial Services industry has opened the floodgates, and a torrent of misconduct, maladministration, technical incompetence  and downright fraudulent activity has poured out.  And it is not just one bank that has admitted some wrongdoing, but all of the Big Four.  Nor is it one product but, so far, a raft of bad lending, from mortgages to overdrafts and car loans, and more to come.

[Note An edited version of this article appeared in Australian Banking and Finance on 24th March 2018.  Many thanks to editor Elizabeth Fry.]

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Royal Commission shows tone from the top is silent

The Royal Commission must investigate failures of Corporate Governance in the big Australian banks.

Like a grand Verdi opera, the Royal Commission (RC) into Misconduct in the Financial Industry is moving inexorably towards its climactic final act (or, in dry legal terms, Round 7).

The Commission may not end with the traditional ‘fat lady singing’ but likely with a parade of bank CEOs being wheeled in, to be publicly eviscerated by the Commissioner, Justice Haynes, and his ferocious counsel assisting, Rowena Orr QC.

[Note An edited version of this article appeared in Australian Banking and Finance on 16th September 2018.  Many thanks to editor Elizabeth Fry.]

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People risk in the boardroom: failure to accept personal responsibility

HSBC has been in the news a lot just recently and the UK Parliament Public Accounts Committee (PAC) were grilling three more executives on Monday 9 March to delve further into the tax evasion scandal that happened at the banks Swiss subsidiary. It was a grueling encounter even for the most hardened company executive not helped by the live television screening which no doubt provided some members of the PAC with the opportunity to play to the camera.

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HSBC – Board-Level People Risk

Both the Chairman and CEO of the banking behemoth HSBC have recently appeared before the Treasury Committee of the UK Parliament in connection with the Swiss Tax Scandal [1]. The bank’s Board had previously issued an apology for the scandal to its shareholders and the public in general [2].

The argument made by the HSBC Board is basically “We didn’t know, how could we? We are a huge organization. It would not happen today”.

Ignorance is bliss.

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Does the S&P Settlement change EVERYTHING?

The S& P saga rumbles on. Having been hammered by the US Securities and Exchange Commission (SEC) in January [1], S&P has received a knock-out blow, and a $1.375 billion fine, from the US Department of Justice and 20 State governments [2]. And in what might the first of many private actions, S&P also reached a separate $125 million settlement with the huge pension fund California Public Employees’ Retirement System (CALPERS) [3].

What has received little publicity, however, are the implications of the S&P settlement with regard to Corporate Governance, in general, and Codes of Conduct in particular.
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In Like We Trust

A recent research report [1] suggests that an ethnically diverse group is better at making decisions than a group that are all alike. These results build on other studies that show that diverse groups in general are better at making decisions [2]. Irving Janis, who first identified the concept [3], argues that ‘homogeneity’ is one of the key prerequisites for Groupthink, which is a bad outcome. So all we have to do to prevent Groupthink is to insist on diversity, especially at the Board level?

Whoa, hold on, it is not as easy as that! It turns out that  it doesn’t come down to ‘diversity’ per se but ‘Trust’.

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Board-Level People Risk – the HBOS Rights Issue

The 2008 HBOS Rights Issue
In April 2008, HBOS was on life support when, in a last throw of the dice, the Board decided to launch a rights issue to raise some £4 billion in capital. This was a spectacularly ‘bad’ decision, not because the issue was a complete flop with just over an 8% take-up, but because the prospectus that the Board approved was to put it mildly a ‘work of [half] fiction’, particularly as regards the level of provisions for credit defaults.

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