Governance: Lessons for healthcare boards from the finance sector

December 12, 2018

In May 2018 the Australian Prudential Regulation Authority released the results of the inquiry into the Commonwealth Bank Australia. This report was described by then Treasurer, Scott Morrison, as required reading for every board member in the country. The report highlighted a range of governance failings in the CBA in relation to risk management, the manner in which boards hold management to account and the remuneration practices of the CBA, particularly with regard to CEOs and senior executives.

As 2018 continued many watched with interest, and sometimes incredulity, the Royal Commission into the finance sector play out on television screens and in the newspapers. It appears that many of the poor practices uncovered in the Prudential Inquiry are endemic in the finance industry.

The Royal Commission interim report was released by Commissioner Hayne in September 2018 and made for sobering reading. Whilst the NFP sector is vastly different to the corporate world, particularly the finance industry, many of the themes coming out of the review are related to good governance practice and we should all take note.

The Australian Institute of Company Directors recently released a summary on the key issues that directors should be aware of in relation to the early Commission findings. Some of these findings are very relevant to boards in the health sector and health directors would be wise to consider the governance themes in their own boards.

AICD suggests that directors should ask the following questions in relation to their own organisations:

  • are existing remuneration structures appropriate particularly in regard to incentive based performance bonuses for senior executive and management staff
  • does the organisation have effective governance and risk management processes in place to reduce the likelihood of misconduct?
  • does the board have visibility of misconduct and poor outcomes for consumers?

Organisational culture has been highlighted as a key factor that allowed, and in some instances promoted, poor behaviour by the financial institutions. Commissioner Haynes has indicated that additional regulation and new laws will not necessarily rectify the issues of the past, as in many instances existing regulations and laws were contravened. A simple principle that should be followed by financial institutions equally applies to health service boards and governance in general.

Obey the law, do not mislead or deceive; be fair; provide services that are fit for purpose; deliver services with reasonable care and skill; and when acting for another, act in the best interests of that other.

The AICD advises that ‘Good culture and proper governance cannot be implemented by passing a law.’ Culture and governance are affected by rules, systems and practices but in the end they depend on people applying the right standards and doing their jobs properly.’

The finance sector is yet to provide its response to the early findings of the Commission and feedback from the industry will shape the final recommendations.

The ACHG will develop a governance brief for the health sector drawing on the lessons from the Prudential Inquiry, and upon its release, the final report from the Royal Commission. The ACHG will also reference the AICD Good Governance Principles and Guidance for Not-For-Profit Organisations, which is currently being revised and due for release in early 2019. It is expected that this brief will be made available to members in the first quarter of 2019.

To read the AICD Royal Commission Interim Report Summary for Directors click here