16 December 2019
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What can we take away from APRA's latest truth session?

The Commonwealth Bank has been up itself and some tough love is needed

Peter Switzer
2 May 2018

APRA has had something with the CBA that most of us can never deal with — it’s called the truth session! And its summary is that despite the bank’s great reporting and share price rise record, the end result was that the bank’s top management was up themselves!

More polite language would say that they were troubled by hubris, which, of course, having a great profit, dividend and share price record could do that to anyone. However it has come back to bite the bank and the shareholders who invested in them.

And I must confess that I’m talking through my wallet here, as a shareholder and the founder of a listed fund — SWTZ — that would be higher priced if the CBA had done better.

APRA’s comprehensive look at the CBA has all the hallmarks of those terrible truth sessions, which always seemed like a good idea when, as a young person, you were having too many drinks with friends.

I can recall my mates telling me that I made a kind of sucking noise when I ate, which was a total surprise to me! That said, over time, I’ve come to enjoy the positive implications of truth sessions as I’m married to someone who has watched my bad habits like the way a Labrador eyes off a sausage at a barbecue.

Maureen has not only noted my shortcomings but has shown me how I could fix many of my weaknesses.

Clearly, the CBA needed Maureen on the board and as an adviser to the executive team who, according to APRA, were too collegial, meaning their mateship stopped them from giving each other the brutal truth.

Truth such as some parts of our business are screwing our customers, and while it might be good for profits in the short term, it could come back to bite us. And maybe someone in the corridors of power might have even said it might be great for our brand and share price if we establish a complaints tribunal to make sure we aren’t screwing our customers!

Now that would be a ripper of an idea.

Mind you, don’t think I believe the CBA is the only big company with hubris problems. Too many huge companies (and they’re not all banks) have a hubris overload and I blame second-rate leaders, who believe their own press or great share price.

That said, I reckon we, as Aussies and as consumers are accessories before the fact. A few years back, NAB tried to break with the big four banks and really became consumer-centric but we did not switch and support them.

They keep telling us it’s too hard to switch and we believe it and we decide to pay a high price for our lack of motivation to save money. We’re voluntary lambs to the slaughter, so we should keep our whinging about the banks down to measured levels.

In his great book, Outliers, Malcolm Gladwell explained how some decades ago Japanese pilots had a big problem like that the CBA suffers from. Because of the cultural no-no of a junior telling a senior person that they were doing something wrong, planes were falling out of the sky!

That cultural problem had to change before Japanese pilots were given the joystick of a 747. And it’s this problem at the CBA that explains why the share price has fallen from $96 to $73 over the past two years.

By the way, not all CBA employees have anything to be embarrassed about. I do some banking with the CBA and my personal banker is a ripper and every CBA customer deserves a Jae Choi! Our business banker Wade Boland is good too. But there have been others in the bank who have a question mark over them.

And every big business, their boards and their executive team need to learn from this APRA report.

 

 

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