Commonwealth Bank scandal is an archetypal failure

The idea of systems archetypes was first developed at MIT by systems thinkers such as Jay Forrester and Peter Senge.  The nine archetypes refer to common structures that occur in many organisations.  These archetypes that produce recurrent patterns of behaviour.  They are relatively easy to understand and understanding them can help us understand and possibly rectify some common structures that lead to quite catastrophic patterns of behaviour in major public and private companies as has proved to be the case with Commonwealth Bank.

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The one that appears in the current scandal at the Commonwealth Bank money laundering scandal is often referred to as “Drifting Goals”.

It is a situation where pressure comes on to lower a standard, perhaps an ethical standard, a quality standard, a financial standard or even just a staffing standard, to meet an immediate or pressing need. The argument is that this is a “once off” situation.

But when it happens again, it’s easy to compromise again. And then it’s easy to compromise just a little bit more and the standard begins to slip and slip, as this Causal Loop Diagram shows.

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To understand CLDs click here

The  seductive element of this dynamic is that there are gains in profits, prestige, kudos to be had from these compromises. The declines in standards are always quite small to begin with and nobody really notices or ask questions.

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But it’s a slippery slope as has been demonstrated in the case of the Commonwealth Bank when people are talking about fines of a trillion dollars.

It is probably important to say defence of the Commonwealth Bank that the bank wasn’t actually laundering the money, criminals were using the bank’s ATMs to launder money. The Bank’s “crime” was that it failed to monitor and report the laundering to the appropriate authorities and the timely and appropriate manner.

So there is talk  of a fine of $1 trillion, which is ridiculous, because no one is going to fine one of Australia’s major banks that amount of money. Nonetheless, it makes a good headline.

As any good System Dynamics practitioner will tell you, and the graph demonstrates, this is a reinforcing system where things keep just getting better or worse, depending on your perspective.

The results that the Commonwealth Bank were getting in terms of the profits they were reaping from these transactions were a result of the system that was set up, not only with their smart ATMs, but in the staffing structures that were set up to supervise and monitor them (or not as the case may be).

Staff cuts had meant that there were insufficient staff to supervise and monitor the number of transactions that were flying through the ATMs.

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So the structure of the system was deeply flawed and  it would appear that the results from the system meant that nobody was really interested in enquiring too carefully into why the results were so good.

And finally, the number of compromises will that were being made, the failures and delays in reporting the failures of oversight to the authorities caught up with them and the shit hit the fan.

Standing right in front of the fan was this man.

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Commonwealth Bank CEO Ian Narev earns a $12.3m salary.

 Now, heads are going to roll over this one. Why, because people feel better when heads roll. Someone has to be held responsible.

But who was responsible in this case?  To find out you’re probably going to have to start unravelling this little map to begin with.

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And that’s probably just inside the department concerned with the ATMs inside the  Commonwealth Bank.

So why was this situation allowed to run along unchecked.

There is actually a very simple answer.

While there are going to be a number of people taken out for public flogging and CEO Ian Narev is probably at the top of the list of the moment, the responsibility rests with all of us.

All of us, who watch your superannuation funds growing at 10-12% per annum are responsible for this situation.

We want to see our banks, our mining companies, our top 100 listed public companies thriving and producing the kinds of returns that provide the financial security we all want for our retirement.

The scandal is currently engulfing the Commonwealth Bank is a symptom of this.

What this particular scandal has done is raise the uncomfortable question: To what extent is it necessary for major financial institutions to have uncomfortably close arrangements with major crime syndicates to ensure that they can maintain double-digit profitability?

It also raises the question that no one asks at all: Does anyone understand the extent to which the multibillion and possibly trillion dollar drug trade is integrated into global financial  trading system?

Cui bono?

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