Leadership And Culture Essay At Commonwealth Bank Of Australia.

The essay concerns leadership and culture at the Commonwealth Bank of Australia during the tenure of Ian Narev, whose contract expired in June 2018. He was appointed in July 2011, and commenced in the role later that year. Over the subsequent seven years, the Bank has frequently been the subject of media scrutiny. Of note are three major scandals outlined below, which have not only received considerable public attention, but have resulted in questions being asked in parliament. These scandals have called into question the culture of CBA, the leadership style of Ian Narev; the competence of other senior leaders; and the decision-making capabilities of the Board.

Provided below are a series of links to media reports — print and broadcast — relating to the three major scandals to impact the Bank during Narev's tenure. 

Your essay should critically analyse Narev's leadership and the broader leadership culture at Commonwealth Bank, and state the conclusions that you draw from your analysis.
 

The links below provide you with a start in your research; you should uncover other sources relating to the specific stories, and relating to leadership theory and practice. Illustrating your essay with comparisons drawn from other organisations would also be beneficial. Note the comment about conclusions — you are being asked to state your opinion. The materials that you cite should support that opinion. 

Your essay should NOT simply be a retelling of these scandals : the point of your essay is to examine the Bank's leadership culture; the scandals are illustrations and symptoms of that culture. 

Links to a series of stories regarding multiple scandals at the Commonwealth Bank:

• Money laundering
• Refusal to pay insurance policy holders
• Financial planning

Analysis

The Commonwealth Bank of Australia is a multinational bank based in Sydney, Australia with its operations spanning across New Zealand, Asia, the United States and the United Kingdom. The bank is not only the largest Australian company listed on the Australian Securities but one of the largest organizations in the Southern Hemisphere. It is a banking conglomerate enjoying strong presence in securities market and insurance sector through its subsidiaries Commonwealth Securities and Commonwealth Insurance (commbank.com.au 2018). The products which the banking conglomerate offers range from current account, savings accounts, term deposits, insurance products and loans. The bank serves its customers using facilities like net banking besides its brick and mortar branches. It is evident that the bank affects millions of customers, both business customers and individual customers across several countries with its products. Leadership of the apex management plays a key role in ensuring positive ethical operations in the multinational banking conglomerate. Unethical operations of the apex management on the other hand have dire consequences on the customers and goodwill of the bank. The paper would visit these leadership and cultural aspects of the Commonwealth bank in the light of the scandal which took place in 2008 involving then CEO, Ian Narev along with several top officials (abc.net.au 2018).

The Commonwealth Bank, one the largest banking conglomerates of Australia worked under the leadership of Ian Narev as its chief executive officer and managing director from December 2011 to April 2018. The leadership of Narev showed serious lack of ethics and legal compliance which resulted in bankruptcy of thousands of customers (commbank.com.au 2018). He indulged in investing funds of investors who invest in its assets in securities to earn high returns. The bank in return provides the investors their principal along with legitimate dividends and interest. Dam and Scholtens (2015) points in this respect point out that banks play significant roles in ensuring movement of financial assets from the investors to the borrowing identities. The borrowing identities consists of both commercial organizations and individual which borrow loans from banks. It can also be pointed out that mobilization of this huge amount of money requires approval of the higher authority. It can also be pointed out this places the apex management in positions to direct the movement of funds of thousands of commercial and individual customers. Thus, the apex management of the banks should abstain from supporting any sort of activity which tantamount to money laundering, harassment of investors and unethical financial planning. However, Ian Narev during his tenure as the CEO and MD of the Commonwealth Bank involved in all of these illegal activities which attracted government actions towards the reputed (abc.net.au 2018). The stakeholders of the suffered serious damage to their interest due to this faulty leadership. This also resulted in damaging the working culture of bank and inflicted serious damage to its goodwill (Lentner, Szegedi and Tatay 2015).

The first leadership issue which Ian Narev exhibited is lack of ethics and legal compliance by involving in money laundering activities. The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 passed by the government of Australia clearly mentions that indulgence into any kind of money laundering would be breach of laws of Australia. The act empowers an individual to report any suspicious to the relevant authority if he fails to obtain the expected services from an organization and suspects malpractices. The fifth part of the act covers money laundering through online banking platforms (legislation.gov.au 2018). The part clearly mentions no party involved in the transfer of funds should be involved in money laundering at any part of the financial channel. It can pointed out that the movement of financial assets and the electronic fund transfer gateway are operated by banks. Hence the act clearly implies that no employee of banks should support any kind of money of money laundering (Erbenova et al. 2016). The Australian Securities and Investments Commission empowers the investors to get access to company register of companies in which they have investments. They are entitled to seek legal assistance if they are not allowed access to the operational status of the companies or perceive that the companies have acted against their interests (asic.gov.au 2018). The leadership and actions of Ian Narev exhibited breach both these act and the policies led down by ASIC. The ASIC Chairman Mr Greg Medcraft clearly spoke about involvement of illegal rackets into the automatic money transfer system of the Commonwealth Bank. The financial intelligence authority of Australia, Australian Transaction Reports and Analysis Centre (AUSTRAC) reported that the bank has breached anti-money laundering laws a staggering 54000 times. The body also reported that the bank failed to report suspicious break-ins into its financial gateway. The managing committee in fact tried to save CEO Ian Narve (abc.net.au 2018). These inefficient leadership of Narev had serious implications for the banks. First, Narev did not report money laundering activities and in this way supported it, thus breaching the law. This attracted probes by various authorities like the ASIC towards the bank, thus damaging the goodwill the bank enjoyed in the eyes of the government. The bank in addition to being answerable to the Government of Australia, is also answerable to the host governments like the UK and the US. Thus, legal actions by the ASIC also made it liable to be subject to actions from host governments due to suspected indulgence in illegal activities. The incapability of Narev of taking suitable actions to post break-ins by illegal identities into the financial channel of the bank pointed out his incapability of protecting the interests of the customers. The news of indulgence of Narev in money laundering and terror financing spread on the media platforms (Demetis 2018). Thus, the inefficient and unethical leadership of Narev inflicted serious damage to the bank of the bank in the market.

Scandals and Leadership Issues

The second illegal activity in which Narev got involved was refusing to pay insurance policy holders their legitimate returns. The Commonwealth bank under the leadership of Narev refused to return the legitimate returns to insurance policy holders. The third illegal activity into which the bank got involved under Narev’s leadership was faulty financial planning. The Australian Securities Exchange mandates its participating organizations to act ethically and give legitimate returns to their investors (asx.com.au 2018). This analysis shows that Narev breached the policies and directions of the Australian Securities Exchange. These illegal and unethical leadership of Narev would have severe implications on the Commonwealth Bank and its business generations.

The first implication of the faulty leadership of Narev would losing of customers’ trust in the Commonwealth Bank and its superior services. The customers, both individual and commercial customers would withdraw their investments and close their accounts. This would erode the funds available to the bank to offer loan to the borrowers, thus bringing down the interest it earns from loans. Since, loan is an asset product to the banks, lowering the loan lent to borrowers would also lower the amount of assets held by Commonwealth Bank (Norman, Binka and Awiah 2015). Thus, the faulty leadership of Narev led to erosion of assets and revenue, thus hitting the financial base of the Commonwealth Bank.

The second outcome of inefficient leadership of Narev at the Commonwealth Bank would be erosion of capital base which would take place in response of dwindling revenue base. The loss of customers would result in loss of revenue and capacity to provide investors with high returns. The investors due to this reduced capital maximization capacity of the Commonwealth Bank coupled with its falling goodwill and parliamentary actions would withdraw their investments from the bank (Backer 2017). This would strike the financial base of the bank which would impair its operations in the long run.

The third outcome of the inefficient leadership of Narev would the Commonwealth Bank losing its competitive position to its competitors both nationally and international. The bank owing to its weakening financial would be compelled to cut short its work force to reduce the expenditure it incurs on salary of employees. The bank would eventually lose its employees to its competitors both in its home countries and host countries. The damaged goodwill and subsequent parliamentary would impair its power to attract talents. Bidwell et al.(2015) point out that employees today play very significant roles as far retention of competitive advantage by service providing organizations like banks are concerned. This is because service providers like banks retain employees and align them with their business objectives. Ibidunn et al. (2015) point out that this alignment of employees in the long run enable banks to ensure customers satisfactorily and ensure customer satisfaction, thus generating revenue (Yeates 2018). It can be interpreted from these articles that losing of employees would tantamount to losing competitive positions in the markets. Thus, this analysis shows that unethical and illegal leadership can not only harm an organization in the short run but also impair its business generation in the long run as well (Voegtlin 2016).

Impact on Bank's Reputation

Conclusion:

This discussion comes to a close with the mention that illegal and unethical inflicts immeasurable damage to the business generation of organizations. The Commonwealth Bank might have earned an immense profit by not providing legitimate returns to its investors and by supporting illegal activities into its electronic gateways. However, the bank suffered immense loss due to this leadership of Narev. The bank breached the laws of Australia and policies laid down by apex bodies like ASX. It was summoned by the Australian Parliament to appear before the former. Finally, the bank lost its customers, employees and competitive position to its competitors in the long run.

References:

ABC News. 2018. ASIC to investigate CBA over money-laundering scandal. [online] Available at: https://www.abc.net.au/news/2017-08-11/asic-to-investigate-cba/8796542 [Accessed 25 Aug. 2018].

ABC News. 2018. CBA will take months to answer money laundering allegations. [online] Available at: https://www.abc.net.au/news/2017-09-04/commonwealth-bank-will-take-months-to-respond-to-austrac/8869706 [Accessed 25 Aug. 2018].

ABC News. 2018. Commbank boss says sorry to customers who lost millions in financial planning scandal. [online] Available at: https://www.abc.net.au/news/2014-07-03/commonwealth-bank-responds-to-financial-planning-inquiry/5568504 [Accessed 25 Aug. 2018].

Asic.gov.au. 2018. Disputes about your rights as a proprietary company shareholder | ASIC - Australian Securities and Investments Commission. [online] Available at: https://asic.gov.au/about-asic/contact-us/how-to-complain/disputes-about-your-rights-as-a-proprietary-company-shareholder/ [Accessed 25 Aug. 2018].

Asx.com.au. 2018 Code of Practice for Clearing and Settlement of Cash Equities in Australia.. [online] Available at: https://www.asx.com.au/regulation/regulatory-compliance/code-of-practice.htm [Accessed 25 Aug. 2018].

Backer, L.C., 2017. From a'Two Thrust Approach'to a'Two Sword One Thrust Strategy'to Combat Criminal Corruption: Government Enforcement of Compliance and Oversight by Sovereign Investors.

Bidwell, M., Won, S., Barbulescu, R. and Mollick, E., 2015. I used to work at Goldman Sachs! How firms benefit from organizational status in the market for human capital. Strategic Management Journal, 36(8), pp.1164-1173.

Commbank.com.au. 2018. Term Deposits – CommBank. [online] Available at: https://www.commbank.com.au/personal/accounts/term-deposits.html?ei=sa-td-learn-more [Accessed 25 Aug. 2018].

Dam, L. and Scholtens, B., 2015. Toward a theory of responsible investing: On the economic foundations of corporate social responsibility. Resource and Energy Economics, 41, pp.103-121. Legislation.gov.au. 2018. Anti-Money Laundering and Counter-Terrorism Financing Act 2006. [online] Available at: https://www.legislation.gov.au/Details/C2017C00188 [Accessed 25 Aug. 2018].

Demetis, D.S., 2018. Fighting money laundering with technology: A case study of Bank X in the UK. Decision Support Systems, 105, pp.96-107.

Erbenova, M.M., Liu, M.Y., Kyriakos-Saad, M.N., Mejia, A.L., Gasha, J.G., Mathias, M.E., Norat, M.M., Fernando, M.F. and Almeida, M.Y., 2016. The withdrawal of correspondent banking relationships: a case for policy action. International Monetary Fund.

Ibidunn, S., Osibanjo, A.O., Adeniji, A.A., Salau, O.P. and Falola, H.O., 2015. Talent retention and organizational performance: A competitive positioning in Nigerian banking sector. Periodica Polytechnica Social and Management Sciences, 24(1), pp.1-13.

Lentner, C., Szegedi, K. and Tatay, T., 2015. Corporate social responsibility in the banking sector. PÉNZÜGYI SZEMLE/PUBLIC FINANCE QUARTERLY, 60(1), pp.95-103.

Norman, I.D., Binka, F.N. and Awiah, B.M., 2015. Mapping the Laws on Anti-Money Laundering and Combating Financing Terrorism to Determine Appraisal Skills of Accountable Institutions for the Twin Challenges. Issues in Business Management and Economics, 3, pp.87-99.

Voegtlin, C., 2016. What does it mean to be responsible? Addressing the missing responsibility dimension in ethical leadership research. Leadership, 12(5), pp.581-608.

Yeates, C. 2018. CommInsure: Scandal to hit CBA brand, again. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/banking-and-finance/comminsure-scandal-to-hit-cba-brand-again-20160308-gndj4y.html [Accessed 25 Aug. 2018].