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Culture is at the heart of issues in Australia for both the national cricket team and one of the largest banks. The parallels between the cases lead to some useful insights. Firms must strike a balance between winning and doing the right thing. Challenge is fundamental to a successful culture. Remuneration helps drive the right behaviour, and the tone needs to come from the top – whatever the team
It’s been a difficult year for two of the institutions at the heart of Australian society. The Australian Prudential Regulation Authority (APRA) has produced a report on the conduct and culture failings at Australia’s largest bank, Commonwealth Bank of Australia. And the Australian cricket team have been the subject of a similar report, with the Ethics Centre opining on the culture that resulted in March’s ball tampering incident. The team were found to have scuffed the ball to gain an unfair advantage.
While the average Australian might consider a disregard for banking customers to be small beer when compared to the betrayal of baggie green mythology, there are striking similarities between the failings of each. Indeed, the similarities are such that considering both reports together provides useful insights into how we as FS professionals (and perhaps sports fans) can work to improve our industry.
Balance
Both the Ethics Centre and the APRA, see a balanced culture as key to an organisation that is not only successful, but also ethical. The following passage in the Ethics Centre report elegantly sums up Australian cricket’s troubles:
Of all the physical attributes possessed by an elite cricketer, one of the most important is a refined sense of balance…Australian cricket has lost its balance…and has stumbled badly.
And in APRA’s report, a picture is painted of a bank lacking balance between financial and customer considerations. Decisions were made, they conclude, with an emphasis on the bottom line rather than the client. The similarities between the two reports remind us that banks are supposed to be profitable in the same way that athletes are supposed to win: both are in it to win it, but the means are as important as the ends.
Banks must find a balance between a healthy balance sheet and a well-serviced customer base, just as cricketers must find a balance between a pleasing scorecard and playing within the spirit of the game.
Commonwealth’s employees and Australia’s elite cricketers both forgot that how you play the game is the most important part. In short, misselling investment products and tampering with a cricket ball are both manifestations of a culture that lacks balance.
Challenge
Both the bank and the cricketers failed to foster an environment in which colleagues can easily challenge one another. Their troubles aren’t down to the crimes of a few bad apples. The problem is the absence of a culture where people feel able to challenge poor behaviour. Someone else might have scuffed the ball or sanctioned an unethical sales strategy, but others should have felt compelled to call this out.
APRA found that Commonwealth’s culture was collaborative to a fault. Challenge was perceived as an unwillingness to collaborate rather than a valuable part of the decision-making process. Similarly, the Ethics Centre found players whose reluctance to speak up was born of a fear that it might hurt the team’s chances of winning.
Challenge is particularly important in a system that promises great rewards for success. It is human to contemplate cheating when the reward is your place in the cricketing annals. And it is human to consider yourself over your customer when bonus season is on the horizon. Cheating is always a temptation. It’s at these times people need a teammate or colleague to encourage their better angels and quell their demons.
It is possible to have a culture that encourages both collaboration and challenge. Crucial to fostering such a culture is having the right people in leadership positions. Collaboration and challenge can flourish where leaders set their charges the goal of not only winning but winning in the right way. The Ethics Centre found a cricket team that wanted to win despite the costs. It serves as a reminder that leaders need to count the costs, both to clients and employees, before hailing success.
The words “tone from the top” may sound like consultant speak of the worst kind, but they appear in most governance reports for a reason – a positive tone from the top is the best foundation on which to build a strong culture.
Remuneration
Of course, setting out to win the right way is only the start. Employees and players need the right encouragement. And both the Ethics Centre and APRA see changes to remuneration as central to this. The Ethics Centre recommends that Cricket Australia’s “performance reviews and bonus scheme(s) be harmonised so that all versions take into account ethical and behavioural considerations as a basis for potential reward.” And where the national team is concerned, it wants to see consideration given to players’ relationships with fans and sponsors. In other words, bringing the name of Australian cricket into disrepute should hit the pockets of those involved. This is not unlike the balanced scorecard approach favoured by APRA. In their eyes, ethical considerations must be considered alongside the bottom line when rewarding employees.
Both reports also highlight the importance of a remuneration framework that deals effectively with those in executive or management positions. In its recommendations for the leadership of Australian cricket, the Ethics Centre recommends that executive pay be linked to the culture fostered. And APRA similarly calls for remuneration to be adjusted so poor risk behaviours and outcomes sufficiently influence executive pay packets. It is often those with the most influence on events that escape the consequences of their actions – an effective remuneration framework should prevent this.
Ultimately, it is perfectly understandable that fans and shareholders want their top performers rewarded for bringing success to the side. But when the number of runs you score and the size of the portfolios you manage have such an influence on your bank balance, the absence of any ethical check can mean disaster. Surely Australia’s roller-coaster year demonstrates that the joys of boom-time bonuses and Ashes victories pale in comparison to the misery caused when cheating is allowed to prosper.
Takeaways APRA
So, what can we learn from this brief parallel-lives account of Australia’s premier sporting and financial institutions?
- To flourish in the modern market, firms need to strike a balance between their needs and those of their customer. Arguably, we have reached the stage where putting the customer first is the only way to sustain a business.
- All organisations need to temper common cause with challenge. Indeed, we let our co-workers down when we fail to challenge them at key junctures.
- Remuneration remains vital to the creation of a healthy culture. If you reward good and punish bad behaviour during salary reviews, you will greatly improve the conduct of your staff.
- A healthy tone needs to be set by those in leadership positions. Your remuneration framework will only be effective if it holds to account those at the top.
Finally, and most importantly, none of this could never happen in England. Oh, wait…
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