'If it's not the board, who is it?' -- NAB chair Ken Henry argues directors can't 'ensure' risk management in banks

Screenshot from webcastKen Henry
  • NAB chair Ken Henry says the bank’s culture could take a decade to change.
  • He also says it’s difficult for a board to be held accountable for ensuring anything.
  • Directors are more able to model, lead, and encourage rather than ensure, he says.

The culture of the NAB could take a decade to change, according to its chairman, Ken Henry, a former Treasury secretary.

He was answering questions in the financial services royal commission from Rowena Orr, the senior counsel assisting the commission.

“It could be 10 years,” he told the hearing. “It could be. I hope not. But I wouldn’t be at all surprised. That would not be unusual for organisations that seek to embed challenge in cultures.”

Orr asked Henry about the risk culture of the bank’s board of directors.

“It must have been 2016, I think, I participated in a workshop that (prudential regulator) APRA convened where they invited various bank chairs and other chairs to talk about the elements of a healthy risk culture,” Henry said.

“I think we’re now at a position where everybody agrees that this is a topic that must be discussed.”

Orr asked Henry what more APRA could do other than ensuring the board of director members have formed their own view of the risk culture in the organisation.

“Firstly, I don’t know whether this is the appropriate forum to say, but I will say it here now anyway, we have said consistently to APRA the word ‘ensure’ is a bit strong,” Henry said.

“It’s really difficult for a board to be held accountable for ensuring anything, just as it’s rather difficult to hold APRA to that standard of ensuring an appropriate risk culture.”

Orr: “But someone, surely, must be responsible for ensuring that there is an appropriate risk culture. If it’s not the board, who is it?

Henry: “No, the board has the principal role to play. It’s just the use of the word ‘ensure’. Model, lead, encourage, those words are more obvious than ‘ensure’.”

Henry then pointed to the APRA-sponsored review of the Commonwealth Bank.

APRA called the Commonwealth bank’s culture “insular” and an environment where learning from experiences and mistakes was ignored.

The prudential regulator then required all banks undertake a similar self-assessment review.

“Our case involved quite a detailed exploration of the culture of the bank,” he said.

“And I think also through its leadership of the industry through its supervisory practices, APRA can influence the culture of institutions.”

Henry said he wasn’t surprised by the findings of the review.

“Nevertheless we did identify a number of what we describe as cultural inhibitors,” he said.

“These are not newly discovered cultural inhibitors. This is our distillation of problems we realise we had been grappling with for quite a long time. It was a valuable exercise from that perspective.

“It required us to put in one place, or assemble in one place, a distillation of a whole pile of issues that we had been grappling with for some time.

“The principal one had to do with … an insufficient intensity of focus on getting it right all the time for our customers.

“Secondly, I think, that our systems often led us down. Thirdly, we don’t always listen as closely, as intently, to our regulators as we might, that we could learn more from them in a more timely.”

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