AMP’s royal commission revelations will mean rethink of reputational risk


Published by Australian Financial Review on Wednesday 18 April 2018

The revelations in the Hayne royal commission about AMP have been particularly shocking. This is certain to become a case study for future MBAs in how to mismanage a corporate problem.

Errors in the business have been compounded by corporate cover-ups, by lying to regulators, extensively massaging supposedly independent reports and so on – could they have done worse if they had tried? And then, of course, having it all come out in the most public manner.

The damage to AMP’s reputation and that of some of its executives is large. Some of the behaviour suggests incompetence and some appears to be unethical. Why did it come to this?

In any big organisation mistakes happen. Advice businesses are particularly problematic. Just trying to figure out how to manage one’s own rates of saving, choice of investments etc is complicated, without trying to do it for someone else. Managing a team of advisers giving advice to a wide range of clients is even more problematic.

They need to be well coached, well trained and closely supervised to keep things on track and that makes advice very expensive. And of course individual advisers think he or she is a brilliant stock picker and each wants to impose an individual overlay on the basic advice. The case for an early move towards robo-advice seems compelling.

The corporate issue is much more interesting. It seems that AMP got itself into this pickle to protect a relatively small amount of profit. There are a few possible explanations, most of which reflect badly on senior management rather than the board. Knowing what is going on in the business is the core responsibility of senior executives.


One possible explanation is that this is systematic behaviour, replicated throughout the businesses, and it has only been identified in a few cases. That is, the implication for profit is much bigger than shown in these specific cases.
This is the most worrying and one that ASIC should be investigating deeply and thoroughly. It would suggest a thoroughly bad culture.

A second explanation is that the managers did not know what was happening, with it being handled at lower levels. From what has been revealed, it seems that the issues were not escalated to the CEO. This would be very unusual.

The relationships with regulators and with governments are normally handled at the very senior levels of financial institutions. If they were not, then there has been a major problem of internal governance.

A third explanation is that AMP has been excessively concerned about reputation risk. While this has clearly been disastrous for AMP, there are broader issues here which apply to how we should think about what we have seen in the royal commission so far.

Does couching issues like this as “reputation risks” lead firms into the precise problems they are trying to avoid? In saying something is a reputation risk, we are conceding that we are doing something which will harm our reputation if it becomes public. It then becomes a risk to be managed just like credit risk, or disaster risk. The discussion is not why we are running the risk at all, but how to mitigate it.

Michael Blomfield has argued correctly that the focus needs to be on the ethics of the underlying behaviour and not on how to manage the consequential risks.


It seems financial institutions, and probably other corporates, should go back to look at their actions and activities which are listed as reputation risks. For each they have to ask why they are doing something which would not stand up to public scrutiny. If the behaviour is unethical, such as charging people for services which are not performed, then clearly it should stop. If the behaviour is ethical but unpopular, then appropriate lines of communication need to be developed.

There are other actions firms take which are easily misunderstood and cause public resentment. These need to be communicated.

One of the key lessons of the royal commission is that the whole issue of reputation risk needs to be rethought at the senior executive and board level.

AMP has failed on just about every score.

Some of the senior executives failed to understand their own business, or they had inadequate processes in place to be informed.

Then, in trying to protect their reputation, they failed some basic ethics tests.

Overcharging some customers might be forgiven relatively quickly but lying to the regulators is certain to bring down deep limitations about how AMP undertakes its business in future.