THORBURN: The 4 forces that made it all go wrong for Australia's major banks

Screenshot from webcastAndrew Thorburn at the financial services royal commission
  • Andrew Thorburn, the CEO of the NAB, appeared in the financial services royal commission.
  • The hearing was told Thorburn wrote a personal letter to the commission.
  • In it he noted “four significant changes” in the last 30 years where the banks went wrong.

NAB chief executive Andrew Thorburn, in a personal letter to the financial services royal commission, says there are four significant changes over the last 30 years which help explain why things have gone wrong inside the banks.

The first change was a shift away from customers leaving the industry open to the challenge that it puts profits before people.

The second was a move from a long-term view to a short-term one.

The third was that there was a move from base pay to greater incentive compensation, leading to most people getting variable awards calculated by short-term considerations.

And finally, banks have become more complex partly due to increasing regulation and compliance obligations.

The bank chief wrote the letter in response to the commission’s interim report which declared that greed, and the pursuit of short term profit at the expense of basic standards of honesty, was the primary motivator for bad behaviour in the banking industry.

Thorburn told the royal commission he wanted to build a sustainable business for all stakeholders.

“I think all businesses have got to start with focusing on your customers, and the products and services you bring to them to help them achieve their goals,” he told the hearing.

“And that should be the primary focus of a bank. And when I started in banking, that was, indeed, the sole focus.

“And there are, of course, other things that are important. Risk management, growth in profits. They’re all important. Particularly the profits piece, they come as a result of you focusing on your customers earning their trust so they stay with you and do their business with you because you are serving them well. That should be the primary focus of any business, including a bank.”

Michael Hodge, senior counsel assisting the commission, asked whether the shift away from the customer meant that parts of the banks had become unsustainable.

“Well, yes,” Thorburn replied. “I think if you go to my other points where I talk about becoming short term, focus too much on the next six or 12 months, focus too much on the profit, which is the outcome of serving the customer well, then I think you start to build some unsustainable foundations, you don’t invest enough, you don’t listen to customers enough.”

Hodge asked whether another issue was a move towards a sales culture.

Thorburn: “That was like a symptom of focusing on the short term. Focusing too much on growth, short-term growth that’s not really sustainable and a sales culture was introduced, not just in our bank, in the system. And I think that created wrong outcomes as well. Unintended consequences.”

Sales shouldn’t be a mindset, he said.

“What you should be thinking of is understanding your client, understanding their needs, understanding their financial situation, and bringing your products and services to help them achieve their goals,” he told the hearing.

“That should be the purpose of building a relationship with clients. And in so doing, you build a long-term relationship with that client.”

Hodge asked whether the bank should shift back to being more service-oriented.

Thorburn: “We’ve got to go back in some ways but we can’t because the world has changed so fast and there’s so many different technologies now and competitors. So I’m not harking to the past for (guidance).”

However, he said the culture should not be sales based.

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