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August 25, 2020

AMP doesn’t just have a women problem. It has an everyone problem

Is AMP's focus on money over trust central to the failures and scandals that have trashed its reputation and share price?

The sexual harassment scandal enveloping AMP is another graceless turn in what looks like the death spiral of one of Australia鈥檚 oldest and formerly most trusted companies.

Joining a long line of executives to walk the plank at the venerable financial services giant, AMP chairman over the promotion of Boe Pahari to head AMP鈥檚 capital business division despite him being disciplined in 2018 for sexually harassing a female colleague.

Since the Australian Financial Review broke the story of the claims made against Pahari, sparking a , the board had been under increasing external pressure to admit and correct its mistake.

Now it has 鈥� half-heartedly.

The exit of Murray and Fraser (and Pahari鈥檚 demotion to his previous job level) was, AMP said in its statement to the , a response 鈥渢o feedback expressed by some major shareholders鈥�.

惭耻谤谤补测鈥檚 was even less apologetic:

The board has made it clear that it has always treated the complaint against Mr Pahari seriously. My view remains that it was dealt with appropriately in 2017 and Mr Pahari was penalised accordingly. However, it is clear to me that, although there is considerable support for our strategy, some shareholders did not consider Mr Pahari鈥檚 promotion to AMP Capital CEO to be appropriate.

In other words: what鈥檚 all the fuss about?

惭耻谤谤补测鈥檚 failure to appreciate why he and the board made a mistake is, arguably, symptomatic of AMP鈥檚 management for at least two decades. Its focus on money over trust is central to the failures and scandals that have trashed its reputation and share price.

Vertically challenged

Founded in 1849 as the Australian Mutual and Provident Society, AMP was a not-for-profit life insurer for almost 150 years before it in 1998. Since then it has pursued profits with gusto, if not prudence.

Part of the push to privatise was to have funds to expand, with 鈥渧ertical integration鈥� all the rage in the financial services sector.

Vertical integration involves a bank or other financial services company providing products all along the financial supply chain. Once a bank might have offered you just banking services, for example. Now it will provide contents and life insurance, financial and retirement planning, and ways to invest in the stock market.

鈥淔rom the perspective of banks,鈥� noted the 2019 of the Hayne Royal Commission that uncovered systemic cheating of customers in the financial services industry, 鈥渧ertical integration always promised the benefit of cross-selling opportunities.鈥� But the internal efficiency of the 鈥渙ne-stop shop鈥� did not necessarily produce efficiency for customers:

The 鈥榦ne stop shop鈥� model creates a bias towards promoting the owner鈥檚 products above others, even where they may not be ideal for the consumer.

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When what isn鈥檛 best for the customer becomes the business model, it鈥檚 a slippery slope to taking other liberties. AMP slipped to charging fees for no service and for life insurance.

Following these and other revelations from the royal commission, AMP chair Catherine Brenner, chief executive and most of the board resigned. But interim chief executive Mike Wilkins made it clear AMP remained 鈥渃ommitted to a vertically integrated business model鈥�.

That commitment was buttressed by the appointment of Murray, a long-term in financial services, as AMP鈥檚 new chair .

Bad habits

It鈥檚 not only vertical integration, though, to which AMP鈥檚 management appears rusted on. Money (not trust) is still number one.

It is plain the board鈥檚 primary concern in keeping, then promoting, Pahari was that he 鈥溾��.

In this case, despite 惭耻谤谤补测鈥檚 insistence that the board treated the complaint against Pahari seriously, the evidence suggests AMP downplayed Pahari鈥檚 behaviour as 鈥渓ow level鈥� and 鈥溾��. The former executive who made the complaint, Julia Szlakowski, has detailed a much more substantial pattern of inappropriate behaviour.

To cap it all off, the company is reportedly seeking to track down employees who might have leaked information to the media. Chief executive Franco de Ferrari and other executives have warned about the consequences of leaking, including 鈥減ossible termination鈥�.

鈥淚 think this is a battle for the heart and soul of AMP, in my view,鈥� the Australian Financial Review . 鈥淚t鈥檚 moving from a culture of harassment to a culture of fear.鈥�

Breaking up

On June 30, de Ferrari appeared before the House of Representatives economics committee. He , declaring:

Virtually no aspect has been untouched, starting from the top, with complete board renewal and streamlining and strengthening of the management team.

Within days the appointment of Paharai had kicked of a staff revolt. By , the chief executive of AMP鈥檚 Australia division, Alex Wade, was forced to resign after multiple women, reportedly emboldened by the response to Pahari鈥檚 promotion, complained about behaviour including allegedly sending explicit photos.

On August 13, during a teleconference with journalists to discuss AMP鈥檚 first-half results:

We know we have more to do in improving diversity and inclusion. The transformation of culture is now my top priority.

Granted, AMP may well be 鈥渢he most challenging corporate transformation in corporate Australia鈥�, and he might have said 鈥渞ight from the beginning this does not happen overnight鈥�.

But from someone two years into the job it was a startling remark.

Leaks, needless to say, should be the least of his concerns. It鈥檚 the lack of a moral compass that threatens to run this ship aground and ultimately break it up.

, Senior Lecturer, Faculty of Law,

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