Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 347

Are Australian bank boards fit for purpose?

Australian banks have certainly taken criticism over the last couple of years, much of it deserved and some of it produced for the pleasure of the media. Banks have been in a never-ending cycle of public-attested mistakes. While culture and greed are often cited, I doubt this is really the case.

One area worth exploring is whether banks have the right management and governance experience for the modern business environment. This is not a question of a director’s ‘smarts’ but rather if traditional experiences are still as relevant.

Most recent bank losses have little to do with lending losses. They have been operational failures.

CBA copped a $700 million dollar fine for its “software error” causing breaches with AUSTRAC’s anti-money laundering (AML) rules.

Westpac lost its CEO and Chairman due to AML failures on small international transactions in what AUSTRAC said was due to a lack of "appropriate IT systems and automated solutions”.

In many respects, a cold analysis of banking governance suggests the above examples were accidents waiting to occur.

First, the good news. When running a heatmap over the skills of bank directors, they rate well in the core skills of ‘Risk and Audit’, ‘Economic and Financial Theory’, ‘Accounting’, ‘Industry Expertise’ and holding responsibilities in ‘Large Commercial Business’.

But times are changing at an ever-increasing pace. The required skills from a director ten years ago are not those required today. Banks now resemble huge digital machines run at high speed sitting on top of large capital bases. Staff numbers are continually cut and those remaining have more diverse and larger responsibilities.

Unfortunately, many bank directors lack some really important business experience. They don’t understand technology, they don’t have operations skills and they are light on human resource experience. These skills are thought to exist because they may have held senior roles like a CEO of a large company.

The reality is you need hands-on experience and scar tissue from being deeply involved in technology and operations to know where the subtle but real risks exist.

Technology is moving under our feet as it evolves and living with these new risks and ambiguity can only be learnt on the front line. Being a ‘good people manager’ will only give a partial credit for these complex skills.

When we look at these new skill requirements our directors are coming up short.

This second table clearly shows that banks could materially improve the diversity of skills on a board. Historically, many would argue that these skills are of second order. Directors need to know how to run big companies with large staff numbers.

But that is no longer the case. Knowing how to run technology is perhaps even more important in avoiding a scandal that makes the front page of the Australian Financial Review than in driving commercial success.

 

Donald Hellyer is Director of OpenDirector and CEO of the development company BigFuture.

 

4 Comments
Sandi
March 07, 2020

Taking the skills matrix to the next level - very useful tool.
It also adds to discussion of role of the Board and the Executive in the business management...
If Technology or HR are specific skills that are not represented on the Bank Board and they should be - not sure how a HR professional or CTO/CIO will actually get invited to join these Boards against current criteria.

Steve
March 07, 2020

Of greater concern is that the banks have become the political punching bags of the Industry Super funds. Given their recent run of mergers, they are slowly evolving into 4 pillars themselves & with close to 1 trillion in FUM & fast growing, are becoming far too powerful. Perhaps the Fed Govt should introduce anti-trust legislation to prevent them controlling Bank Boards, or any other publicly listed company.

Jonathan
March 04, 2020

Thanks Donald - another overlooked skill for bank boards is credit assessment. Insolvent banks are almost always brought down by bad lending, but few (usually none) of the directors understand how to lend money. It's like a retailer (Coles, Woolworths or Myer) having no one with retail experience on their board - it would seem an obvious oversight. Banks are very large beasts requiring a wide range of skills to be managed correctly.

Donald Hellyer
March 04, 2020

Agreed Jonathan, it just that recent losses in the banking sector have been tech related. I am sure lending losses will return again!!

 

Leave a Comment:

RELATED ARTICLES

Who gets the gold stars this bank reporting season?

The value of wealth management for Australian banks

10 reasons not to hold bank royal commission

banner

Most viewed in recent weeks

Finding the best income-yielding assets

With fixed term deposit rates declining and bank hybrids being phased out, what are the best options for investors seeking income? This goes through the choices, and the opportunities and risks involved.

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Latest Updates

Investment strategies

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Investment strategies

Don't let Trump derail your wealth creation plans

If you want to build wealth over the long-term, trying to guess the stock market's next move is generally a bad idea. In a month where this might be more tempting than ever, here is what you should focus on instead.

Economics

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Investment strategies

Will China's EV boom end in tears?

China's EV dominance is reshaping global auto markets - but with soaring tariffs, overcapacity, and rising scrutiny, the industry’s meteoric rise may face a turbulent road ahead. Can China maintain its lead - or will it stall?

Investment strategies

REITs: a haven in a Trumpian world?

Equity markets have been lashed by Trump's tariff policies, yet REITs have outperformed. Not only are they largely unaffected by tariffs, but they offer a unique combination of growth, sound fundamentals, and value.

Shares

Why Europe is back on the global investor map

European equities are surging ahead of the U.S this year, driven by strong earnings, undervaluation, and fiscal stimulus. With quality founder-led firms and a strengthening Euro, Europe may be the next global investment hotspot.

Chalmers' disingenuous budget claims

The Treasurer often touts a $207 billion improvement in Australia's financial position. A deeper look at the numbers reveals something less impressive, caused far more by commodity price surprises than policy.

Fixed interest

Duration: Friend or foe in a defensive allocation?

Duration is back. After years in the doghouse, shifting markets and higher yields are restoring its role as a reliable diversifier and income source - offering defensive strength in today’s uncertain environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.