Time to answer the call

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry could present an opportunity to the risk profession, as companies place greater emphasis on culture and risk management, experts say.

The Commission and subsequent interim findings from royal commissioner Kenneth Haynes’ report have unearthed endemic misconduct in the financial services industry, leading to public criticism of Australia’s major financial services groups.Risk professionals predict it will spur companies to look at group culture and ask where the risk function sits in their organisation.

Eamonn Cunningham, an independent risk consultant, says the Commission underlines a “culture of focusing on absolute short-term gain in some companies, without any regard as to whether this was in the long-term interest of the entity itself”. He says the Commission reveals “an apparent lack of effective and transparent systems in some organisations, alongside a culture of ‘don’t ask’, or ‘don’t probe too deeply’.”

Cunningham sees the Commission as a “wake-up call” for the financial services industries, and a chance for companies to address their risk processes. He describes it as a “big opportunity for risk managers of calibre to get involved… It is a time for companies out of the public spotlight to ask the question: ‘How would we fare if we ended up in the witness box?’”

Cunningham calls on companies to adopt a strategic risk management process that “may be formalised in larger enterprises and practised informally at SMEs”. He adds: “You need to ask the fundamental question, ‘What are you in business for?’ You need a long-term view, rather than relying on short-term initiatives that offer short-term gains.”

Scott Ryrie, chief executive of the Risk Management Institute of Australasia, says the Commission’s findings could be a “launch pad” for the risk profession: “The Royal Commission has woken all companies up to what culture should mean. What is your corporate culture? Are you just box ticking, going through the motions?” He says the Royal Commission highlights a “lack of culture” within the major financial services groups. “Risk should be looking at driving culture, and that has been lacking in many organisations that have been driven by profit alone.”

In Demand Now

Ryrie says there is heightened demand for risk professionals as companies seek to improve their risk functions. “This is a chance to make the industry a profession, like the legal profession, CPAs or engineers. Currently, recruiters in the risk industry are in huge demand with not much supply.”

Ryrie says companies have begun to make risk management a more senior part of their organisation. “One change I have seen is that some corporates have their risk function with governance and audit reporting to them. That is a big change, as risk has traditionally been within finance or internal audit.”

“If risk managers can communicate with senior management, the entire function will be far more effective.” James Beck, managing director of corporate advisory firm Effective Governance, says there is an “opportunity for boards and risk committees to ensure proper oversight of risk”.

He says boards need to understand “people risk” arising from management conduct. Beck described the findings from the Banking Commission as a “huge” chance for company boards “to take back control and govern in the interests of the organisation, with skills-based boards to show leadership and accountability, and to drive robust culture and weed out inappropriate money-hungry behaviour, from CEOs down”.