As Australia’s big banks navigate multiple challenges including the COVID-19 pandemic and related issues around liquidity and risk – as well as more systemic problems highlighted by the Banking Royal Commission, reporting timeframes for big organisations such as banks need to be more realistic, said Gonski.
"I hope that once the pandemic is over, we will move away from [quarterly reporting] because running a company purely to report every 90 days is too short-term.”
In banking and other sectors, he observed that the focus has been more short-term than it perhaps should have been.
“The concept that happened a few years ago, where we would have quarterly results, I think was most unfortunate,” said Gonski, who serves as Chairman of a number of organisations.
“I know that quarterly results have come back a bit now because of COVID-19, and that’s very explicable and correct. But I hope that once the pandemic is over, we will move away from that – because running a company purely to report every 90 days is too short-term.”
Any large organisation – whether they be for profit or not-for-profit, has to be run on a balanced basis, according to Gonski, who stressed the importance of good, open discussion with shareholders, customers and staff about long-term goals. This should be balanced with a good system of announcements in the shorter-term – particularly in the current economic environment.
“You have to make sure that is as reasonable as possible to keep all your stakeholders happy,” said Gonski. “Superb business leaders know what the right balance is given the right set of situations and those who put it out of balance can do real damage to the company.”
How Boards can make better decisions about operational leadership
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry shone a harsh light on issues such as culture, governance and ethics in Australia’s financial services sector. The final report by Commissioner Kenneth Hayne AC highlighted the importance of Boards in challenging executive leadership when necessary as well as the need for Boards to have the right information at hand so directors can appropriately discharge their duties.
Non-executive directors play a particularly important role in governance, and Gonski said such directors need to adopt a rigorous approach to getting the information they need.
“A way of doing that I think involves a two-step process. The first is the concept of setting up matrices that ask questions of management on an ongoing and regular basis which allows non-executive directors to readily see whether these items are being adhered to, or not,” he said.
“The danger, obviously, is that this could become just paperwork,” said Gonski, who affirmed that the important thing about this approach is that, at the very least, it communicates to a senior leadership team what non-executive directors will be looking at.
“I think there’s a place for that – but people who rely on it totally make a mistake,” he said. Asking the right questions – and getting the right answers is a “first step and a good one”.
The second step is more important, said Gonski: “Armed with this paperwork, the non-executive director’s weapon of choice is questioning,” he said. Non-executive directors need to ask the CEO and senior leadership team about their responses to the questions contained in the regular reporting matrices, and to do this in detail in order to get the answers they are seeking.
“Questioning in private sessions between the CEO alone and the Board is terribly important. Listening to other people in the company, from senior management down and sometimes during Board tours and inspections of the assets – where you actually see some of the people who work in the business – is also terribly important,” he said.
These exercises allow non-executive directors to double-check their vision of the organisation’s culture and its implementation, he said.
COVID-19, leadership and executive pay
COVID-19 has had an unprecedented impact on Australia’s economy, with Australia’s banking and financial services sector stress-tested like never before. As such, the pandemic has highlighted the importance of a strong banking system, according to Gonski.
“I liken the banking system to the arteries of a good society,” he said. “And provided there is blood, or in our case, cash and liquidity, going down the arteries, then society can thrive and continue – rather than what we saw in 2007 and beyond which was a situation more akin to a heart attack on an economic basis.”
David Gonski AC is outgoing Chairman of ANZ
Click here to read the full original article published by University of New South Wales’ Business Think.