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''I want to stay as close to the edge as I can without going over. Out on the edge you see all kinds of things you can't see from the center.''
The psychologist inserted by the corporate regulator into boardroom discussions of more than 20 blue-chip companies including Qantas, Woolworths and AMP warns that Australia's financial sector culture is broken.
Elizabeth Arzadon, the regulator's psychologist of choice, also warns that resistance by boards to public criticism is a mark of bad culture, staff surveys are not enough and that leaders are dragging their feet on culture.
Ms Arzadon is the founder and managing director of Kiel Advisory and a former special adviser at the Australian Prudential Regulation Authority, having also worked at McKinsey, Macquarie and Deloitte.
She declined to comment on Wednesday on the basis of confidentiality agreements but has written extensively on the topic of culture.
She also pointed on Wednesday to the Dutch central bank's bookSupervision of Behaviour and Culture and said “our approach isn’t exactly the same but very similar”.
How many CEOs know the difference between culture and climate, versus those that can differentiate between depreciation and amortisation?” she wrote in one recent post.
“If culture is so important, why is it still such a ‘black box’ topic, outside the domain of general management expertise?” Ms Arzadon wrote.
She also pointed to an article last year in The Australian Financial Review where US fund manager WCM Investment Management used questions about culture to identify potential company risks.
“It’s a problematic symbol when you see senior level resistance to very public feedback regarding the appropriateness of an institution’s behaviour,” she wrote in another recent LinkedIn post titled “Strong culture: friend or foe”.
“There is no single ‘right’ culture, culture is about more than just values, and staff engagement is only the tip of the iceberg when it comes to the potential value of culture,” she wrote.
The Financial Review has learnt that Qantas, Lend Lease, Woolworths and IOOF are among the household names to join AMP and the banks on the corporate regulator's hit list of 21 top companies facing the radical regulatory experiment.
Qantas CEO Alan Joyce would not confirm on Wednesday whether ASIC had inserted a psychologist into their board meetings but said they were happy to work with the regulator.
Our general approach has always been we are cooperative with regulators, and an open book is a good policy,” Mr Joyce said.
“All companies can hopefully improve by sharing ideas,” he said pointing to the airline's approach to safety – which includes a safety conference where the airline invites its competitors – as an example of its “open book” approach.
Sources at the Australian Securities and Investments Commission said the focus of the board reviews was on how directors interact with senior management in practice, making sure there was a proper flow of information and ensuring boards hold management to account.
The ASIC governance taskforce sprung from $70 million in additional funding in last year’s budget and will report back publicly on board behaviour in late August or early September.
It follows ASIC action to embed regulatory agents in the banks to monitor breach reporting and internal dispute resolution processes.
But several leading directors described the regulatory plan as “stupid” with one expert claiming it would backfire because directors would simply change their behaviour while the psychologist was present.
The capability report into APRA to be handed to Treasurer Josh Frydenberg next week is also understood to focus on putting the onus for culture on directors, rather than relying on a regulatory solution such as a psychologist.
Leading organisational behaviour expert Australian National University associate professor Alessandra Capezio warned thatdirectors who exhibit Machiavellian, narcissistic or sub-clinical psychopathic tendencies are likely to come under the regulator's spotlight.
“We need to buffer the effects of having high levels of these traits in the boardroom,” she said. “You can do that by making sure the decision-making culture is strong enough to counter group think, confirmation bias and overconfidence,” Ms Capezio said.
However she warned that there was “no quick fix” and injecting psychologists into the boardroom was likely to backfire.
“People behave differently when you are observing them,” she said.
“How does it work to supervise boards like eight-year-old kids, how do they behave when the teacher leaves the room?” she asked.