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by Karen Maley

The banking royal commission has shattered the career ambitions of dozens of bankers around the land, but this week Matt Comyn, who now heads the country's largest and most strife-prone bank, showed that sometimes you can get lucky.

In his tender to the commission, Comyn, who took over the job of running the Commonwealth Bank in April, included a file note he'd made of a conversation at a meeting with the bank's then boss, Ian Narev, back in May 2015. In that meeting, Comyn had argued the bank should stop selling a controversial credit card insurance product which had been flogged to tens of thousands of people who were ineligible to claim any benefits. In response, Narev had told him to "temper your sense of justice".

Comyn made a perfunctory attempt to defend his former boss, saying he did not believe Narev was telling him to temper his sense of justice for wronged CBA customers, and he did not believe "commercial interests" were Narev's primary focus.

Still, the new CBA boss is not fool enough to look a gift horse in the mouth: and he very likely realised that his file note would likely cast him in a new and heroic light as the CBA's crusader-in-chief for justice.

Indeed, this warning to "temper your sense of justice" has become something of a leitmotif for the banking industry itself.

For months, the country has been horrified as the Hayne commission has revealed the behaviour of the country's banks as they set about gouging billions in fees from their hapless customers (including deceased ones), failed to provide some customers with the financial advice they'd paid for, and completely disregarded their duty to check whether the products they flogged to customers were of any value.

Windfall for PR and legal professions

This week, the commission provided a once-in-a-century opportunity to peer behind doors normally shut tight to mere mortals, and learn how the country's top bankers responded to these calamitous revelations about their behaviour.

The commission's interest in this secretive domain has proved a windfall for the PR and legal professions which have pocketed massive fees for the intensive coaching sessions they've held with image-conscious bank CEOs and chairmen. They've helped the country's top bankers anticipate the likely line of attack from Commissioner Hayne's two formidable interrogators – Rowena Orr, QC, and Michael Hodge, QC – and equipped them with finely honed responses.

There were some moments this week when you could see the fruit of these efforts when a quick smile of recognition would flit across the harried faces of the bankers sitting in the witness box. On those occasions, it was clear they were being asked a question for which they'd already prepared a carefully worded answer.

So, how did the heads of the country's major banks go about explaining their poor behaviour in the past and reassuring customers that they'd learnt from these mistakes?

The CBA decided that its best defence was to emphasise the break the bank has made with its past, and especially the huge overhaul in the bank's top ranks, which has left it with a new CEO and an almost completely new senior executive team.

It was a theme Comyn embraced with enthusiasm, pointing out the bank's new chairman, Catherine Livingstone, has a very different style to her predecessor, David Turner. "Without wanting to cast aspersions on any former directors, I think the chairman is very different," he testified.

But Comyn didn't stop there. He agreed that the single most important step he could make towards transforming the CBA's culture would be to pick the right people as leaders. Had the CBA had the right leaders in the past, he was asked? "No", he replied. Does it have the right leaders now? "We will see. I hope so. Yes."

'Defensive and arrogant'

The CBA's new boss was equally happy to concede the country's largest bank had erred in its dealings with regulators in the past. "We were narrow and legalistic, defensive and arrogant in our dealings with regulators, and often we left it to our lawyers and compliance people in the organisation to deal with regulators."

And he conceded that there had been "insufficient" consequences for CBA staffers who had sold tens of thousands of personal loan insurance products to customers who were ineligible to claim, and that the negotiations with the corporate regulator, the Australian Securities and Investments Commission (ASIC), over how to remediate customers had been "protracted".

When it was her turn in the witness box, Livingstone was also more than happy to excoriate the bank's previous behaviour. The strategy, however, was a slightly more awkward fit for this witness because Livingstone has sat on the bank's board since March 2016, and been chairman since the beginning of 2017.

Livingstone concurred with the criticism that the board hadn't been rigorous or urgent enough in holding management to account, although she qualified this by noting she was "agreeing in terms of in the past ... That's not necessarily the case now".

Still, she was obliged to concede that it took some time for the board to take this more assertive stance. Indeed, in August 2016, when regulators were probing CBA's life insurance business, when issues around fees for no service and mis-selling credit card insurance were bubbling up, and alarm bells were ringing within the bank about its compliance with anti-money laundering and counter-terrorism laws, the view within the bank was there were no risk events that should block the payment of bonuses worth millions to the bank's senior executive.

"We've reflected on these outcomes, and would regard them as inappropriate," Livingstone acknowledged.

Radical step

The following year, when the situation had deteriorated further, the CBA board took the radical step of shaving between 10 per cent and 35 per cent off senior executive bonuses.

"I think in hindsight we could have done a greater risk adjustment on several executives, including to zero," Livingstone agreed.

It was only after AUSTRAC launched civil proceedings against the bank in August 2017 that CBA directors made the radical decision to slash short-term bonuses for the bank's CEO and his top executives to zero and to reduce their own fees by 20 per cent.

In contrast to the top brass at the CBA, Westpac's boss, Brian Hartzer, couldn't credibly blame his predecessors. He's been CEO of the Sydney-based bank since early 2015, and before that spent three years running Westpac's huge retail banking division.

Still, Westpac's misconduct problems weren't nearly as egregious as those of CBA. And the feisty Hartzer was understandably determined to make sure his bank wasn't tarred with the same brush.

One issue that Hartzer had to explain was Westpac's dismissive treatment of ASIC when the corporate regulator had raised concerns that the bank was granting credit-limit increases to its existing customers without making fresh enquiries as to whether they had a job or an income.

Although Hartzer conceded that the bank had given "insufficient weight" to ASIC's views, he disagreed that there was a problem with the bank's risk function. Instead, the problem was the way in which the bank engaged with the corporate regulator.

"The proper process is to engage, to share our views, explain our rationale, let them consider it. But if after that process we still don't agree, then overwhelmingly we would default to their view," Hartzer explained.

No consequences

Fortuitously for those Westpac bankers who were involved in flouting ASIC's view, there were absolutely no remuneration consequences. "We concluded there wasn't a specific error by an individual, and therefore, we took the learnings around process and we moved on," he said.

But there are limits to any CEO's obligingness, and Hartzer reached his when he was asked about a case study where a car dealer had deliberately breached Westpac's lending policies, either because he wanted a commission, or because he was trying to get a car for a woman who was really desperate to get a car.

As a very experienced banker, which explanation did Hartzer consider more likely? "I couldn't say. I'm not a car dealer," Hartzer snapped back. It was, as counsel assisting pointed out, a "rather flippant answer" for a bank which boasts a major car lending business.

Just as a school teacher might occasionally showcase the work of a star pupil to demonstrate to the dullards in the class what they should aspire to achieve, Macquarie Group boss Nicholas Moore made a brief but dazzling appearance at the inquiry to explain how decisions are made in a properly-run organisation.

In 2012, when ASIC identified some misconduct and cultural problems in the bank's private wealth division, the Sydney-based investment bank sprang into action. Members of Macquarie's legal and compliance team spent a weekend reviewing the files, and after this exercise, Moore said, "they came back and reported that they thought there were ... issues here, and so we engaged with ASIC seeking to discuss the enforceable undertaking".

So what steps did Macquarie then take? "We changed the management, obviously, of the organisation," Moore said. "We changed compliance reporting, we made it report centrally. We embarked on a whole range of new systems, processes and procedures in terms of how the business managed itself. And, of course, as part of the EU [enforceable undertaking], we sought to compensate any clients who may have suffered."

But the bank didn't stop at senior executives, it also fired "advisers, managers, reviewers, people in the compliance function". "We have no appetite for businesses failing to meet their regulatory requirements," Moore said sternly.

Handsome boost

In marked contrast to the big banks who see the regulators as enemies to be triumphed over, Moore was most gracious toward ASIC which had let Macquarie know it had a problem: "With the benefit of hindsight it was fortunate that it was brought to our attention so we could take the steps we did."

Moore also told the commission that the Macquarie group executive responsible for that area of the bank had had his bonus halved, even though his area of the bank had recorded a handsome boost in profit that year. It was a move that Moore himself had recommended to the board's remuneration committee.

This captured the attention of Commissioner Hayne, who has long expressed his scepticism about whether the quasi-mathematical formulas that bank boards use to calculate executive bonuses are actually a substitute for them applying their own critical judgment.

Was it difficult to explain to Macquarie employees how their remuneration was calculated when the bank included various factors that could not be reduced to numbers?

"They might debate them," Moore responded briskly. "But in my experience, people accept the outcomes."

This was exactly the response Commissioner Hayne had been hoping for.