The Australian, May 23, 2018, Robert Gottliebsen
Normally when a succession of executives confess before a royal commission that customers were treated badly, boards and chief executives can duck for cover and blame the executives. But when it comes to small business, the core of the blame lies with bank boards and not the executives.
The disclosures in the royal commission about small business abuses stem from actions by the directors of the banks plus their legal advisers.
Bank staff will from time to time do bad things despite the instructions from the boards, but in small business lending bank directors are responsible because they gave their permission for some of the most hideous contracts ever devised to be thrust down the necks of small business borrowers.
These contracts allowed the management of banks to ignore any personal assurances they had made prior to the contract; made small business people responsible for events where the business had no responsibility whatsoever; allowed bank executives to call in small business loans on almost any pretext (even if the unfortunate business was paying all its payments on time); and the bank could make any change to the contract it liked including raising interest rates and charges.
These were hideous contracts that past directors and their legal advisers should be thoroughly ashamed of. But for years, with Business Council of Australia backing, bank boards were in total denial and did not recognise that they had created contracts that almost encouraged staff to treat small business customers badly.
And the directors allowed it to continue despite years of commentary from myself in The Australian and the efforts of many others, including Self-Employed Australia’s Ken Phillips to get legislation through Parliament to make directors do the right thing and construct contracts that were fair to both parties.
Yesterday’s speech by NAB chairman Ken Henry is the first indication that perhaps bank directors now understand the responsibilities they have and that being a bank director it is not just a job where you tick a whole series of governance boxes.
But as the bank directors start to accept their responsibilities, the Australian Taxation Office is making exactly the same hideous mistakes that are being disclosed about banks in the royal commission.
The equivalent of the bank boards are ministers Morrison, Cormann and O’Dwyer and, in the same way as the old bank boards, they are in denial. Yet they are just as responsible as the bank directors for the terrible actions of some (certainly not all) tax officers because, like bank officers, ATO officers have been given unrestricted power.
And so the remarks below about directors from former Treasury boss Ken Henry, now chairman of NAB, apply to Ministers Morrison, Cormann and O’Dwyer as much as they do to bank boards.
Henry: “The board of a bank these days is expected to take responsibility not only for the performance of the bank in every area of economic, social and environmental concern to any one of its stakeholders, but also for the values and culture of the organisation.
“Speaking for myself, that’s as it should be. That’s what should be expected by anybody who assumes responsibility for governing the delivery of a complex set of financial services to all Australians”.
For banks, fair small business loan contracts started that process of bank boards taking responsibility.
For the ATO the equivalent will be a totally independent body to arbitrate small business disputes because small business cannot afford the protection of the courts so is being regularly abused, bank style.
Last week the ATO said that it would set up a committee to examine the hideous practices adopted by ATO officers who declare that small businesses have undertaken fraud or evasion even though all relevant materials have been provided.
The ATO is planning to set up a committee to review these particular ghastly acts (there are plenty of other ghastly acts) but, as we have seen so many times before, while such review bodies can start with outside people, once they have been going a year or two if the outside people on the committee don’t tow the ATO line their appointments are not renewed. The review bodies become a kangaroo court and it is business as usual. Ministers Morrison, Cormann and O’Dwyer must know that.
Our banks now have fair contract provisions so can actually can say to the Royal Commission that “we have done something about the problem albeit because of legislation”. The ATO cannot say that.
Ministers Morrison, Cormann and O’Dwyer also need to take heed of further remarks of NAB’s Ken Henry:
“Our people (staff) are hurting; they are being asked by friends, family and strangers to justify the poor behaviour of some individuals.
“Poor behaviour is not what they stand for.
They know it is not what NAB stands for”.
Like the bank staff, the majority of the ATO consists of good people. But like the banks before fair contracts, ATO officials have the power to do what they like. And, again like the banks, they will not be caught out until there is an ATO royal commission.
Ken Henry, and Ministers Morrison, Cormann and O’Dwyer might disagree but its my view that the old bad practices of the banks plus the current ones at the ATO are holding back small business investment and are at least contributing to the fact that wages are not rising.
Treasury is forecasting big rises in pay rates in coming years and that means that small business needs to expand and prosper. Fair contracts in banks will help but in the ATO if we don’t have a proper independent appeal processes treasury estimates are in grave danger. And responsibility for that rests squarely on he shoulders of Ministers Morrison, Cormann and O’Dwyer because like the bank boards they can fix the problem easily. And they will raise more money.