This panel discussion addressed the question ‘Was the misconduct identified in the Banking Royal Commission enabled by directors who did not understand the complexity of the businesses they directed?’ 

Presented at the 2021 All-Actuaries Virtual Summit, this Plenary session titled ‘Was the misconducted identified in the Banking Royal Commission enabled by directors who did not understand the complexity of the businesses they directed?’ saw Barry Rafe (Rafe Consulting) and Ian Laughlin (Principal at PFS Consulting) host an impressive cohort of guest panellists. The panel consisted of Claire Wivell-Plater (Non-Executive Director), Diana Eilert (Non-Executive Director), Graham Willis (Managing Partner, Watermark Search International), Louise Davidson (Australian Council of Superannuation Investors), Peter Yates (Executive Chairman) and Trevor Matthews (Non-Executive Director).

Speaking on Wednesday 12 May, Barry began the discussion by reflecting on the Banking Royal Commission findings and whether the misconduct was enabled by directors who did not understand the complexity of the businesses they directed.

Supporting Barry’s views, Ian observed that the topic of capabilities of boards should be an interest to anyone working within financial services, as it is fundamentally important to the success of financial service businesses. 

Intertwining his personal observations, Ian noted that “some organisations view the board as a necessary nuisance that gets in the way of business, but other organisations regard the board as providing real value to management.”

Opening the floor to discussion, Ian asked the panel, “Do you consider the capabilities of the board critical to the success of the business and how important is the composition of the members of the board?”

In answering Ian’s question, Peter stated that, “the composition of the board is absolutely critical for success – it’s the creator, the editor, the strategist and the compliance machine and it’s essential for function and success.”

Claire offered a different opinion by reflecting on her personal experience and how as a board member, she has played a different role in different organisations.

“The fundamental role of the board remains the same, but the area of need tends to differ and it seems to depend on the composition of management and their experience,” Clare explained.

Louise commented that it is, “a bit of a Dorothy Dixer,” as although Louise believed that, “the capability of the board is critical to the success of companies,” the board must encompass the ability to critically think and challenge “when things might not be travelling in the way they should be.”

Diana remarked that while she supports the ideas that have been presented, she strongly believed that “it’s important that the board understand their role in the organisation and the business.”

In agreeance with the panel views shared, Trevor believed that, “the board with the right people and composition with the right attitude, can be very powerful and positive for organisations,” yet emphasises the need to have a variety of skills around the board-room table.

Graham proposed that the “chair is tremendously important on how the board interacts and functions and the sort of questions they pursue” and commented on Trevor’s point of ensuring that the boardroom consists of various members with various skills and experiences.

Furthering the discussion, Ian asked the panel, how important it is to have people with real industry skills and experience?

Peter believed that it is beneficial to have an industry background of the board that you sit on as you will have enough knowledge to challenge the way in which tasks are performed.

Louise agreed as on reflection to the Banking Royal Commission there was a lack of external challenge as the industry held the view that ‘this is what other people are doing.’

Claire agreed with Louise’s statement by emphasising that the boards involved with the commission should have been asking questions rather than being satisfied with people just accepting it as an industry standard – and Diana then emphasised that, “unless you have worked in the sector, you don’t understand how important the functions are.”

Diana observed that a danger in director selection was that boards were too conservative in only selecting directors with a ‘golden career’ E.g no missteps. Peter agreed saying that all boards should have a director who has experience in an organisational crisis.

Outlining the need for mutual trust, Claire advised that the board needs to trust that management will advise as to what is going well and what is not going well. 

Diana believed that in order to do so, management needs to take control of what is important and share it with the board.  Trevor then observed that the flow of information relies heavily on the culture of the organisation. “If management isn’t getting the information than the board isn’t either.”

The panel agreed that the culture of an organisation is set at the top by the board. The board needs to proactively manage culture in the organisation’s they direct.

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