Not only were shareholders upset at the weak share prices – in large part the result of expensive customer remediations – they were also livid that the board had the temerity to propose bonuses for executives that had presided over the behavioral mistakes that had contributed to the poor share prices and profit performances.
It would be a very brave bank board willing to try this again in 2019 – a year in which banks have sacrificed hundreds of millions from their profits thanks to remediation costs and customer compensation exposed during the financial services royal commission.
What these 2018 voted-down remuneration proposals told us is that the bank boards failed miserably to assess the mood of their investors.
Their judgment on this left something to be desired.
This is why Westpac’s decision not to release the regulator-mandated self-assessment report on culture governance and accountability may prove to be a mistake.
Better to play it safe and go for complete transparency if the aim of the exercise is to restore trust.
The National Australia Bank released its report last year. The Australian Prudential Regulation Authority released the Commonwealth Bank’s version. It was undertaken by outside experts rather than being a self-assessment.
We have an analytical and consultative culture that can slow down decision-making, create undue complexity and dilute accountability
Westpac chairman Lindsay Maxsted in a letter to shareholders
To be fair, Westpac provided some of the highlights in its half-year profit report and Maxsted added some flavour in Monday’s letter.
He said the bank’s culture, governance and accountability settings in their totality generally supported the sound management of non-financial risks but that its approach to managing non-financial risks is “less mature”.
He said the report found “…we have an analytical and consultative culture that can slow down decision-making, create undue complexity and dilute accountability”.
In other words, Westpac’s self discovery has unearthed a pretty similar set of problems to those found in NAB and CBA.
(The CBA inquiry also found its financial success had dulled its senses in relation to management of non-financial risks.)
In many ways this is hardly surprising – the outworkings of these shortcomings led to similar problems in all the banks to greater or lesser degree.
Now all the banks will be waiting to see APRA’s response to their self-assessments. There must be some chance that APRA will insist they be publicly released.
Having received the self-assessments of 36 financial institutions, APRA said there was a wide variation in their quality noting that some institutions took a lighter touch approach and viewed it as an exercise for APRA rather than an opportunity to drive improvement.
APRA deputy chair John Lonsdale made the eyebrow-raising observation that: “It was also interesting to observe the generally positive assessments boards and senior leadership teams had of their own performance, even when they had identified serious weaknesses in their institutions.”
That sounds like an accountability gap right there.
This observation also seems consistent with the ill-fated moves by some banks to award bonuses to executives in their 2018 remuneration packages.
Unless these reports are able to be publicly scrutinised how can shareholders hope to assess whether the recommendations they contain are being successfully implemented?
And shareholders need to make judgments, they need to know and understand the scorecard – because they are there to approve remuneration.
Performance cannot be judged only on share price or even earnings.
It is also stands to reason that executives should not be looking for bonuses in any year in which profits have been negatively impacted by costs associated with remediation or customer compensation.
If all goes according to plan these will come to an end in this calendar year. But never say never.
Elizabeth Knight comments on companies, markets and the economy.