September 4, 2018 / 11:19 PM / 2 months ago

As inquiry lashes Australian financial firms, more ethics study for would-be bankers

SYDNEY (Reuters) - When Nick Wailes started as the head of Australia’s top-ranked business graduate school in February, he already had the idea of offering a course to address a shortfall of training in ethical leadership.

Students attend the University of Sydney open day in Sydney, Australia August 25, 2018. Picture taken August 25, 2018. REUTERS/Paulina Duran

A few weeks later, the country’s most powerful type of inquiry, a Royal Commission, began airing allegations of bribery, fee-gouging and board-level deception in the finance sector, and the University of New South Wales’ “Law, Regulation and Ethics” course was born.

The course will be compulsory for all 2,000 students attending UNSW’s graduate school from next year.

“If one of the students says ‘Why are we studying this?’ it’s not hard to make that argument now,” said Wailes. “It was something we were doing anyway, but I think the Royal Commission has reinforced the need for that type of focus.”

The Royal Commission has flagged it will recommend criminal charges against some of the country’s biggest money managers when it reports to the government this month.

People teaching the next generation of banking executives say they are yet to see any lessening of interest and corresponding dip in enrolments in courses aimed at the highly paid financial sector.

But the daily drumbeat of negative headlines is making it impossible to quarantine the classroom from community concerns, they say, and they are changing the course work accordingly.

“There is a trust deficit, and it is important that we don’t bury our head in the sand,” said Pamela Hanrahan, the UNSW professor writing the 10-week course which covers topics ranging from accountability to the relationship between ethics and the regulation system.

“We do have to respond to the fact that there’s a change in expectations and what the community thinks businesses ought to do,” added Hanrahan, who is also advising the Royal Commission.

LONG DECLINE

The year-long Royal Commission has become an outlet for public rage against a sector seen by many Australians as greedy and unfair.

But study of corporate ethics began in earnest in the aftermath of the 2008 financial crisis and has been helped along by years of scandal, educators interviewed by Reuters said.

“I’ve been teaching the subject Ethics in Finance for the past seven or eight years now and I’ve never had any shortage of the most annoying cases of unethical misconduct,” said Paul Kofman, dean of business and economics at University of Melbourne. “All that the Royal Commission is doing is pulling it together.”

For its final hearing, starting Sept. 10, the inquiry will turn its focus to the country’s A$46 billion ($33 billion) insurance industry, having already racked over the banking, superannuation and funds management sectors.

Elizabeth Sheedy, an associate professor of applied finance at Macquarie University, said the Royal Commission showed the way ethics was being taught was ineffective.

“Historically it’s been done (in a way that’s) very philosophical,” said Sheedy, a former employee of investment bank Macquarie Bank Ltd (MQG.AX) and No. 2 Australian lender Westpac Banking Corp. (WBC.AX)

“What we need to do is make the discussion less theoretical and more practical. ‘Assuming you’re in this situation, what could you actually do?’,” she said.

While there was no immediate sign the Royal Commission was affecting enrolments, years of scandals had played a part in a gradual, industry-wide decline in numbers of students opting to study finance, Sheedy said.

France’s INSEAD, one of the world’s largest MBA schools, which has Australian students, said 12 percent of its graduates joined the finance sector in 2017, compared to 14 percent in 2016 and 15 percent in 2015.

The company has “strengthened our ethics coverage in our teaching”, said INSEAD’s affiliate professor of ethics and social responsibility N. Craig Smith.

INSEAD did not give Australian-specific figures.

“EMBARRASSMENT AND SHAME”

The Royal Commission has focused on the adverse effects of finance sector misconduct on customers but the reputational damage has spread to employees of the industry, psychologists and ethics coaches said.

The sector employs around 450,000 people, or 4 percent of Australia’s workforce.

“They are experiencing a range of adverse effects: a sense of embarrassment and shame through association (and) fatigue caused by the need to respond to the extraordinary demands for documentation,” said Simon Longstaff, executive director of The Ethics Centre which wrote the voluntary “Banking and Finance Oath” for industry employees after the financial crisis.

Thomas Clarke, a professor at University of Technology, Sydney’s business school, said students shared the disillusionment, but “just as customers have nowhere else to go but the big banks, our students looking for a career can hardly dismiss them lightly”.

At a University of Sydney open day last month, there was no sign of waning interest in business studies, as crowds of bright-eyed juniors and academics brushed off the detail of the inquiry’s revelations to focus instead on their future.

“We talk about the Royal Commission at the classroom,” said Yuvraj Kang, a final year finance student running one of the many information stalls.

“It’s important that it is happening (but) it doesn’t change my perception of working at a bank. At the end of the day, you are still trying to work with good people, maximize efficiency and add value to the clients or customers and that doesn’t change.”

Reporting by Byron Kaye and Paulina Duran. Editing by Lincoln Feast.

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