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Rio Tinto’s executive cull shows ‘profit at all cost’ cultures no longer cut it

But the days were companies could get away with blaming systemic failures or flawed corporate governance on a few bad apples, errors and other lame excuses dreamt up by PR teams are all but over.

For too long corporate Australia has been allowed to get away with practices that might be legal but are unethical and immoral

We are now operating in a world where trust has been broken and communities will no longer put up with companies that operate in the dark and feast on opacity.

In Rio’s case three executives have fallen on their sword, as they should. But it shouldn’t stop there. The board is also culpable and needs to atone.

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The Rio board took months to act on the Juukan rock shelters disaster and only did so when the media and investors ramped up the pressure.

The fact that the miner didn’t have a succession plan in place reinforces the need for more to scrutiny of the directors.

The brutal reality is too many boards have been protected for too long. They are filled with mates who have failed to ask the hard questions for fear of upsetting their business connections. Too many have treated corporate governance like a box ticking exercise.

This has to stop.

The rise of Environmental, Social, and Corporate Governance (ESG) investing is one part of the change that is going on. There is also a growing awareness by big institutional funds that they can no longer turn a blind eye to misconduct. The media is also becoming more vocal, reflecting the consequent community intolerance for poor behaviour.

But this wasn’t always the case.

For too long corporate Australia has been allowed to get away with practices that might be legal but are unethical and immoral. Investors largely sat back in silence, happy to enjoy the rising dividends and soaring share prices.

The banks are a case in point. For years financial scandal piled up on financial scandal as a culture was allowed to operate were employees were rewarded for putting profit before people.

The CBA financial planning scandal dates back to 2013. It involved a CBA whistleblower Jeff Morris coming to The Sydney Morning Herald and The Age to expose a weak regulator and forgery and fraud and a cover up by management.

CBA whistleblower Jeff Morris says we are living in an Orwellian state.

CBA whistleblower Jeff Morris says we are living in an Orwellian state.Credit: Brendan Esposito

It triggered a series of other whistleblowers speaking up to expose the NAB financial planning scandal, the IOOF Scandal, various life insurance scandals, which saw sick and dying people denied claims based on policies that included medical definitions that were out of date, and then came the Austrac money laundering debacle.

Each scandal brought with it a mealy mouthed apology, a regulator that promised to do better and a so-called independent review paid for by the wrongdoers to downplay the problems. They set the terms of reference and then wordsmithed the reports.

When the scandals became too great, a royal commission was called around the same time that investors started to find their voice publicly and vote against the remuneration packages of executives at annual general meetings.

The reputational damage caused by the royal commission was profound. Dozens of executives and directors lost their jobs, businesses closed and the share prices of financial institutions tanked.

It became clear that poor behavior damages brands and reputations, which, in turn, hurts an organisation’s bottom line.

In the case of CBA, it announced the sale of its life insurance business, Comminsure, in 2017, booking a $300 million after tax loss on the sale and slashing its goodwill by $1.4 billion.

The writedown reflected the damage to the brand from the exposure of the scandal in The Age and Sydney Morning Herald that had compounded tough conditions in the wider sector.

All up, the big four banks have exited wealth management and are facing billions of dollars in remediation to ripped off customers.

But there is still a long way to go.

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A week ago QBE’s board announced the departure of chief executive Pat Regan after an investigation concerning workplace communications was found to not meet the standards set out in the group code of ethics and conduct.

It resulted in QBE chairman Mike Wilkins stepping into the breach until a new chief executive has been found.

It was swift action designed to protect QBE’s reputation. But the decision by the board to keep investors and staff in the dark about the details of his departure doesn’t bode well. Nor does the insurer’s lack of a succession plan.

But QBE has a far deeper problem that needs fixing: a boys’ club that has been allowed to fester for decades. It cost two chief executives their jobs and has had a negative impact on financial performance and staff morale.

If Wilkins wants to change QBE and improve its performance he will need to address its toxic culture or the company will find itself constantly battling crises.

It raises a bigger issue about boards in Australia and the flawed governance too many of them oversee. There is too little accountability, too little transparency, still far too much reliance on bonuses linked to financial incentives and too much corporate governance box ticking. The times are changing and boards and management would be foolish to think it’s going to slip by unnoticed.

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