Independent company director Elizabeth Johnstone has urged the internal auditing profession to lift its game to better weed out unethical or unlawful practices revealed in the financial services royal commission.
Ms Johnstone, who is also chairman of the ASX Corporate Governance Council, said internal auditors need to be more independent and courageous in raising “red flags” with company boards.
“They need to step up. They need to learn from some of the professions like medicine and aviation in doing root cause analysis. They’ve got to follow through and make sure that action is followed. When they’ve done their report, that’s not where it ends,” Ms Johnstone told AM.
Ms Johnstone said while Commonwealth Bank internal auditors were successful in highlighting risk issues, she was concerned some company boards were not paying enough attention to warnings and sidelining auditor advice.
“In my research, I’ve certainly discovered instances where internal auditors have had their work diluted, they haven’t escalated appropriately and they haven’t followed through,” Ms Johnstone said.
“Sometimes I think it’s pressure exerted and sometimes I think they are not as bold as they need to be, making sure they maintain an independence of judgement and not be swayed by long-standing relationships with colleagues or fear of those senior to them.”
Soundcloud: Independent company director Elizabeth Johnstone with the ABC’s Peter Ryan
Ms Johnstone agreed that, given the scandals in the leadup to the royal commission, auditors should have been more proactive in identifying risks.
“I am giving a bit of a rallying cry. There are things that I think could be done better,” Ms Johnstone said.
“Internal auditors should be more carefully chosen in some instances. I think they need to understand organisational psychology better or behavioural sciences broadly.”
Ms Johnstone also rejected criticism that the campaign for gender equality on company boards should not be blamed for reputational and financial damage at institutions such as the wealth manager AMP, which is in crisis after the royal commission revelations.
“I’m not going to give any oxygen to those who believe simplistically that a small number of particular individual directors have caused these problems,” Ms Johnstone said.
“Merit has, in my view, always been the most important selection criteria. This is a sideshow, it’s a distraction drawing quite a fallacious conclusion.”
In a presentation to an Institute of Internal Auditors conference, Ms Johnstone detailed a timeline of corporate collapses in Australia going back to 1989 the demise of Christopher Skase’s Qintex media empire through HIH, Onetel, Storm Financial and the Hastie Group.
Most of the companies that collapsed over the 30 year have men as chairman and chief executives.
Senior business figure Chris Corrigan slammed the push to mandate the number of women on company boards in the wake of the AMP scandal which saw the resignation of chairman Catherine Brenner and two non-executive directors Holly Kramer and Vanessa Wallace.
Mr Corrigan has said that it was “demonstrably the case” that Ms Brenner would not have been appointed AMP chairman if she was a man and that she got the job “in the mood of the moment” to pursue gender balance.
Ms Johnstone’s warning comes after revelations in the royal commission that AMP charged fees without delivering service, lied to the Australian Securities & Investments Commission and that the AMP board meddled with a supposedly independent report to the corporate regulator.
Follow Peter Ryan on Twitter @peter_f_ryan.