Speaking at an Annual dinner of the Paddington Society in Sydney, 6 August 2015, Greg Medcraft spoke of the “right nudge in shaping communities locally and globally“.
On Culture Mr Medcraft described, how, since the global financial crisis, we had witnessed example after example of financial institutions behaving in a way which left customers coming off second best, eroding trust and confidence in the financial institutions. Referring to the growing pool of Australian superannuation savings (superannuation assets estimated at $5.1 trillion by 2030), Mr Medcraft described the challenge to regulate “real people” as opposed to an entity; those from the top of the institution to those on the front line, by closely examining the behaviours and incentives, with credible deterrence for breaking the law.
“It is no good simply pursuing the bad apples if the fundamental problem is the tree itself.”
Mr Medcraft stated that ASIC would be looking to Board and Management to continue to review, enforce and validate good conduct by adopting the 3 C’s of good conduct:
- Communicating from the top on what is to be expected
- Challenging whether the culture is achieving the desired outcome
- Complacency – ensuring there is no complacency
Mr Medcraft endorsed the work of the St James Ethics Centre for working with a number of institutions in helping to develop an ethical framework on ‘how to do the right thing’, when running their businesses.
“Good culture should not mean mountains of red tape and armies of compliance staff“.
However, Mr Medcraft went on to say that where institutions are hurting their customers through a delinquent culture, stronger enforcement powers are needed by the regulators. To this end, ASIC has called for the broadening of the culture provisions of the Crimes Act, to the Corporations Act, applying them to both entities and responsible management. In the same way that breaches of health and safety can leave management responsible for breaches of the law, ASIC’s position is that the most senior people in the financial sector should be held personally accountable for the actions of those on the front line.
In referring to The Value of the Crowd, Mr Medcraft touched on the impact of social media and technology and the unprecedented access to information, and how financial institutions were being held accountable by ‘The Crowd’. What we are therefore finding, said Mr Medcraft, is that if financial institutions to do not act in the right way, the crowd will let them know, if not the news headlines:
“..being judged by the crowd, and by your peers has major reputational consequences above and beyond any monetary impact.”
In concluding remarks Mr Medcraft repeated his emphasis on ‘real people’, rather than academic concepts, describing how people get fleeced ‘..And sadly, those who get fleeced, are not only the wealthy’.
Therefore cleaning up the culture is a priority for Mr Medcraft and ASIC because while noting that markets might recover, real people, often do not. He reminded his audience that as a member of any group, organisation or family, trust and confidence will remain crucial in everything that we do as a community and therefore the cornerstone of society.
