The Royal Commission in Australia has highlighted serious weaknesses in corporate culture and conduct in Australia’s largest financial services companies. Potential criminal charges and resignations by senior executives are dominating the daily headlines. How did it all go so badly wrong?
Culture and conduct are two of the most difficult things for any company to control. Companies attempt to direct their staff through rewards and boundary systems. Studies have shown rewards are more effective, and incentive schemes have become a key focus of many companies. However, it is really challenging in practice to align those incentives to the behaviours and conduct desired and required by law. It’s all too common for employees to take shortcuts, or adopt a narrow view to achieving those incentives. Aligning incentives more closely to the conducts required and demanded is extremely complex and challenging to implement and monitor over time. Often employees don’t see the direct link to their behaviours, potentially rendering them less effective.
There’s the ongoing debate over incentives that reward financial advisors for pushing products that earn them a large commission, or lenders to award loans to those that can’t afford them. What we witness now is that often that advice is not in the best interests of the customer. The incentives, like any key performance indicators and incentives schemes, are arguably designed to promote more work and better performance of the financial advisers to help achieve the company (and customer) goals. Perhaps it’s a naive argument for senior executives to claim they didn’t know those incentives might result in incidences of mistreatment of customers, and poor customer outcomes. Incentive schemes are by their nature often designed to achieve sales objectives rather than compliance outcomes.
It’s easy to blame the poorly designed incentives for the misconduct that has resulted. But like any other business function that can go wrong, it should be detected and addressed through governance. That governance is now viewed in a number of situations as clearly lacking, and has therefore resulted in daily headlines, restructures, threats of legal actions, and resignations. But governance itself is as tricky to implement as good incentives schemes.
How can anyone closely monitor all of the activities across these large companies? How would they even get close enough to get an accurate view of all these separate cases of poor conduct that result in these frauds?
The failure of these organisations is in not meeting the public’s expectations, and not moving fast enough. Companies must now keep up with technology because all the innovators out there are totally changing public expectations. The banks are currently perceived negatively by the media and the public because no one can understand how they didn’t identify these illegal and inappropriate practices, and take appropriate action. From the people we have met in the banking industry, it is apparent that it’s not malicious and is not a plot; rather, that companies are dysfunctional when compared to fast-moving new high-tech companies. That’s where they must move to – and quickly. There is an abundance of technology solutions that collect data, provide meaningful insights, deliver management oversight, and especially improve and bolster culture and conduct.
We can be assured that there will be closer examinations of processes, reporting and measurements. Combined with a growing volume of requirements, this will pose a challenge for all organisations. Not just the finance industry, but across all industry sectors.
A solution is required that can deliver an elegant, engaging way to simplify the comprehension, knowledge and application across organisations at all levels. One that can be customised to the very specific and individual needs in any operational context.
A solution that will support everyone at an individual level, at a team leader level and at a senior management level providing accurate, actionable and immediate meaningful data.
We believe that solution to be Qstream. Developed at Harvard, Qstream has delivered powerful outcomes across a growing list of global organisations for over 9 years. In 25 minutes, we at Validity can demonstrate how, but first you might want to look at Validity’s Qstream page.