Peter Costello, chair of Future Fund

Boards of directors and board chairs will need to show more interest in the direction chief executives and leadership teams are taking, following the latest Hayne royal commission hearings, former Liberal Party leader and chair of the Future Fund and Channel Nine, Peter Costello, said.

“We deal with boards of the big institutions all the time as an investor and I’d say of the banks in particular we’d expect boards and audit committees to lift their games as a result of what’s coming out of the royal commission,” said Costello, speaking to Professional Planner on the sidelines of the FPA Professionals Congress last week.

Costello’s comments followed the interrogation of Commonwealth Bank chief executive Matt Comyn and chair Catherine Livingstone by counsel assisting, Rowena Orr. Orr’s questioning revealed Livingstone was “quite surprised by the lack of challenge” by her predecessors of the institution’s former chief executive, Ian Narev.

“One of the things to come out of the CBA questioning is the [company’s] audit committee wasn’t monitoring the risks well enough,” Costello noted. He also highlighted that the prudential inquiry into the bank conducted by the Australian Prudential Regulation Authority made the same findings.

“From the outside, it looks as if you had strong management that controlled the corporation and the audit committee was not involved,” Costello said.

His remarks have taken on additional resonance since National Australia Bank chair Ken Henry fronted the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, following NAB chief executive Andrew Thorburn’s gruelling day in the witness box.

Henry questioned whether the board was best placed to ensure a company had the appropriate risk culture.

“…[M]odel, lead, encourage” were more appropriate ways to describe the kind of impact a board can have on the culture of large sprawling institutions such as the banks, he suggested.

“But someone, surely, must be responsible for ensuring that there is an appropriate risk culture. If it’s not the board, who is it?” Orr asked.

Costello had a more resolute view on the impact boards can make on company direction and culture.

“If something goes to the fundamental reputation of the organisation – and I’m not just talking about minor or trivial matters, I’m talking about something that goes to the heart of reputation and what an audit committee would call reputational risk – chairmen and boards will have to show more interest,” he said.


Smith is head of content and managing editor of Professional Planner and Investment Magazine.
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