The inner workings of scandal-ridden icare’s board read like an insiders club, where bad news was buried and directors were being spun by management but signed off on bonuses anyway.
In the cut and thrust of the icare workers compensation juggernaut, corporate governance took a back seat and directors failed to ask the hard questions.
If there was any doubt that a cleanout at board and executive ranks is required, the following quotes from icare’s non-executive directors, conducted between March and May this year, give an insight into the flawed state of the organisation.
“There have been so many bushfires and we didn’t get warned,” one icare director said. Another said, “historically, there has never been a high level of compliance.”
“We still need a first line of defence. It is not sufficient for the executive to say that having the right purpose and intention will flow through to doing the right thing by the customer,” opined another director.
Here’s another shocking comment, “the risk framework, although built, has not yet been operationalised. The board and [executive] are aware of these gaps. This needs to continue to be a key focus.”
The comments, taken from a boardroom study conducted by Challis and Company for the non-executive directors (NEDs) of icare, are illuminating and disturbing.
The overwhelming take-out of the May 2020 report is the wide gap between the public face of icare and what was going on behind the scenes. While warning signs have been flashing for years, icare, its board and NSW Treasurer Dominic Perrottet maintained it was in great shape and everyone was doing a fabulous job.
Historically, there has never been a high level of compliance.icare non-executive director
The joint Sydney Morning Herald, The Age and ABC’s Four Corner’s media expose in late July uncovered mismanagement at icare and a looming financial disaster. One that insiders in Treasury, the State Insurance Regulatory Authority (SIRA) and retired actuary Peter McCarthy had been warning about since at least mid-2018.
But the Challis study reveals that in May 2020 while former icare CEO John Nagle had strong support from his direct reports, the non-executive dirctors (NEDs) had lost confidence that he was the right leader.
It said in terms of the role of the chairman, “the chair should continue to ensure that NEDs have an opportunity to express their views before sharing his own”.
It also found a gap between “executives’ continued optimism” and the board’s concern for ongoing negative surprises. “The executive should propose how it embeds a stronger end-to-end enterprise risk framework,” the study recommended.
But when the comments from directors are stitched together it paints a picture of a board operating in the dark. Even worse, some acknowledged they were in darkness but did little about it.
For instance, one director is quoted in the report saying “There is often a glass-half-full approach in reporting to the board, with too much emphasis on the “story” rather than objective measures of performance.”
Another says “If you worked your way back in the board papers you would find mention of some of the major problems, but they should have been raised earlier with flashing lights. An example is return to work rates.”
Other comments are, “board papers are too verbose… John [Nagle’s] report is broad, and the others have a summary page covering key issues. There is also no budget template.”
Yet another comment says “board papers have too much spin including through the use of PowerPoint, which often hides the key messages and can give a “glass-half-full” perspective.”
There was also an understanding at board level of the need for someone with experience in workers compensation.
“Similarly, the chair should advocate for the appointment of a non executive director with deep experience in workers compensation, particularly claims management,” says one comment.
Icare insures more than 3.7 million workers and 296,000 employers and has an asset base of more than $32 billion. However, since its inception in September 2015 it has made a series of missteps that have culminated in massive financial losses, deteriorating return to work rates and it has underpaid up to 52,000 injured workers an estimated $80 million.
Despite this, the board paid bonuses and big salaries to the executive team. It also presided over a festering mess that everyone seemed tone deaf to fixing.
When the scandal erupted in July, the NSW Treasurer went on the front foot saying the board and executive team had done a “splendid job”.
Since then the CEO Nagle has resigned, three board members including the chairman have left, an inquiry has been launched and there are calls for an overhaul of the board and senior ranks.
We have tightened up our Conflicts of Interest Policy but that doesn’t stop board members from offering their own contractors.Senior icare executive
But more needs to be done.
Retired senior EY partner and actuary Peter McCarthy, who spent 35 years advising governments on workers’ compensation, has read the study and says it was clear the board and executives needed to be sacked.
“They have no idea about the business and it comes across that the business is a shambles.”
He adds that what the non-executive directors don’t realise is if they had recruited someone with good workers compensation claims experience they would quickly realise that icare’s strategy is a disaster.
Consensus at board level has become a hot topic in the past few months at the NSW Casino Inquiry into Crown Resorts, which found a series of corporate failures and possible breaches of the law as members of the board sat back in silence.
In the area of compliance, icare has a long way to go. One comment from a senior executive was “we have tightened up our conflicts of interest policy but that doesn’t stop board members from offering their own contractors”.
If this is the case, it is a scandal in itself.
Icare is overseen by Treasurer Perrottet. The report gives an insight into how that worked at board level.
“icare has immeasurably benefited from the chair’s strong access to, relationship with and mutual respect for the Treasurer and his Secretary. However, NEDs do not feel icare can continue to take for granted these good graces,” one NED said.
The study said, “Given the potentially perilous state of the organisation due to the COVID-19 crisis and ongoing operational issues, the chair [Michael Carapiet] should continue to influence the Treasurer [Dominic Perrottet] and his Secretary [Michael Pratt] on emphasising board continuity over renewal.”
NSW shadow finance minister Daniel Mookhey said one of the problems raised in the report was that Treasurer Perrottet did not pick enough board members who understood workers compensation. “icare’s management exploited their own board’s ignorance,” he said.
“They peddled a rosy picture about icare, even though they had little confidence in icare’s management.”
Some of the more telling comments from directors were, “If I were external to the organisation, I wouldn’t mark our scorecard well. We have introduced tension with the regulator and both sides of parliament.” And “Michael [Carapiet] has provided us with a degree of air-cover and clear air from government.”
Carapiet has gone, a search is on for a new CEO and the drums are beating for more to come.
Source: Thanks smh.com