Banking report shows it was more than ‘bad apples’

Hayne’s searching inquiry revealed behaviour so widespread as to dispel any idea that only a few bad apples were to blame.

One word sums up the issue lying at the heart of the Hayne Commission report: greed. Too many financiers were for too long pursuing short term profit at the expense of what Hayne calls “basic standards of honesty” as they scrambled for a bigger share of the customer’s wallet.

How else to explain customers being charged fees for never-delivered financial services, or for advice given to the dead, or for unwanted insurance products?

But now the challenge will be for the finance sector to address the cultural shockwaves emanating from Hayne. That is going to involve a heart-searching and frank acknowledgment of the root causes of behaviour that can be traced to systems, processes, and culture.

Let’s think of culture as the whole set of values and practices by which a community of individuals live and work — whether in a profession, an institution, or an organisation. Culture is about more than identity: it is about a whole way of ordering life.

For bankers, insurers, and financial advisors, that whole way of life is now going to have to change — as it should for any part of society engaging in similar behaviour.

Some of the egregious wrongs identified by the Hayne Commission can be addressed by refunds and compensation. Broader changes will be made to regulatory oversight and corporate governance.

However, more will be required than simply complying with whatever new laws and regulations are put in place to govern financial services.

Keeping to the letter of the law is one thing; changing one’s entire ethical approach to ways of serving the customer is quite another.

This will mean going beyond banks simply accepting new regulatory regimes, ending commissions to mortgage brokers and financial planners, or increasing their scrutiny of loans.

Reforming culture is difficult and can seldom be accomplished overnight. The reason is that culture amounts to the collective sum of customs, beliefs, and practices by which people live. And because it is a bit like the air we breathe, we can take culture for granted.

Edmund Burke, the 18th century champion of individual liberty and dignity, described culture as “the sediment in which power settles and takes root.” This is a crucial insight that all of us — not only the leaders of Australia’s financial and banking sector — will do well to heed.

For at the heart of any reform of culture intended to address standards of conduct must lie a readiness to ask a new question. It is no longer appropriate to ask: Can I do something? Human beings, after all, are free to do all kinds of things.

The new question to ask is: Should I do something? In other words, the key question at the heart of any ethical issue is: How should I live? It allows for reflection and a possible change of mind — contributing to what Socrates called “the examined life.”

This question arises whenever we make a decision about how to act or how to decide. Indeed, given that every day we are confronted with many decisions and choices, it is no understatement to say that to be ethical is a part of what is to be human.

Of course, religion has long offered varied answers to that question. But although much of our ethical framework has its roots in religion — particularly Judaism and Christianity — the ethical question is one that confronts every single one of us; whether believer or atheist.

Each decision we make, whether in our personal or our professional lives, is going to be informed by the health of that Burkean cultural sediment in much the same way that healthy fruit depends on the soil in which the tree has its roots.

But unlike the orchard, the soil of our shared culture can be contaminated and corrupted over time by successive decisions and actions that are immoral — and possibly illegal. We become insensitive to bad behaviour once we lose sight of the guiding norms and virtues of our culture.

Challenges to change behaviour confront us regularly — sometimes suddenly. The health of our society can be measured by the readiness with which we face such challenges, and by the willingness with which we strive to live lives that are worthy and examined.

Peter Kurti is a senior research fellow at the Centre for Independent Studies.