There are many examples of directors suffering reputational damage due to bad decisions by management. A well-known example is the harm suffered by NAB and its then directors as a result of foreign currency trading problems. In its review of the matter, APRA identified the lack of clarity of authority limits as a key factor leading to the trading losses. An effective delegated authorities system would have greatly reduced the risk of losses by:
- making the delegated authorities clear and accessible to all, meaning they can readily be enforced and are much more likely to be followed,
- requiring breaches of authority limits to be monitored and reported, enabling early detection and intervention, and
- promoting a culture of accountability, transparency and conformance, so reducing the risk of rogue behaviour in the first place.
Another example is the News Corp phone hacking scandal, where payments were made to settle potentially criminal claims. It appears these payments were not brought to the attention of directors. Leading systems require payments in connection with criminal claims to be approved by directors or reported to them immediately. If the News Corp directors had been informed of the payments, the phone hacking activities could have been stopped earlier, with far less harm to the reputations of the company and its directors.
While it is virtually impossible to stop criminal behaviour, an effective delegations system makes it much harder for rogue activities to take root.