The Banking Executive Accountability Regime has introduced greater clarity for executives about their individual accountability, leading to better decision making and problem solving, a new study has found.
Academics Elizabeth Sheedy and Dominic Canestrari-Soh from the Macquarie University Business School examined the experience of ADIs implementing BEAR, including conducting interviews with accountable persons.
They found that “greater clarity around individual accountabilities brings numerous governance benefits. Accountability has an empowering effect, so decisions get made, problems get resolved and there is greater care and diligence.”
BEAR took effect for large banks in July 2018 and for all other ADIs in July 2019. It established a class of “accountable persons”, comprising directors and senior executives.
Each accountable person must lodge an accountability statement with APRA and have it approved, explaining the exact nature of their accountabilities.
These can include such areas as the business activities and operations of the ADI, financial resources of the ADI, risk controls and risk management of the ADI, information management, audit and compliance functions, human resources and anti-money laundering.
The regime discourages joint accountability. In this way, an individual can be held responsible when things go wrong.
ADIs must also provide an accountability map showing how the various accountabilities fit together. They must notify APRA of any changes.
BEAR anticipates that accountability will be policed mainly through financial consequences imposed by the board. To facilitate this, part of an accountable person’s variable remuneration must be deferred for four years.
If, over the four years, any failure emerges in compliance with accountability obligations there must be some direct financial penalty.
Sheedy and Canestrari-Soh found that the big drawback with BEAR, from the point of view of ADIs, was the increased administrative burden.
They expected to find higher levels of work stress, based on previous research that suggested greater scrutiny at work can create anxiety, but this was not common.
They found that “risk and compliance functions are getting a bigger say as their line one colleagues consult them more. Directors and assurance teams find it easier to do their jobs because they can ascertain who is accountable when things go awry.”
Sixty-five per cent of respondents reported an improvement in organisational culture.
“The creation of the accountability statements and maps was seen by most as worthwhile in its own right. This exercise drew out the problematic areas and prompted constructive discussion about grey areas.
“Technology and data management were two areas consistently brought up as problematic for allocating individual responsibilities.”
In interviews, accountable persons spoke about managing their direct reports in a more structured way, delegating responsibility and monitoring. They said they spent more time checking the things they were accountable for.
Some directors spoke of improved board practices, with better structure and discipline, and more reflection on board practice.
In conclusion, Sheedy and Canestrari-Soh said: “When executives have clear accountability backed by authority and resources, they are empowered to act. Things get done and decisions made.”
They said the results of their study were generally consistent with evaluation of a similar initiative in the United Kingdom – the Senior Managers and Certification Regime.