Your InFinance Publication

FINSIA’s InFinance keeps you up-to-date and in-the-know. 

Ex-APRA thought leader on the Royal Commission

by Lewis Panther SA FIN | 18 Feb 2019
APRA’s former Head of Governance, Culture and Remuneration has backed FINSIA’s call to extend accountability beyond BEAR.

Former supervisor Fahmi Hosain says the mechanism that withholds bonuses to senior executives should be extended to lower levels of management.

It is one of several additional measures he believes could be added to Commissioner Kenneth Hayne’s 76 recommendations to restore trust in the banking and finance sector.

He said: “The fact that Hayne has said BEAR should be extended to all industries is a good thing.

“This is also a really fascinating topic, accountability.

“I've been a big fan of the principles of BEAR from a good governance perspective. 

“When you can have, at your senior executive level, clear accountability spread out across your executive team coupled with a map that goes across the entire organisation, you have a holistic view of accountabilities across the organisation.

“That's something that  can be applied  to any industry. 

“If the government really believes in accountability, there's no reason why they can’t implement something like this across other sectors.”

“Ultimately, I think, to make BEAR work, and this is what we advise our clients, is you can't just stop at that senior executive level,” Hosain added.
 
“To make it work, inevitably, executives are going to have to delegate some of their responsibility. 

“To do that effectively, it makes sense that the role statements, as you go down in the organisation, are all aligned. 
“For instance, somebody who is actually pressing a button and doing the coding for stress testing, this should be reflected in their role statement. 

“That's what they're responsible for. Ultimately, there's somebody more senior who's accountable for it, but you're responsible for actually doing that. 

“If you can align up throughout an organisation those key accountabilities, that makes for a very effective way to understand how things are operating in the business and who's doing what. I think we will see more of that going forward.

But how much of the workforce can it apply to? FINSIA’s belief is that BEAR should apply to all staff with roles that could cause significant harm to members of the community and those characterised as contributing to a financial service.

While he says it would be difficult to factor in holding back a bonus to junior staff where only a small part - if any - of overall remuneration is paid that way, he agrees BEAR principles can help influence behaviour.

“I don't think necessarily that needs to be replicated all the way down,” he said. 

“They all have, for instance, relatively junior level staff who will have probably a small component of bonus compared to total REM.

“So the ability to claw that back or whatever, is it going to have a major effect?  Probably not. 

“But the issues around taking performance in relation to accountability into account comes into performance assessment, and ultimately, potential future career trajectory. 

“So there are ways in which you can really influence the outcomes and think about what this means to that employee, without it having the dollar value impact that it might have at a more senior level where bonuses are much a bigger feature of total REM.”

The public sector veteran who left APRA after 17 years just before the start of the Royal Commission agrees with Hayne’s recommendation that bank boards and senior executives are responsible for coming up with answers to misconduct. But it is probably understandable that a longterm regulator sees the need for external oversight. 

He believes cultural assessments of finance institutes should occur regularly. “They could eventually “resemble an internal audit,” he says.

“It is about organisations doing as much as they can to understand their own performance and how effective their governance is,” he explained. 

“You need to take into account dynamics that are happening at the board level, as well as the senior executive level. Right now, that's actually a gap. 

“What happens now is that you have boards doing performance assessments. Executive committees have no performance assessments done to them. And then when you have cultural assessments or audits, typically they're done at the business level down, and they're always downward looking. They're never upward looking. They never include the board. They never include the executive committee. 

“My view is - to get a holistic view of the cultural dynamics of an organisation which goes to the heart of how effective governance is - you must include the board. 

“Assessing your boss's boss, in terms of cultural dynamics, is incredibly difficult to do. 

“The conflicts there are huge. So where I can see this moving to is that an independent assessor to come in and objectively try and assess the cultural dynamics at the board, and then at the executive committee level. 

“If you can understand that, and then put together with what's happening form the in-house perspective, you've got a system wide view of the cultural dynamics. And there you have a much greater ability to understand the dynamics of culture and what that means for governance.”



Comments

Share this