Hadyn Bernau

Executives at some of Australia’s biggest insurers have acknowledged they are struggling to manage their social capital, with a survey showing 83 per cent believe their organisations are falling well short.

The survey of 60 executives by actuarial and analytics firm, Finity, found 62 per cent believed their organisations were “a long way behind” best practice and a further 21 per cent said they were “doing nothing effective in this area.”

Almost all of those surveyed agreed, however, that social capital – the state of a company’s relationships with shareholders, customers, staff and other stakeholders – was as important as financial capital.

The failure of large organisations to measure and manage their social condition was one of the key findings to emerge from the Hayne Royal Commission.

According to Finity Principal, Hadyn Bernau, many organisations are grappling with how to improve their internal and external relationships and identify social risks before they manifest.

“The organisations I’m talking with are increasingly dis-satisfied with their current approaches and measurement tools, and are looking for new frameworks that better identify relationship weaknesses and blind spots, and provide leading indicators.”

Relational Analytics is a methodology designed to help companies build a clearer picture of their social condition though the lens of their stakeholder relationships.

Mr Bernau believes that Relational Analytics could have predicted, and potentially prevented, much of the recent public loss of trust in the financial sector.

“Over the last 20 years, companies have become progressively more distant in their relationships with customers and other stakeholders,” Mr Bernau said.

“Communication is increasingly mediated by technology, relationships are more transactional and lack continuity with specific company representatives, leaving customers feeling unheard and less connected to the typical large organisation. These are some of the aspects measured by Relational Analytics.”

Regulatory authorities have recently called for company boards to pay more attention to social condition. APRA deputy chair John Lonsdale said last November that a strong balance sheet alone was not sufficient for institutions to remain in good prudential health. Failure to address weaknesses in governance and culture could result in major financial losses through reputational damage, fines and expensive remediation programs, he said.

Developed in the UK and introduced to Australia by Finity, Relational Analytics can be used to measure relationships vertically – up and down the hierarchy – and horizontally across different business units, testing for “pockets of collaboration” and “silos”. It is also used to assess the state of relationships with customers and other external stakeholders.

“Relational analytics locates, identifies and diagnoses the root causes of challenging or at-risk relationships,” Mr Bernau said. “It can identify blockages that may be hindering desired cultural change or allowing conduct issues to linger without being noticed.”

Mr Bernau believes that Relational analytics will be of particular interest to company directors as well as in-coming CEOs mandated with the task of affecting change in their organisation.

Mr Bernau said actuaries were uniquely placed to address issues affecting a company’s social condition. “As actuaries, our skills are in understanding, measuring and protecting financial capital. We are applying these skills to the world of relational capital, which we estimate makes up around 40 per cent of the value of a typical company, or more than $5 billion for each of Australia’s largest insurers”.

Last year, Mr Bernau co-authored a major dialogue paper prepared for the Actuaries Institute promoting the idea of organisations producing an annual “Social Condition Report” to examine the state of all internal and external relationships and their impact on business performance.

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