Financial Services post Royal Commission: on the road to rebuilding trust in Australia
Written by Ian Middleton, Senior Client Director at AchieveForum.
There is significant media coverage of the Royal Commission in Australia and its investigations into alleged wrongdoing by Financial Services companies.
Whilst I do believe that ever-increasing profits were drivers behind the failings to do the right thing – I am not convinced that the senior executives set out to mistreat, defraud, or alienate their customers.
And therein lies one of the problems for leadership.
Until recently, senior executives were praised for producing great profits. If increasing profits weren’t shown, shareholders questioned executives, and called for them to resign.
Now, shareholders are asking how businesses achieve profits. If an explanation isn’t acceptable, they have shown that they have the power to remove senior executives.
Statutory processes are in place to protect the consumer. These are enforced by Regulators, the effectiveness of which the Royal Commission has called into question. When wrongdoing has been uncovered, penalties and recourse have been questioned.
Even though there are policies and procedures enshrined in law, some people have been able to circumvent them – or in simple terms, to “get away with it.”
Once transgressions are discovered, organisations have not freely admitted wrongdoing. They are shown to “hide” problems, avoid bad press, compensation, or both. This has further tainted financial brands, which were amongst the most trusted.
The Royal Commission will take its course, and the landscape after it has published its findings will be very different. So what happens next for the leaders in this post – Royal Commission world?
Financial Institutions need to ensure that their leadership is equipped to
- Build trust – under significant pressure from a number of stakeholders
- Engage and motivate teams
- Have credibility and influence
- Be able to connect corporate strategy to those on the front line
- Deliver change quickly
Rebuilding trust is a start, and senior executives are under the most pressure, because of the number of stakeholder groups they have to satisfy. Of the seven major stakeholder groups they are the only ones to have to build trust in the other six.
- Consumers of the service
- Third party distributors
- Leaders/senior executives
Shareholders, regulators, and media are satisfied by robust compliance policies and procedures already in place. These will evolve further, and evolve rapidly, after the Royal Commission. It is almost a given that increased sanctions and penalties will apply to individuals and organisations that digress in future.
These procedures, whilst complicated, demonstrate that organisations are doing the right thing. The absolute “must” for leaders is that fellow executives, employees and third-party distributors do the right thing – every time.
Employees need to see their leaders as credible, be able to easily connect with the strategy of the organisation, and trust that they will be safe if they speak up about compliance failures.
There may also be staff attraction and retention issues for major organisations. Younger employees have a social conscience, and are no longer solely attracted by big salaries and job security. I have been working with a financial institution where they have significant attrition, and can’t fill vacancies for this very reason.
The evolving changes will put pressure on senior leaders to activate or accelerate cultural change. We have already seen one Australian Bank remove incentives and bonuses based on sales. From now on it will incentivise on compliance, customer satisfaction, risk and bank values.
Third party distributors will also need to trust in credible leadership. Whilst they rely on institutions for their remuneration, they have the choice where they place their business. They must be closely monitored to act compliantly and do the right things – but they have the ability to place their business elsewhere, if they don’t trust leaders, or if their customers feel unsafe.
Consumers will have a healthy mistrust of financial institutions for some time to come. They expect significant sanctions, and to see key digressers punished by Regulators, following the Royal Commission.
They expect continuous change that balances their interests, and the need for institutions to make reasonable profits. Initial confidence will come from more robust compliance standards and penalties – but they will look for a change in behaviour, and that comes from the people representing financial institutions.
Leaders need to motivate, engage and activate behavioural change in every person that comes into contact with a customer. To deliver that, those in the front line need to trust in their leaders, have the ability to speak up, and a resilience to weather the storm that is to come.
Whilst some businesses undoubtedly have some leaders that are fully equipped for the challenge, there are some where there is a pressing need to develop those leaders quickly.
The traditional way of identifying a high potential employee by putting them on a two-year management development program needs to be re-thought. Leadership “moments” happen every day, and you need to be able to deal with issues in real time – fast.
Many financial organisations need to re-focus their Leadership Development programs away from the career progression of talent to leading people that are focused on the best outcome for customers. This is a significant shift, and one not recognised across all financial businesses.
If you would you like to arrange a session to find out more about potential implications and look into a learning strategy based on the current business needs, please get in touch with one of our specialists by filling out the contact form on our website.