Learning the subtle lessons of culture from the Hayne Royal Commission
Organisational culture takes time and sustained effort to change. There are no quick fixes.
Leaders must be committed to change rather than tinkering at the margins or making a show of change.
The Hayne Royal Commission has been clear on the effect of organisational culture on performance:
A culture that fosters poor leadership, decision-making, or behaviour will undermine the governance framework of the entity.
The open question is, will the financial sector leaders learn the lessons or show contrition while quietly falling back into old habits and routines?
After all, this is not our first corporate disaster in which a culture that has been fostered and grown over time has been identified as a substantial factor. The spate of collapses in early-2000’s (e.g. HIH, One.Tel, WorldCom, and Enron) provided examples of some combination of failures in leadership, culture, and management controls. The many collapses in the global banking and financial sector in 2008 that were epitomised by the collapse of Lehman Brothers showed that the lessons of eight years earlier were forgotten or ignored. The community carries some of the accountability in our collective forgetfulness. We are outraged by poor leadership, poor decision-making, and poor behaviour when it is shown to contribute to a collapse or unfairly damage individuals and families. The lessons for the leaders of the Australian financial services sector (and their institutional advisors) might have been learned then.
Instead of looking to the many commentaries and observations of those who have been advising the Boards of big banks for many years on the lessons that should be learned and implemented, maybe we should tune into history and poetry to remind ourselves that collective forgetfulness and the recurring problems of poor leadership and destructive cultures is a recurring problem.
In 1917, Rudyard Kipling wrote some verse titled ‘Mesopotamia’. A short background on Mesopotamia is important to understand the context of Kipling’s poem and its relevance to the Hayne Royal Commission.
The 147-day Siege of Kut-al-Amara by Ottoman troops of several thousand British and Indian soldiers and subsequent surrender in 1916. The survivors were marched 160 kilometres to prisoner-of-war camps in Aleppo. The British made four unsuccessful attempts to free the troops besieged at Kut and suffered over 23,000 casualties, while many of those marched to prisoner-of-war camps did not survive. One British historian has described the loss of Kut as the ‘most abject capitulation in British military history. Another historian described the siege as the ‘worst defeat of the Allies in World War I.’
Neither the British General commanding the forces at Kut, Major-General Charles Townshend, nor the British politicians came out of the incident well. Townsend was seen by many as arrogant and removed from the circumstances of his troops, while the politicians were seen to be stumbling from failure to failure. Kipling’s poem wonders whether the outraged public will remember these events long enough to hold those responsible accountable or whether those responsible quietly return to power, as often happens. The whole verse is shown below, but stanzas 4 and 5 speak to the broader problem of ingrained culture. The relevant two stanzas from Mesopotamia where Kipling is specific about his concerns are shown below:
Shall we only threaten and be angry for an hour?
When the storm is ended shall we find
How softly but how swiftly they have sidled back to power
By the favour and contrivance of their kind?
Even while they soothe us, while they promise large amends,
Even while they make a show of fear,
Do they call upon their debtors, and take counsel with their friends,
To conform and re-establish each career?
The central themes of the public’s short-term memory and the powerful leaders quietly escaping true accountability have meaning in the context of the findings related to culture, governance, and incentives raised in the Hayne Royal Commission. Indeed, while the Royal Commission looked at the culture within the financial services firms, what hopes are there for reform across the sector?
There is an argument to be made from history that while leaders make all the right noises, promise to change, show concern for victims, and make amends for their actions, it does not lead to a sustained change in culture or behaviour across an industry or sector. And the public is quick to show outrage before quickly moving to the next most pressing issue.
Organisational culture takes time and sustained effort to change. There are no quick fixes. Leaders must be committed to change rather than tinkering at the margins or making a show of change.
The question remains: will the financial sector leaders learn the lessons, or will they show contrition while quietly falling back into old habits and routines? Perhaps, more importantly, how will we know?
Will the regulators, tasked to watch the sector more closely, struggle to get our attention as these issues emerge again five years from now? Will we again make excuses for poor corporate leadership and behaviour?
