MEDIA RELEASE On the eve of the release of the final report of the Hayne Royal Commission, Dr Simon Longstaff, Executive Director of The Ethics Centre, has told an audience of financial services executives that the issues at the core of the Royal Commission’s findings will not be addressed by ramping up compliance.
Dr Longstaff was speaking at an annual function organised by specialist financial services communications consultancy Pritchitt Partners.
He said throughout the hearings, Commissioner Hayne had held true to what the Commissioner referred to as a set of “simple ideas”, or what Longstaff identified as a set of principles on which the law and good practice are ultimately founded.
“The Commissioner has made it clear he is not simply looking for more legislation. What he requires is that the existing rules be applied. Better still, he expects the industry to choose an ethical standard that keeps it well within the bounds of the law.”
He said that the banking and finance industry faces a moment of truth and must ask itself once again “For what purpose do we exist? What is the good we do in society? How do we define our values and principles and how do we live with them?”
Commenting on the behaviour of executives in financial services, Dr Longstaff said that this is not an industry populated by monsters. It’s not full of wicked individuals asking, ‘How can I do something terrible today?’
“These are invariably good people led by institutional arrangements to do bad things.
“During the Commission’s hearings, we have heard deeply troubling stories that now define, in the public mind, the conduct of organisations and a whole industry. It does not matter that the incidents of egregiously bad behaviour were relatively few in type. Like the sting at the tip of a scorpion’s tail, they have caused massive damage.
“The underlying causes can be seen at work well beyond the spheres of banking and finance; in business more generally, religion, sport and politics.
“There’s a sense of disappointment, scepticism and ultimately cynicism abroad in the Australian public. Members of the community no longer trust even their own direct experience.
“They look to each organisation to say who they are and what they stand for, and they want their own experience to be proof of that … but also observe how people in the organisation treat each other, their suppliers – indeed any of their stakeholders. Where they see a gap, people infer that this is the ‘true’ character of the organisation being revealed.”
He said that banks have recognised for a long time that the community has labelled them as greedy and perhaps a bit nasty.
But he thinks that now a Rubicon has been crossed and banks and other financial institutions are perceived as being dishonest.
“It has created a huge challenge for the financial services organisations to respond to these circumstances.
“It cannot be fixed by being better than competitors at such things as service or product design, and getting all the nuts and bolts right.
“More than that is required. It all comes back to principled behaviour.
“As comments by Commissioner Hayne imply, he wants the industry to be ethical, not merely to be compliant for fear of being discovered and punished. That’s why we hope that there will be a surge in engagement with the Banking + Finance Oath – long neglected by large parts of the industry – even though it sets an ethical framework of precisely the kind needed to address the issues identified by Commissioner Hayne.
“If the industry understands its purpose and the standards and principles that underpin it, and acts on them, it will be able to navigate all the legal shoals it might encounter.
“It will have a compass and a purpose that will help achieve ends other people will accept as reasonable.
“With some failing to see this – cutting corners because, technically, it’s allowed – the industry has ended up in the position it now finds itself.”
Dr Longstaff warned that organisations can’t adopt ethics simply to help the bottom line.
“If you do it for the dividend, you won’t get the dividend. It’s not a Pollyanna-world where every ethical decision is met with instant rewards. It’s a case of being ethical for its own sake. The rewards of trust only flow to the trustworthy.”