Fairness to customers a boardroom priority

Thursday, 19 September 2019


    Balancing the interests of consumers as stakeholders becomes a bigger governance issue.

    Jo Benvenuti has seen the benefits of customer-focused governance firsthand. As a non-executive director of Gippsland Water, she has been part of the group’s efforts to better understand its customers and reflect their needs in boardroom decisions.

    The Victorian utility has lifted its collaboration with local community groups, such as indigenous organisations and financial-counselling services, to gain insights into customers, particularly the disadvantaged – information that is relayed to the board.

    “Working with advocacy groups is a great way to gain on-the-ground knowledge about our customers, help these organisations and be part of our community,” says Benvenuti. “From the board’s perspective, it’s another way to learn about the needs of customers.”

    This engagement is one of several Gippsland Water initiatives to deepen its customer understanding – and part of the board’s broader focus on customer governance.

    Led by Chair Therese Ryan GAICD, the Gippsland board is engaging more often with executives, managers and front-line staff on customer matters. Benvenuti and other directors have visited the organisation’s call centre and had the opportunity to hear first-hand how staff handle customer queries and complaints.

    Customer values have been integrated into Gippsland’s brand values and customer reports are a regular part of the board-meeting agenda. Benvenuti says the work is beneficial. “As a director, you feel like the customer is a greater part of boardroom discussions and you have deeper appreciation of the challenges front-line staff face when dealing with customers.”

    Customer governance has become a bigger focus for boards after the Financial Services Royal Commission. Commissioner Kenneth Hayne said in the Final Report: “Entities set the terms on which they would deal, consumers often had little detailed knowledge or understanding of the transaction and consumers had next to no power to negotiate the terms … There was a marked imbalance of power and knowledge between those providing the product or service and those acquiring it.”

    Hayne’s observation is reverberating in boardrooms across industry as directors seek greater understanding of the balance between organisation profitability and customer needs; customer complaints and remediation; and incentives to reward desired customer outcomes.

    Graham Bradley AM FAICD, says the Financial Services Royal Commission and the Australian Prudential Regulatory Authority’s landmark report on the Commonwealth Bank last year were encouraging boards to develop a stronger “customer voice” in their decision-making processes. Bradley chairs HSBC Bank Australia, EnergyAustralia Holdings and GrainCorp.

    Bradley told the Governance Leadership Centre last month: “Boards are asking: has there been a fair exchange of value between the organisation and its customer? This is a different discussion and an important new test. In years past, the focus was: how much is the market willing to pay for our product or service, so we can maximise profit? Now, boards will challenge management if they are concerned the company is growing too quickly at the expense of customers.”

    Benvenuti, a former Chair of the Consumers’ Federation of Australia, also believes boards need to examine the balance between their organisation’s profitability and customer needs. “That governance conversation is overdue,” she says. “For too long, boards have focused on their organisation’s performance. They need to dig deeper on whether that level of profitability was appropriate or whether too much of it came at the expense of customers.”

    Benvenuti says boards should focus more on customer “outliers” that have a bad experience with the organisation and open up their engagement with consumer advocacy groups, industry ombudsmen and regulators to get different perspectives on how the organisation is treating its customers – and where it can improve.

    “Boards can’t just rely on net promoter scores or other customer-satisfaction averages,” says Benvenuti. “They have to develop processes to understand serious complaints, how they happened, their resolution and the repercussions for staff who were responsible. Boards need to seek external views: what feedback can our industry’s ombudsman provide about our customers? What are regulators hearing? What’s the view of customer-research firms?”

    Benvenuti says boards need to “set the tone from the top” in how their organisation treats customers. “Boards need to show that customer needs are integral to their decision-making process and focus on organisation sustainability. It comes back to having boardroom processes to ensure customer needs are being heard, and getting out and talking to more people.”

    Difficult questions

    Alan Kirkland, CEO of leading consumer advocacy group Choice, says boards must ask awkward questions about businesses that have unusually high profit growth. “The Financial Services Royal Commission highlighted that the most profitable product lines were sometimes the cause of the biggest problems. They had abnormal profits because they abused customers.”

    Increasingly, directors need to ask why this division is earning a much higher return than other assets in the business or comparable assets owned by competitors. There might be a valid reason, but directors must understand if super profits are coming too much at the expense of customers and the organisation’s long-term sustainability.

    Kirkland says this is new ground for many boards. “Typically, boards are happy with divisions that have super-normal profits and spend less time on them and more on underperforming businesses. Increasingly, directors need to ask why this division is earning a much higher return than other assets in the business or comparable assets owned by competitors. There might be a valid reason, but directors must understand if super profits are coming too much at the expense of customers and the organisation’s long-term sustainability.”

    He says customer-satisfaction ratings can be misleading. “The big-four banks had reasonably high customer-satisfaction scores and look what happened there. Sometimes it’s hard for consumers to understand if a complex product is delivering on its promise and if they are getting what they paid for. Their customer-satisfaction rating might be ill-informed because consumers don’t realise they are being ripped off.”

    Large organisations, says Kirkland, should form customer advisory groups and encourage board members to attend these meetings occasionally. Many companies do just that. “One of the major insurers, for example, has a consumer advisory committee that brings together various consumer advisory groups,” says Kirkland. “The CEO attends each meeting and the Chair attends once a year along with other directors to hear about customer needs and concern.”

    Kirkland say Choice is receiving more inquiries from executive teams and boards for its perspective on consumers. “For our conversations, we see boards taking a broader view of their role and thinking much more about the customer. It’s a good step, but there is a limited number of consumer advisory groups and only so many organisations we can deal with.”

    Directors, says Kirkland, should personally experience the organisation’s products and services. “A bank director, for example, might open an account to understand what that involves or phone the call centre. And a director of a retailer might visit a store to understand the customer experience. Directors experiencing a product for themselves can be valuable.”

    Kirkland say the key is boards having multiple information sources on consumers, clear processes to assess that data routinely and a willingness to engage externally. “Directors should be looking for points of conflict in customer data and challenging management on them.”

    He adds: “Board needs to think like customer advocates, balancing their needs with organisation profitability and sustainability over the longer term – and consider how the customer is treated as part of broader risk-management strategies.”

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