Banking on the common good

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If the good functioning of the economy and of the government depends on trust, last week's events undermined both.

Commonwealth BankWe have yet further evidence at the royal commission that banks are not to be trusted with our money, still less with our superannuation. We have seen government ministers and David Murray, former CEO of the Commonwealth Bank of Australia, who previously opposed the appointment of the royal commission, now oppose proposals to broaden the board membership of banks and to include in their guidelines reference to a social license.

Trust in the government was also tested by evidence of its partisan administration. Its decision to award without tender a large contract to a small agency to care for the Great Barrier Reef has looked increasingly dubious. At the royal commission, industry superannuation funds that the government had tried to hogtie came out smelling of roses, while the retail funds run by banks, the government's favourites, were shown to be malodorous.

In other news a Federal Court judge criticised the court action brought by the Coalition-appointed Australian Building and Construction Commission as 'a completely unnecessary waste of public money'. The government-appointed Federal Public Service Commissioner was also criticised by an enquiry for failing to uphold APS values in providing material to the partisan Institute of Public Affairs.

Cynics will no doubt ask when anyone ever trusted governments or banks, and so whether these revelations matter. We may be tempted to agree. On deeper reflection, however, trust is central for the functioning of the state and of the economy.

For all its apparent solidity, money is no more than an assurance that we shall be able to exchange it for a certain amount of goods or services. It is only as good as the trust we place in the implicit contract behind it and in its guarantee. The same is true in more abstract financial dealings, where the entrails of past deals are cut up, baked together and sold. Their worth depends on our trust in the assurance that the ingredients are edible. We trust governments to ensure that our trust can be maintained.

Trust in relationships lies at the heart of the language of finance and government. We speak of trusts, trustees, fiduciary duty (one based on trust), mutual provident societies, cooperatives, securities, shares and exchange. The language of government is also relational: it embraces national interest, representation, commonwealth, election, members, responsibility (answering to others), charge and mandate (both given by others), and so on.

 

"The natural response to the banking royal commission is to lock them all up. This is a short-sighted solution. Jails are expensive and have been shown to encourage recidivism."

 

All these words assume trust on both sides of the relationship — that those elected will keep their promises and govern in the interests of all the people, that banks and governments will look to the good of those whom they serve and so the common good, and that the people served will have reason to trust those they entrust to act on their behalf.

Although it is important to make legally binding some aspects of these relationships, legal safeguards are of little use where there are no grounds for mutual trust. Those with power will always outfox those without.

Financial institutions do this by constructing images of attractive representatives helping young families build their perfect home or accompanying aged couples in the golden light of a prosperous retirement. They also construct a complex abstract language to suggest that behind the accumulation of money by finance companies lies a disinterested wisdom that lay intelligence can never understand but can only admire.

What can be done about this? The natural response to the royal commission is to lock them all up. This is a short-sighted solution. Jails are expensive and have been shown to encourage recidivism without addressing the roots of antisocial behaviour. Vicious behaviour can be legislated against, but virtuous attitudes cannot be legislated for.

And without a change of outlook, nothing will change. If trustees don't understand the meaning of trustworthiness, all the penalties in the world won't encourage them to act in a trustworthy manner. If politicians see categories of citizens as enemies, nothing will persuade them to be trustworthy in respecting their rights. If boards and executives of corporations see their only responsibility is to act competitively in order to enrich their shareholders, no number of embedded regulators, who anyway share their vision, will prevent them from ripping off the people who trust them.

What is needed is conversion — the recognition that the good of each individual depends on their seeking the common good, and the determination to ensure that this vision permeates corporations. In organisations with a good culture, right behaviour is not mandated from above. People on the floor pull others up for dodgy behaviour by saying, 'We don't do that here.' Boards and executives are responsible that these values are enshrined in governance structures, appointment policies and remuneration practices.

That takes time. In the meantime, why not consider a standing royal commission with free license to enquire whether powerful corporate and government bodies are trustworthy in their dealings with the people and the communities they are supposed to serve. Expensive, surely, but on the evidence in recent weeks far more profitable than allowing malfeasance to lie hidden.

 

 

Andrew HamiltonAndrew Hamilton is consulting editor of Eureka Street.

Topic tags: Andrew Hamilton, banks, financial services royal commission

 

 

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Existing comments

The word "trust" is mentioned many times in this article. Trust is such a fragile thing, so difficult to achieve. Often we trust others because of some intangible perception - a look or a feeling. In the case of trusting institutions, perhaps it's not so much trust of individuals as trust in the story, the way the institution looks and feels. Financial institutions' poor behaviour has really tested the resolve of people who want to trust but cannot. I would add that values should be driven towards people being met where they (the people) are. That's a common wealth.
Pam | 15 August 2018


Thank you for this article
ann laidlaw | 16 August 2018


Thank you Andrew for your insights. We like to think that there was a time in history when a perfect world existed, as related in Genesis, however the reality is that is a pipe dream. "Trust" has been the biggest casualty of this sorry state of affairs. Trust in the banks, trust in our financial services, trust in superannuation, trust in our politicians, our government and sadly, even our church leaders. I don't have a simple answer, but maybe we as parents, teachers and the leaders in our community need to take some responsibility for this sorry state of affairs. Somehow we have to instil in our upcoming leaders a sense of ethics and morality which seems to be sorely lacking in our society, otherwise the future cohesion of our country is looking very bleak indeed.
Gavin O'Brien | 16 August 2018


I can remember when a handshake meant that a man could be trusted. This is very rare nowadays. Why? When it has become clear that church authorities, the very people who should be setting a good example cannot be trusted, what hope has trust got? There are many good people among them, but how are we to know who are the goodies? It appears that they are outnumbered or silenced by the baddies.
Joe | 16 August 2018


Why didn't God get it right when he made human beings?There is no way any sensible god would claim that he created men in his own image!
john frawley | 16 August 2018


Thank you Andrew for underlining the importance of trust. I would link it to the concept of "a man of honour". This comes from John Kenneth Galbraith's The Scotch, and he presents it as key to the operation of a Scottish (largely Presbyterian) community west of Toronto. What we need are men and women of honour, who do not put personal interest above truth, justice and kindness.
Marianne McLean | 17 August 2018


One area of Banking and Finance which will probably not receive scrutiny by the Royal Commission is Elder Abuse. The most common form of Elder Abuse by far is elder financial abuse – that is, the mal-administration of the financial assets, mainly the victim’s money in bank accounts, by a member of the victim’s own family or the elder person’s carer. Banks are in a particularly well placed to spot the indicia of the illegal conduct when it occurs and can do much to educate their staff to be on guard against its occurrence when dealing with elderly and fragile bank customers. Bank Fraud Departments often suspect what’s happening yet a wall of silence and non-co-operation descends for privacy reasons which Banks invariably elevate to a laughable level of importance out of all proportion to the prompt intervention available to them to freeze the account acting on their suspicions as reasonable indicators of what’s called for in the circumstances. Elder law is bedevilled by arcane principles of equity (trust law) drawn from centuries of judge made law which is oblique at best and bedevilled by out of date presumptions. Australia’s High Court has led the way in breaking open the principles which should apply when analysing unconscionable conduct in the management of other people’s assets and affairs. This needs to be built on by changes in the law which compels the banks to act more protectively in guarding against the incidence of elder abuse. The law needs to be codified and banks made amenable to orders of tribunals requiring them to be accountable for their behaviour and compelled to act on their suspicions in the interests of their customers.
Joe Edmonds | 18 August 2018


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