Clockwise from top left: Kenneth Hayne, Jack Regan, Marianne Perkovic and Ian Silk

Having been privileged to sit in the courtroom and adjacent media antechamber for much of the testimony of the Hayne royal commission – and seen first-hand the seismic admissions of guilt and greed – the final report itself in February 2019 was initially underwhelming.

In fact, I went on telly that night to criticise Hayne and his team, declaiming that “bank spin doctors would be popping the champagne” over the report.

It still rings true that the 76 recommendations were lacklustre compared to the fireworks of the evidence provided. But five years on, it is equally true that the inquiry has left a lasting legacy, at least within the industry if not within the public discourse.

While many within the financial services industry – especially those most commercially affected – bristle at these reminders and want to keep the conversation forward-looking, we believe there are key lessons that are at risk of being forgotten and which, left unheeded, could result in another disaster. Here are our top five.

  1. The news cycle and Canberra circus can move quicker than the market

Asked how regular voters now feel about the royal commission, Minister for Financial Services Stephen Jones told the Investment Magazine Chair Forum last week it was a “distant memory for many”.

The banks themselves were quick to announce their exit from the market, all at once looking as though they were responding to “community expectations” while also freeing themselves of the regulatory regime their misdeeds would trigger. While they are – to varying extents – still exposed to wealth management in reality, the public and political perception is that the Wexit was swift and severe.

They then went on to enjoy immense public and mainstream media praise (perhaps justified) shortly thereafter during the so-called Team Australia relief measures during the worst of the Covid-19 pandemic (though successive interest rate rises may have dented this goodwill).

Either way, the banks themselves expertly responded and then fled the scene. Meanwhile, the financial advice and life insurance industries were left to try and navigate the waves of often duplicated rules and regulations that would follow.

Listed wealth manager share prices continue to act as a crude commercial barometer, with AMP and Insignia each down by more than 55 per cent over the five years since the reckoning. The moral of the story is that, while voters and the news cycle may seemingly move on quickly, the institutional memory of the market is not always so fickle.

  1. Be sceptical of external advice

The commission rightly focused on regulated entities – the financial services providers with whom consumers actually engaged. They are the entities that hold fiduciary or contractual duties and should therefore be held accountable for their own behaviour.

But it does not absolve these players to point out the often unspoken truth that much of the misconduct in question was actually carried out, devised or recommended by third-party advisers such as management consultants and lawyers.

For example, blue chip law firm Clayton Utz played a starring but unaccountable role in AMP’s infamous conduct of lying to the regulator over its fees-for-no-service practices. An “independent” report provided to ASIC  by the firm was actually the product of 25 drafts and 700 email exchanges with management, with which they had many commercial and interpersonal ties.

Prominent management consulting firm McKinsey & Co received just one mention in the interim report and none in the final report. The reference was from a submission by researcher Ross Waraker, who argued the firm was responsible for inspiring the so-called “bad banks” strategy that led the big four to riskier activities. Though it has not been proven, many industry sources suspect McKinsey played a role in devising the vertically integrated wealth model implemented disastrously by groups like Commonwealth Bank, led by former McKinsey consultant Ian Narev for much of the period in question.

Ironically (and typically) the consulting firms (especially the big four of PwC, KPMG, EY and Deloitte) picked up much of the work in post-Hayne remediation and new processes. They have since come under immense scrutiny themselves but remain a go-to option for executives looking to outsource tough decisions. They should remember they were somewhat of an elephant in the room during the Hayne inquiry.

  1. Seniority (and humility) matters on the stand

A thesis (more evidence-based than this one) could and should be written on how different organisations and executives performed under cross-examination. But in hindsight those senior leaders who took the stand themselves rather than trying to hide behind middle management tended to fare better.

The prize for best performance at the royal commission, for example, arguably goes to former AustralianSuper CEO Ian Silk, who defended not only his fund but the broader industry super funds movement. Some might say he got an easier run, but that is not quite right. The counsels assisting came at him hard about expensive and controversial anti-bank advertising campaigns such as “Fox and the Henhouse”, and he responded by articulately and logically explaining how he believed these ads were in members’ best interest, effectively convincing the court and putting the debate to rest for some time. A more junior and nervous representative may have come unstuck.

By contrast, AMP made the decision to put up junior executive Jack Regan to effectively answer for misconduct conducted higher up the chain at CEO, board and general counsel level. Presumably the company thought he had plausible deniability, but in fact he came across as a pawn in a game of serious criminal wrongdoing. It would have been both more honourable and probably more effective if the CEO at the time, Craig Meller, answered those questions. Similarly, then CBA general manager of advice Marianne Perkovic was accused of “obfuscating”, but many believe she simply was not privy to the conversations and decisions of the bank’s top brass.

There are, of course, exceptions to the rule. IOOF (now Insignia CEO Chris Kelaher and NAB chair Ken Henry both tried and failed to take the cross-examiners on, taking umbrage with their questions and questioning their smarts. Taking responsibility properly requires both seniority and humility.

  1. Lawyers are better at performance than policy

This is a sweeping and perhaps unfair generalisation, but lawyers are not always the font of all knowledge. Commissioner Hayne and his star team of barristers, led by QCs Rowena Orr and Michael Hodge, did an incredible job of cross-examination and getting to the heart of the problem, securing multiple clear admissions of wrongdoing.

As a journalist who had sometimes been given a chance to ask these same executives questions about these same issues, I was in awe of their superior results (although granted, they had the comparative benefit of testimony under oath and thousands of internal emails and memos at their disposal). Nonetheless, the evidence they uncovered was of immense service to the public – especially given so many of the defendants had long denied these truths.

But what they displayed in courtroom skill they arguably lacked in policy formulation. The 76 recommendations they made were mostly an uninspired mix of additional red tape and rehashed Productivity Commission suggestions. They disproportionately focused on intermediaries like advisers and brokers who are easier to regulate, than the senior executives, board directors and legal peers who were most at fault. They left intact the glaring issues of licensing and vertical integration.

In their defence, there are no easy solutions to white collar crime. But, just like in Parliament, sometimes those skilled at rhetorical style can be found lacking on policy substance.

  1. Do not ‘temper your sense of justice’

Perhaps the most memorable piece of evidence to come out of the 15-month probe was a communication from Narev, then CBA chief executive, to rising star Matt Comyn, his successor as CEO. When Comyn tried to blow the whistle on the sale of junk insurance policies and run it up the flagpole, Narev allegedly told him to “temper your sense of justice”.

It is a single sentence that sums up everything that was rotten about financial services. There is an implicit arrogance and suggestion that the boss knows best and staff should just say yes. But worse, there is also clearly a belief that ethics and profits are mutually exclusive. And that was the very crux of the problem Hayne laid out, misconduct was not just the result of incompetence or poor governance, it was lucrative. Until it wasn’t.

Over the decades since the GFC, and especially since the Hayne inquiry in this country, a consensus has begun to emerge in business that in fact the complete opposite is true. A sense of justice is a very important – perhaps the most important – attribute for a leader and business to possess.

Reflecting on the pain and process of the Hayne royal commission may help to cultivate one.

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