The Final Report into Misconduct in the Banking, Superannuation and Financial Services Industry includes two really interesting recommendations for accountability that create an opportunity for HR in financial services to demonstrate our expertise. I’d like to suggest that HR teams can move from talking about the need for a seat at the table to be really proactive and informed about BEAR and how it will change our industry. HR is often criticised for not adding value, not being a strategic business partner or both - so here is the opportunity to travel from deepest, darkest Peru just like Paddington Bear and look after the opportunity along the way.
The Banking Executive Accountability Regime has been recommended to extend APRA regulated financial institutions (6.8) and to regulators (6.12). This recommendation certainly wasn’t a surprise. One of my favourite moments of the Round 7 evidence was Commissioner Hayne’s exchange with Wayne Byres, Chair of APRA in making the point that BEAR should be applied to APRA itself. Seeing the marmalade manufacturer being asked to taste it was a real treat. All jokes aside, we will all benefit from a strong regulator and ensuring accountability is well managed is in everyone’s interest.
PLEASE Look after this bear
I’d like to suggest that there are two things HR can do to look after BEAR as it is both further implemented to small and medium Authorised Deposit-Taking institutions (ADI’s) from 1 July 2019. It’s already been in place for large ADIs since 1 July 2018. Firstly, we can be on the watch for attempts to down play the significance of this report by changing the name. It’s a royal commission report, not the Hayne report. We know that language is important and the terminology used is the first step to distancing from responsibility or depersonalising to justify harm. Lessons first brought to life in the famous Milgrim experiment of using depersonalised names is the same as referring to a customer rather than the compelling case study of Jacqueline McDowall. We can do out part by being on the look out and calling out attempts to make this sound like just another report into financial services - with a torrid history of not really making a difference. Wallis Inquiry (1997), Cooper Inquiry (2012), Murray Inquiry (2015). You get the idea.
The second area for human resources to focus on is a careful reading of the intent of BEAR as it is currently written and how human resources can partner with the business to execute it. Accountability is at the heart of the regime with three specific actions being described: (1) identity accountable persons, (2) submit accountability statements and (3) form an accountability map. APRA Chairman Wayne Byres’ speech to the UNSW Centre for Law Markets and Regulation Seminar provides an overview and it was followed with an information paper released by APRA in October 2018. At the time it was released I read with interest the same accountability statements in the information paper. Drafted by lawyers rather than human resources, there is room for improvement to define how BEAR will work in your organisation. Richard Mulgan (2000) describe accountability as “a complex chameleon like term…now crops up everywhere performing all manner of analytical and rhetorical tasks”. Take the time to define what accountabilty means (and does not mean) in your organisation. Next the mechanics of the job design become important. Organisational design is more than just the org chart. It’s the various amounts of four ingredients if we follow Simons’ Organisational Design approach and BEAR only describes one ingredient - span of control, span of accountability, span of influence and span of support. The information paper mentioned span of control but not the others. There are important types of analysis HR can perform to understand the easy or difficulty of performing a role and this would be completely consistent with the intent of BEAR. Don’t be temped to use the other frameworks - they might work for job design at McDonalds, but they can’t cope with the pace or complexity of financial services and the number of knowledge professionals who work in our sector.
Due Skill, care and diligence
Then we come to my favourite - “conduct it’s business with honesty and integrity, and with due skill, care and diligence.” Didn’t the lawyers have fun with that one! Tackle this with more than a motherhood statement or as Commission Hayne states “Instead the entity contents itself with statements of purpose, vision and values, too often expressed in terms that say little or nothing about those basic standards (Final Report, 410)”. I suggest that this has to start with a high quality capability framework - tightly linked to legal requirements, incorporating behaviours that are needed to implement the organisation’s strategy and future focused to acknowledge the time lag between definition and implementation. Keep in mind that a capability is something an organisation uses to compete and it’s different to both a competency held by an individual (knowledge + skill + attitude) and a dynamic capability that is used to adapt current resources for future needs. Where BEAR and the Final Report use capability, think competencies that need to be defined and developed by individuals or you will go around in circles. Don’t be fooled by the “capability review” in the Fit for the future capability review of ASIC. I’m always immediately suspicious of “well-established and contemporary Capability Review framework” (page 4) where no peer review or evidence base source is named. The second red flag was the absence of technical HR expertise (do not giggle, it exists and we should all be using it). The three areas - governance and leadership, strategy and delivery have been used in several different parts of the public service and are a very different approach to the solid techniques taught in HR degrees to align individual performance with desired behaviour - that includes not breaking the law.
If you want to get fancy, you can include the planning techniques that focus on the future, the behaviours that protect against wrong doing (yes, the same ones that the dangerous leadership development frameworks try and discourage) and the behaviours that will be needed to manage future risks. APRA’s information paper included these in the optional extras section. I’d like to suggest that this is where the culture change in an organisation starts. Poor risk culture = just do the bare minimum (yes, pun intended). Moderate risk culture = let’s do a thorough job, but don’t go outside what others are doing - safely in the middle is OK. Excellent risk culture = let’s be the exemplar, really use all of our expertise, think through all of the suggest extensions, add our own and be proud of the end result.
FUN TIMES AHEAD
It’s a great time to be in HR with so much focus on cultural change and the full implementation of BEAR. It will be even more interesting if parliament approves the extension of BEAR into all ASIC regulated entities. I’ll be watching with interest the capability review announced into APRA to be conducted by Graeme Samuel (LLB, LLM, FAICD), Diane Smith-Gander and Grant Spencer, Retired Central Bank Governor from New Zealand. They look like a group strong in economics rather than organisational design and capability. Cynical bells are ringing with an ex Westpac person on the panel, haven’t we just seen what happened when the capabilities of their Financial Planners let down customers? The bank I’d like to see represented is Bendigo and Adelaide Bank. I’ve looked at all of the publicly available documents from all of the banks - their corporate governance statement is one of my favourites. I do hope the APRA capability review panel ask the right questions and bring in some good HR experts. ASIC had almost three years to implement their capability review and we know how that went from the round 7 evidence…..watch this space.
I have a list of topics planned for the next couple of weeks. Also very happy to change the order around or add new if there are suggested topics relating to the role of HR and the findings of the royal commission. This series of blogs is designed to focus on the areas where HR can add value through our technical knowledge and expertise.