I was thrilled when the banking Royal Commission was called. I thought, “Why did it take so long? Let’s get on with it, let’s have sensible terms of reference, quality people in charge of it and a sensible time period.” The industry needed a circuit breaker. The industry went off-track because of the global financial crisis. It became focused on financial imperatives rather than customer and conduct issues, and the Future of Financial Advice was a massive change that the industry really got wrong.
The industry does need to reform itself and I support the Commission’s 76 recommendations. It’s a balanced document that didn’t overreach with draconian suggestions. Westpac changed between 2001 and 2008, and the industry will change, too. I know many of those in executive management personally and it is seared on their consciousness that this must never happen again.
Public vs private boards
Of the 11 boards I’ve been on in the past 11 years, four have been public, seven private. The nature of the conversation is very different. With a public company it’s increasingly about conformance, whereas a private company is more about performance.
Public companies are legitimately concerned about CEO remuneration and how to manage their AGM. Instead of focusing on such things as getting top management, ensuring alignment between their rewards systems and reducing the principal-agent conflict, there is a shorter-term perspective — on the AGM, the need to meet analyst’s estimates and the tyranny of quarterly earnings updates.
You don’t have that in private equity. I was the first Australian CEO to abandon the issue of giving annual guidance. I’d say I was running the company for the long term and people should judge Westpac by its performance when the next big shock hits. I didn’t know what that would be, when it would come or what would cause it, but I knew Westpac would be second-to-none in terms of risk and resilience, meaning we could do uncontested merger and acquisition, take a lot of market share and get great people.
That was my 20-year mission. We succeeded and I feel proud of that. It’s really hard to keep sight of that long-term perspective in a public company.
The public good
The complete eclipse of the bureaucracy by political advisors has gone much further in emasculating the power, influence and respect that the public service here has than in other Westminster systems. I used to be able to give frank and fearless advice — including standing up to Malcolm Fraser in a cabinet room — because I couldn’t be sacked on a whim as part of a professional, merit-based, politically neutral, independent civil service.
It’s outrageous that [senior public servants] such as Martin Parkinson and Blair Comley can be fired on the impulse of a minister [in 2013 by the Abbott government] without adequate compensation or rationale. We’ve got to restore remuneration, power, respect and protection of reputation.
Restoring them is partly about political will, but it’s also about letting the public and business know just how far this emasculation has gone. And reminding business while they are rightly calling for reform, of the phenomenal role quality bureaucracy plays in that reform. Business should stand up and fight for recognising the role the public service can and should play in the reform process, through a vigorous public policy debate.
One of my first lessons in governance was working with the International Monetary Fund in Sierra Leone, when Siaka Stevens was its leader. I had to tell him that we had found a trail of corruption leading to his door. He told me there was a plane at 2pm that day and I should be on it — which I was!
It taught me the fish rots from the head and that leaders throw very long shadows. How the leaders act dictates the culture, which is really about behaviours. I saw very clearly that how a leader behaves allows others under them to believe it’s okay to behave in the same way.
I have also learned that most good governance isn’t necessarily about the cult of the CEO. Rather it’s about really effective top teams. Building a team, whether it’s a corporate board or Federal Treasury, is about first getting clarity around the basic questions: What are the fundamental objectives? What are we trying to achieve? What is the strategy to achieve it? What are our values and how will we hold people to account?
You also need to understand objectives specific to the conjuncture the organisation finds itself in. Then there are the human qualities that you look for. Recently, for me, it’s been about having people on the board with a good track record of execution, because execution eats strategy. Courage and independence are other really important traits on boards.
Harsh lessons early
There’s one moment from my early life I remember like yesterday — coming back after school to our family home in Melbourne and seeing a bank mortgagee sale sign on the front lawn. I had no idea my father’s business and his marriage were in crisis. Seeing my dad’s professional, economic and emotional life fall in a heap — and watching my mother walk out on the family — made me realise I never wanted that to happen to me. While it didn’t feel like it at the time, adversity in early life is a gift that builds resilience and determination. It’s not really what happens to you that counts, it’s how you react to it. I’ve used that fear of failure to drive me all of my life.
That moment came back to me when I was deputy secretary at Treasury, having a brawl with Paul Keating about raising interest rates to 18 per cent in the late 1980s and thinking there would be more David Morgans coming home to read mortgagee sale signs. I had the same thought when I was running two-thirds of Westpac in the early 1990s and we had to take a hard line on defaulting home mortgages. You need to look at the common good through a veil of ignorance. And you need to examine your own facts and conscience closely.
Peers and pathways
An important reason to study economics at La Trobe was the background of my father’s failed business and thinking I could improve my chances of succeeding in business. I’d also had a wonderful high-school economics teacher and I’d promised him I’d do economics. That didn’t stop me from trying to be an actor, a film director and a professional footballer, but the life lesson I’ve taken away from those times is: do what you like and are good at — not necessarily what you love. Because I loved acting, film directing and Australian Rules football, I just wasn’t good enough at any of them.
I went to La Trobe in its foundation year and was blessed with incredible peers, many who also did honours economics — Bill Kelty (former ACTU secretary), Garry Weaven (ex-chair of IFM Investors), Terry Moran (ex-secretary, Department of PM and Cabinet) — and I roomed with [Paul Keating’s speech writer] Don Watson. You actually learn more from your peers than you do from your teachers and to have wonderful peers like that class, I was so lucky. Anyone who gets to where I got in life and doesn’t admit they’ve had massive dollops of luck is either an abject liar or completely delusional.
I really care about this country and that’s not some sort of lazy jingoism. When I look at what an ordinary kid from very ordinary beginnings had the opportunity to achieve, you realise you really win the citizenship lottery being born here. Australia is better than we think we are. We need to speak up for the Australian public service, speak up for the banking industry. Yes, it’s got to change, but let’s fix it in the way that leaves it as world-class and doesn’t weaken it.
I don’t claim to have had universal truths and I absolutely recognise and acknowledge the glorious diversity of human nature. Different things work for different people. I made a lot of mistakes, but mistakes are the best learning experiences.