Prescriptive approach to business concerns Budge

BankWest chief executive Terry Budge is preparing to leave the job after seven years at the top, but he remains concerned about overzealous corporate regulation, as Mark Pownall reports.

OUTGOING BankWest group managing director Terry Budge has warned against an overly prescriptive approach to regulation and corporate control, claiming it doesn’t stop people making bad decisions or losing money.

With the recent implementation of the Financial Services Reform Act and CLERP 9, Mr Budge was concerned that legislation was being seen as the answer to issues in the investment community.

“With all controls and regulation there are side effects – it can restrict business and raise costs and it can stifle innovation,” Mr Budge said.

“Will it lead to better returns? Again, it’s hard to find any evidence of that.”

The answer, he told graduating students of the Securities Institute of Australia last week, was education, innovation and a focus on customers rather than more rules and regulations.

By way of example, Mr Budge pointed to the very public fiasco at his former employer National Australia Bank – where a focus on process and procedure had allowed management to pass on responsibility and failed to stop the organisation making big mistakes.

“These are not signs of a healthy organisational culture, in my experience, these are critical matters for us to be concerned about,” he said.

“They are matters that cannot be legislated, regulated or licensed.”

While he welcomed key aspects of the newly implemented FSR Act – better trained advisers, greater disclosure, and the weeding out of those who fail to meet the industry’s new standards – Mr Budge said the benefits were at risk of being outweighed by the sheer volume of paperwork required to avoid legal pitfalls when servicing customers.

He said opening a new BankWest gold cash management account earned a customer 90 pages of reading material, while asking about a financial plan might require 200 pages of reading.

“In my opinion there is now too much paper to read and the process has become too prescriptive and customer unfriendly,” Mr Budge said. “In some cases it has been reported that higher costs have led to organisations questioning service levels to lower asset or income customers.”

This appears to be in contrast to the Federal Government’s promise that the new laws would be a “light touch”, and the benefits it brought to the community needed to be questioned, he said.

“For boards and management the costs of under-compliance are so high it’s better to be safe – safe for the industry, but losing focus on the customer,” Mr Budge said. “Will all this extra process and paper improve investment returns, I don’t think so.

“Will the extra qualifications make better advisers? My answer is ‘yes’ in most cases, but it’s no substitute for experience and wisdom.

“My point is this – we cannot expect that more legislation and more qualification will stop people losing money on risky investments.”

Mr Budge pointed to the French wine industry as a good example of where legislation aimed at guaranteeing quality had stifled development and resulted in the loss of touch with the consumer.

“It’s just another demonstration of how much our business system changes,” he said

“Only through education can business offer good service to clients and, in the long term, business can only prosper through learning, by being forward looking, and by innovating.

“We have to accept that along the way there will be failure, but that’s good, because it shows a healthy business eco-system.”