If I drive above the speed limit, I may be fined. I may lose my licence, and therefore my job. If I kill someone while speeding, I’m liable to go to jail. In weasel terms, I’m “accountable” or “responsible” for my driving. The Commonwealth Bank money laundering mess raises this question: are its directors legally responsible?
We talk in a legal vacuum. The law says that a company’s business is to be managed by or under the direction of its directors – but we talk as if the CEO is responsible instead. That’s wrong. Directors can delegate powers – they cannot devolve responsibility. The CEO is responsible to the board; the board is responsible to shareholders. But armed with a convenient legal fallacy, the directors try to duck for cover.
The banks say their problems are “cultural” and the law can’t fix cultures. What nonsense! What if there is a “culture” of greed driven by remuneration schemes put there by the board? What if a macho culture drives men to intimidate women? Is the law then powerless?
No, the directors of CBA are accountable for all this mess – and here it’s strike three. Two generations ago, directors would have been pushed to resign. But that was when bank managers mowed their nature-strips on Sunday arvos. Now we do not respect the City, and it’s left to the regulator to tap the directors’ sense of decency. Their licences may not be presently at risk, but if Asic pursues the matter, might the court be asked to rule on their legal responsibility?
The directors relied on management. In court, they would have to show they made independent assessments of the executives’ advice. This law is hard. How many of the CBA directors knew enough about banking to assess independently what their management were saying? Did the directors reasonably believe that their powers were always being properly exercised?
Here is the Volkswagen dilemma. Either the directors knew what was going on or they didn’t. The malefactors were either working under the directors’ direction or they weren’t. Which is worse? If the law enforcement agencies were telling CBA that something was wrong, can the directors now say that they thought everything was OK? Weren’t they at least put on notice? Win, lose, or draw, should we not spend some taxes putting these directors in the witness box so that they can explain to us just what they do for their money?
If you watch The Big Short at the cinema, you will hear groans of resignation at the end – nothing happened to the decision makers. Big corporates never get to face our justice system. Two teams of ineffably urbane lawyers stitch together an evasive dissemblance of regret – apologies are so demeaning; the corporation pays an agreed sum to government; the shareholders take the hit; and the executives collect their bonuses and move on to the next fatted calf.
Ian Narev has given notice of his resignation. Some executives have lost bonuses north of a million dollars. That’s more than 10 times what we pay high school teachers. That will have hurt them less than a speeding fine hurts me – and their licence to act as directors hasn’t been at risk.
Very few directors faced cross-examination over the global financial crisis. We protect them like we protect koala bears. Company directors’ status appears to put them outside the law. This apparent privilege deeply upsets the punters. Our justice system really works over those at the bottom – but we don’t lay a finger on those on high. Are these koalas, then, untouchable? More invulnerable even than cardinals?
This class difference is cancerous. We should all have the same legal rights. But, then, this company pays its CEO more than 100 times what it pays its tellers. Do you see why inequality – in both money and status – is such a loaded word now?
We have a prime minister reduced to grinning through defeat after defeat; a government that gets everything wrong by either instinct or tradition, and that just ignores us; and a business world that is indolent and protected at the top, greedy in the middle, and deprived and angry down below. Those are precisely the forces that generate a sense of caste and that gave us Farage, Hanson, and Trump.
They also make the case for a full inquiry into our banks unanswerable.
Warren Buffett manages differently. A scandal at American Express left subsidiaries owing $60m. Should the parent voluntarily honour those debts? Buffett said their business depended on trust. We hear that truism a lot now, but Buffett paid the debts to set “standards of financial integrity and responsibility ... beyond those of the normal commercial enterprise.” For Buffett, it was not enough just to comply with the law; the CBA can’t even manage that.
And what happened to the good old bank set up to guard our common wealth?
