By Professor Elizabeth Sheedy. One of the major recommendations of the Hayne Royal Commission was for the Banking Executive Accountability Regime (BEAR) to be extended more widely across the financial services sector. Two years after Hayne delivered his final report, we still don’t know the exact form that this will take.
A year ago, Treasury produced a paper with proposals for a new Financial Accountability Regime (FAR) and invited comments. As of now, the results of that consultation are unknown, and we don’t have a starting date for extending executive accountability to insurers and superannuation funds.
Why?
While COVID-19 is partly to blame for the delay, one must assume that the chaos at ASIC is also a contributing factor. How ironic, and tragic, that governance issues in the conduct regulator could be holding up a major piece of governance reform for the industry that it regulates.
The long-suffering consumers of financial services waited years to get the Hayne Royal Commission and still time marches on with important reforms still outstanding.
How significant is this reform?
The UK was the first to experiment with accountability regulation for senior executives, with a regime launched in 2016. This came about because misconduct scandals, combined with the GFC, led to public frustration that senior executives were never held to account. Bonuses had become an entitlement, and no-one ever seemed to lose their job or go to jail despite the most egregious behaviour.
Instead, the executives hid behind ignorance and group decision-making processes. The public wanted heads on sticks -- individual accountability. Our Banking Executive Accountability Regime was modelled on the UK initiative and came into effect in 2018 for the largest banks.
The research evidence for accountability is robust
Accountability is the perceived expectation that one’s decisions or actions will be evaluated by a salient audience, and that rewards/sanctions will be contingent on that evaluation. As accountability entails an expectation of a potential evaluation, individuals position themselves to defend their decisions or actions in the event they might be subject to an evaluation.
When people expect to justify their judgments, they want to avoid appearing foolish. They prepare by searching for reasons to justify their actions so they analyse a wider range of relevant cues, pay more attention to these cues, anticipate counter-arguments, and are more self-reflective.
In a management setting we might expect that accountable persons would take more care and diligence in the way they manage their accountability. They might delegate responsibility in a more rigorous fashion, and follow up to check that tasks have been carried out effectively. They might be more diligent in responding to red flags that indicate all is not well in their area of accountability.
Accountability has even been shown to mitigate many behavioural biases such as overconfidence and groupthink.
• Elizabeth Sheedy is a corporate risk expert at Macquarie Business School