The most hopeful thing we have is our focus on human beings, inside and outside the organisation, and to expect the best version of them. If you can get that right, it will be a game changer.. It is little wonder that across the industry, people are exhausted, jumpy, peering deep into the fog wondering what is next – and whether the centre itself can hold. However brutal the last 12 months has been, there are reasons to be positive about the future. First, we will soon see Commissioner Hayne’s final report. Whether we like what it says or not, it will deliver some certainty and something of the way forward for everyone – including CEOs. Thankfully, Hayne has acknowledged that extensive regulatory reform is unlikely to be the answer, but this is likely to mean an even greater focus on genuine internal self-determined reform will be needed. Once the dust has cleared, organisations can focus on fixing the problems of the past, and building a future around these new expectations. Second, we expect Hayne will recommend industry-wide changes that will help level the playing field and accelerate much-needed changes. Many of these changes will be difficult. But the industry has often been hamstrung when trying to make significant changes on its own. This has been because of a risk of falling foul of competition laws, complexity in the regulatory system that hampers innovation or wanting to avoid first mover disadvantage and innovation risk. While the industry has made moves towards reform, it will welcome mandated changes (with some senior witnesses appearing to call for them from the Commission itself). We’ll likely see a push toward sharpening remuneration and distribution models – such as those for mortgage broking, and ending the grandfathering commissions in financial advice. There may also be some recommendations that force the creation of more effective models to address conflicts of interest, which – despite regulation’s attempts to curb their effects – remain embedded in the very foundations of financial services business models. Third, Hayne rightly asked about striking the right balance between shareholder returns and conduct / customer outcomes. If he pursues this line in his formal recommendations, we may see a sharper expectation on institutions, and their directors and officers, to more effectively balance their profit objectives with the need to create sustainable business models that deliver fairly for customers and communities. With Australian banks historically being among the world’s most profitable, the continual cost-cutting pressures from shareholders seems puzzling when considered in light of the job ahead. The pressure to get conduct right inside banks – on people, governance processes, and systems – is enormous, and requires sustained investment. Poor conduct is costly at individual, organisational, and system-wide levels. Hayne’s views on this will be of particular interest given the ongoing debate about the nature of Directors’ duties. Most recently, this has been shown in the backlash against the inclusion of social licence objectives in the draft ASX Corporate Governance Guidelines, and the shareholder strikes against the remuneration reports of three of the four largest banks, as they attempted to make adjustments to remuneration models to target objectives towards better risk, compliance, and customer outcomes. Fourth, it would be surprising if Hayne did not recommend an expansion of individual accountability regimes such as the Banking Executive Accountability Regime (BEAR), and the Professional Standards and Education requirements for financial advisers overseen by the Financial Adviser Standards and Ethics Authority. We are likely to see similar approaches applied to insurers and superannuation trustees, as well as to non-APRA regulated entities. While more regulation is rarely a positive thing, BEAR has changed conversations with executives, and forced organisations to get clear on what each individual’s accountability actually is. In the UK, under the Senior Managers’ Regime, almost all employees of financial services organisations need to meet Conduct Rules similar to the BEAR accountability obligations here – such as honesty and integrity, and due skill, care and diligence; one wonders whether such an approach might also be on Hayne’s mind. Finally, and perhaps most importantly, the industry has to reconnect with the community and the individual customers it serves. Finding a way to be more human and connected will not just be necessary for business survival, but may well be the tonic the staff, executives and Board need to strengthen their own confidence in the positive value of financial services. Adopting a mantra of treating customers fairly, anchored in recognising them as individuals with legitimate expectations of service and delivering products and services that have a legitimate purpose and genuine value to consumers will be the test. Understanding what motivates their own people, and developing and empowering them to deliver better outcomes and question the status quo, will be key ingredients for success. The most hopeful thing we have is our focus on human beings, both inside and outside these organisations, and to expect the best version of them. If you can get that right, it will be a game changer. Having read the WHY and seen WHAT’S needed Read When Good trumps great: Avoiding the post Hayne Traps Author: Karen Den-Toll – Partner Deloitte Governance, Regulatory, and Conduct. Karen leads Deloitte Australia’s BEAR and customer advocacy practices, and is the joint leader of Deloitte Australia’s Corporate Governance practice. For more commentary from Deloitte on the Royal Commission, please click here.