UABS KNOWLEDGE

FINANCE & BANKING

Shayne Elliott on restoring trust in banks

16 May 2017

ANZ CEO Shayne Elliott outlines the reasons for declining trust in banks and how the industry is responding. An alumnus of the University of Auckland Business School, he has more than 30 years' experience in international banking.

Video Transcript

0:09

Trust is a foundation of what we do as a bank and as an industry. There is a very interesting issue around this today in Australia and New Zealand, which is when you talk to individuals – and we do this through market research and focus groups – all the data shows us that when people talk about their personal relationship with their bank, their banker and their local branch, [there are] high levels of trust, high levels of satisfaction. In fact, that satisfaction level is in the 90s, in terms of 90%. But then when you ask them about the industry, satisfaction and trust is very low.

0:45

Why is that? I think there are a couple of things feeding that. One is that there is a shift in Western liberal democracies around a lack of trust in large institutions – whether those institutions are governmental or private sector. And so banks get dragged up in that lack of trust in large organisations. Secondly, we have not done a very good job as an industry in explaining our role in society, and what we do. We have got to remind people why banks exist. We are the grease in the system. We are in the business of transforming one person's savings into another person's investment. We enable people to achieve incredible things: owning a home, starting a business, growing a business, getting that business to export. But we don't talk enough about that. We have tended to talk in dry economic terms about profits and return on equity and those things, and so we have lost touch with our community. That is what we are re-engaging in. And I know, talking to the other banks, we are all incredibly focused on doing the right thing and getting this fixed.

1:51

The reasons that banks go off the rail, or fail, are pretty traditional ones. The first is around concentration of risk where we put too much of our capital into one area and then surprises and changes happen and we are not able to react quickly enough. That, historically, has been the single biggest reason, whether that is in commercial property, agricultural products, country risk – concentration is the single biggest destroyer of banks. The second one is to do with culture – the animal spirits of any organisation take over and this desire to grow and to take on risk, and the sense of feeling good and comfortable in what you are doing, sometimes can go too far. And that particularly has impact when the regulation is a little out of step with that. So, that is why having a really strong regulatory framework, that we have in Australia and New Zealand, is a very important part of the ecosystem to make sure that the system works well in everybody's interest.

2:47

One of the really interesting things about Australia and New Zealand – our home markets if you will – is that our economies have done very well for quite a considerable period of time. Now you might say, what is wrong with that? Well, there is an issue in there, and that is the average age in financial institutions today is probably around 30, so a lot of our people have actually never lived through a downturn. They have read about it, they have studied it, watched it on tv. They have seen it in other markets. But they have never lived through it and seen the damage it can cause, and also don't really have the experience of what to do if that happens. You could say there is not a lot of fear in our people. And that is my job and the job of leadership – to make sure that people really think through what they are doing, and that in some sense they are fearful. That we do assume the worst when we take on risk. Because, without that fear, we know that organisations take on far too much risk.

3:42

Executive accountability is a very important part of the culture and our responsibility to the community over all. When things go wrong, our customers quite rightly expect us to put them right. That is the first thing we have to do. Make sure the customer is put back in the position they would have been in otherwise. The second thing we have to do is make sure it doesn't happen again. And we have got to fix our processes. The third thing to ensure is really around accountability, because part of making sure it doesn't happen again is sending very strong signals to our executives and our people that mistakes are tolerated, if they are done in good faith and are truly mistakes, but negligence or bad decision-making isn't. And so, holding people accountable is important.

4:25

The issue becomes one of seniority. I have no issue being held accountable for the mistakes that happen in our organisation, and neither do my senior team. Where you have got to be careful is if you drive accountability too far down into the organisation, and people are held accountable for making a mistake, what we know is that, culturally, what people do is they can act to avoid transparency. So, if they make a mistake, they can actually be encouraged to hide it. That is absolutely the worst thing that can happen in a large organisation. So, we just need to get the balance right. Holding me and senior people accountable – absolutely, we are on the hook. But, further through the organisation we have got to be very careful that we don't have unintended consequences.

5:05

There is quite an understandable demand from the community at large that organisations such as us should not only do the right thing, but be seen to do the right thing. And, therefore, holding executives to account, making sure that we improve processes, and being very transparent about it, is a critical part of that. And we have to do a better job of it. I don't think that we have lived up to the standard that we should in terms of explaining what accountability actions have taken place, whether that is maybe some people lose their jobs, maybe people have their compensation impacted, their promotion prospects changed. There is a range of things that fall into accountability, and we can do a much better job of making that transparent. We committed, in the recent Australian parliamentary enquiry, to support those changes and be public, in terms of when we make a mistake, when we have a breach, make sure it is transparent who is accountable and what we as an organisation are going to do about it.

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