Former National Australia Bank chairman Ken Henry has delivered a scathing assessment of Australia’s corporate and political leaders, as he revealed the bank’s institutional investors pressured the board to cut costs after the banking royal commission.
Henry, a former Treasury secretary and NAB’s chair who resigned in 2019 after being personally singled out in the royal commission final report for not having learnt from the bank’s misconduct, described a series of failures within the bank that he observed during his tenure.
In an address to the Actuaries Institute’s summit on Tuesday, Henry said the bank “did have some bad apples. We did have a cultural problem,” The Sydney Morning Herald reported. “Internal compliance systems ... certainly were stretched. There was evidence of people cutting corners because of internally generating system complexity, some of which we had not paid nearly enough attention to. Our relationship with [corporate regulator] ASIC was not healthy. And we had not had a practice of putting the customer at the centre of product design.”
The banking royal commission found that NAB engaged in bribery, improper expenses, and fees-for-no-service conduct, which led to calls to invest in improving the bank’s processes of checks and balances.
It was during that time, though, that Henry said he also faced “inappropriate” pressure from investors to cut costs.
“One of those institutional investors told me we should not allow ourselves to be distracted, the hysteria associated with the commission would soon blow over, he had seen it all before,” he said.
Henry said these investors allowed spending on “reputation-enhancing advertising” or “green-washing,” but ultimately the private sector was solely motivated by maximising profits, the Herald reported.
“The defining feature of capitalism is that business should not have a responsibility to do anything other than maximise profit, and, like everyone else, obey the laws of the land,” Henry said. “More than that, business should not seek to do anything else.”
With companies around the world facing unprecedented pressures to place environment, social, and governance standards at the heart of their operations, Henry said it was the government’s failure to enact policies to address society’s problems that had created unrealistic expectations of the private sector.
“Today, many governments appear wholly disinterested in policy,” he said. “Because of government failure, capitalism has been replaced by something called stakeholder capitalism.”
Henry said aspirations of community and shareholder interests were mutually exclusive, so it was “plain silly” that they would converge – even in the long run, the Herald reported.
“Every customer in every business would prefer a more competitive market with lower prices. Whereas every business would prefer less competition,” he said. “All workers want job security, whereas all businesses want job flexibility.”
Henry said the private sector has a huge influence on society, including setting wages, employment levels, and the pace of economic and industry development.
“Business decisions shape the world,” he said. “It’s scarcely surprising then that the community should take interest in the operations of business. At times, and for good reason, it will be disappointed by what it sees.”
The ex-NAB chair said that while the financial services sector had “attracted a lot of attention” in recent years, there are “many, many other areas in which Australian businesses have not met community expectations,” such as gas fracking, live exports of animals, gambling, and coal mines in farming land, the Herald reported.
Henry criticised political leaders for engaging in “business bashing” and “pointing an accusatory finger” instead of enacting serious reform to improve the private sector.
“The exercise of effective governments in a democracy depends on elected officials having some detachment from outrage and mania, not seeking energetic immersion in it,” he said.
Australian citizens have “given up on government,” Henry said, before urging voters to expect more from politicians.
“It’s up to the rest of us, as citizens, to elect governments to establish the rules of the game that make this single business focus on profits work for society,” he said.
