ANZ Bank chief executive Shayne Elliott was halfway through a relatively benign morning of questioning at the Parliamentary Standing Committee hearings into the big four banks when his answer to a question by Liberal MP Trevor Evans lit a fuse.

After mentioning that ANZ was paying over half a billion dollars in various forms of remediation and compensation to clients, Evans asked how ANZ investors were feeling about it.

“Obviously they’re dismayed,” Elliott replied. “That’s real money. That’s their money.”

Elliott went on to explain that the bank was on the path to making things right, and to making sure these failures wouldn’t happen again, but the crowd – including a man in a ‘BANK REFORM NOW’ sleeveless tee sitting directly behind him – had already picked up on the comment.

Minutes later, Matt Keough, the Labor party’s member for Burt in Western Australia, brought up Elliott’s comment and asserted that the issue wasn’t about the loss of money for shareholders; rather, it was the people who needed to be remediated.

The crowd in Parliament broke into applause, and jeered, as Elliott backtracked and acknowledged that he “misspoke”. Whatever money has been overcharged belongs to customers, Elliott clarified, adding that he was referring only to the cost shareholders shouldn’t have to bear for reviewing and uncovering the transgressions.

The interplay brought to the surface again one of Commissioner Kenneth Hayne’s core findings at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry: while executives have the right to try to make businesses profitable, they also have to do the right thing.

Hayne explained in his findings that each of the banks “rightly pursues profit” as a commercial enterprise.

“Directors and other officers of the entities owe duties to shareholders to do that,” Hayne said. “But the duty to pursue profit is one that has a significant temporal dimension.”

Hayne explained that, while seeking the long-term advantage of the enterprise is their duty, directors need to remember that this duty entails preserving the reputation of the company.

“And, lest there be any doubt, it also entails obeying the law,” Hayne wrote. “But to preserve and enhance a reputation for engaging in the enterprise’s activities efficiently, honestly and fairly, the enterprise must do more than not break the law. It must seek to do ‘the right thing.’ ”

‘Just something people say’

Of course, shareholders have been used as a shield for banking misconduct – what Hayne called “greed, avarice, or pursuit of profit” – throughout the financial services industry’s time under the microscope this year. However, Hayne wrote, pushing the boundaries of profit at the expense of customers can hardly be attributable to the interests of shareholders when the banks are so profitable.

“Annual profit has become the defining measure of success of Australian banks,” he noted. “But there being little threat of failure of the enterprise, and there being little competitive pressure, pursuit of profit has trumped consideration of how the profit is made. The banks have gone to the edge of what is permitted, and too often beyond that limit, in pursuit of profit.”

Simon Longstaff, executive director of The Ethics Centre, agrees that corporations shouldn’t be allowed to use shareholder interests as a bulwark for unethical behaviour. For one thing, he says, the notion that shareholders own a part of the company is a misconception. Longstaff’s comments on shareholder interests were made during a previous interview with Professional Planner.

“The duty of a company director in Australia is to act in the best interests of the company as a whole,” Longstaff says, before setting the record straight. “The company is a separate legal person; the shareholders own no part of the company, they own a share of issued capital.”

Saying that you have a duty to shareholders is nothing more than empty rhetoric, Longstaff believes.

“We have people who say thing things like, ‘The duty of directors is to increase shareholder wealth,’ but it’s just something people say, it’s not actually true,” he explains. “What a director or a trustee needs to do is take account of the actual legal obligation, not the rhetorical obligations.

“To direct all of your energies towards meeting the expectations of shareholders is to misunderstand the legal basis on which corporations were created.”

Using shareholder interests as a crutch also does a poor job of concealing that, as Hayne pointed out, much of the misconduct at the top of the financial services tree stems from personal greed. The interests of shareholders – and customers – are competing with the lure of executive bonuses, job security and misplaced pride.

Elliott was emphatically apologetic for the bank’s wrongdoings and took accountability for them, as did the chief executives of the other big four banks, who have already appeared before the Review of the Four Major Banks, including CBA’s Matt Comyn and Westpac’s Brian Hartzer. NAB’s Andrew Thorburn is scheduled to appear on Friday.

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