‍The Finsider is our blog series providing insights into the Australian financial services landscape. We interview experts who will share their perspectives on ideas and issues facing the financial industry today and in the future.

Our special guest for this month is Dr Simon Longstaff. Simon was appointed the first executive director of the The Ethics Centre in 1991 and an officer of the Order of Australia (AO) in 2013 for his promotion of ethical standards in governance and business. He is an adjunct Professor of the Australian Graduate School of Management at UNSW, a Fellow of CPA Australia, the Royal Society of NSW and the Australian Risk Policy Institute. He holds a Bachelors in Education from the University of Tasmania and a PH.D. in philosophy from the University of Cambridge.

Five years on from Hayne Royal Commission what do you think has been achieved?

I suspect that much of the intensity of the response to Commissioner Hayne’s findings and recommendations has dimmed with the passage of time. From what I see, many people in banking and financial services have decided to put the experience behind them, to ‘move on’. While I can understand the temptation to turn to the future – and there are many pressing challenges to be addressed – I fear that the more enduring lessons emerging from Hayne’s work are being set aside. In some cases, this is because industry leaders think that the problems have been addressed and that there is no longer a need for the kind of focus that was evident in the immediate aftermath of the Royal Commission. In other parts of the industry, I think that there is relief that the apparent ‘storm has passed’ – with very little lasting damage to report. I think that this is unfortunate – especially given how easy it is for large, complex organisations to become host to ‘shadow’ values and principles that can ultimately undermine integrity, trust and legitimacy. One of the key revelations of Hayne was that you don’t need to look for ‘bad apples’ to explain ‘bad conduct’. More often than not, genuinely good people are the authors of dreadfully bad decisions – often without any sense that this is what they are about. We saw this with people who pushed to the limits of regulation and the law – only asking ‘can we do it’ not ‘should we do it’. Those taking that approach were often rewarded for doing so. People who asked ‘inconvenient’ questions were sidelined (or worse). When asked why things were that way, the response would often be that ‘this is just the way things are done’. My deepest concern is that the tendency to engage in unthinking custom and practice is still quite strong – and that those who had most to learn from Hayne have now been lulled into a false sense of complacency – perhaps thinking that even more robust systems of regulation and surveillance (internal and external) will save them from another bout of ethical failure. If I am correct, then they are gravely mistaken. This is not to say that the situation has not improved. Nor do I intend to make a general criticism of the industry. I am one who sees banking and financial services as having the potential to be powerful agents for good – without in any way compromising their long-term financial sustainability. 

What opportunities have been missed?

There have been a couple of missed opportunities. First, I think that it was most unfortunate that powerful voices within the world of financial advice have set back efforts to transition financial advisory services from an industry into a genuine profession. The loudest of those voices simply refuse to accept the basic proposition that all advice should be offered solely in the best interests of clients – free from any real or apparent conflict of interest. That refusal was linked to genuine concerns about the affordability of good advice. In my opinion there could have been far more inventive ways to address that concern by establishing a scheme similar to ‘legal aid’ to fund the provision of good, personal advice to people of modest means. In turn, the cost of generating the funding for such a scheme could have been covered by hypothecating a tiny percentage of funds under management – building over time. Second, I think that Banking and Financial Services have underestimated the importance of re-establishing trust and legitimacy – not only in their own sector but across the public and private sectors as a whole. Unfortunately, the whole of society achieves sub-optimal outcomes (both social and economic) when trust is broken. With a few notable exceptions, leading industry participants have made very little effort to strengthen the ethical infrastructure of the nation as a whole. Instead, I think that as long as they improve their own standing, then all will be well. However, that is a somewhat naiive view. The whole needs to be improved so that the parts can flourish. 

What do you think are some of the most important issues facing corporate Australia today?

Climate change – both the costs and opportunities – is an issues of central importance … not just in financial terms but also in relation to how we are to live. Likewise, the rise of Artificial Intelligence (in its various forms) and automation (more generally) will have the most profound implications for our democracy (with the rise of misinformation and disinformation that is indistinguishable from truth) and the potential displacement of millions of jobs. Even if other jobs come into existence over time, the potential for dislocation is profound. And for the first time in centuries, it will be the middle class that bears the brunt of the change. History tells us that when the middle class is displaced, then societies enter periods of significant instability. None of this is being adequately addressed by corporations (neither within their own walls, where the conversations are often limited and muted, nor more generally, in public). Both of these issues – climate change and AI, etc. – need to be considered against the third and most important issue of all. This is the widening growth in inequality. The most serious effects of this can be seen in the USA. However, Australia is heading the same way. In essence, the neo-liberal consensus of the past forty years (or more) is breaking down because it is increasingly perceived not to have delivered on its promise of generating increased prosperity for all. Finally, I think that there is one especially ‘Australian’ issue that is going to gnaw away at the soul of the nation. This is the unresolved question of how to reconcile with the first nations peoples whose lands were colonised. Although this may not seem to be a ‘first order’ challenge, my personal view is that Australia will never quite fulfil its immense potential until there is a just and honest resolution and the ability to exist on genuinely ‘common ground’.

What is one change you would like to see happen in financial services in the future?

Just one?! I would like to see our financial services invest in ‘ethical infrastructure’ – within their own walls and in the community as a whole.  

What advice would you give to those starting out their careers?

Be relentless in engaging those who lead your companies and industry with the encouragement to do more – to go beyond paying ‘lip service’ to ethics. Hold them accountable for creating an industry that will be a source of pride for the whole of your career. Finally, get involved with the Banking + Financial Services Oath (BFSO) at https://www.bfso.org