Crikey laughed out loud several times on reading Neal Woolrich’s account of last week’s Commonwealth Bank AGM in Sydney. We’ve got a real talent here but all he really wants in life is to be a sports reporter. The longer the mainstream hold off on picking him up the better it is for Crikey. Enjoy.
There were all sorts of interest groups with a barrow to push from tree huggers, Trotsky unionists, grey-power shareholder activists, femmos and a bemused Crikey correspondent taking it all in.
It was another year of bumper profits for the Bank amidst the usual tabloid TV bank-bashing, protests from unions about staff being overworked and un-loved and an obscene emuneration package to be awarded to the Bank’s MD, David Murray if the shareholders acquiesced.
In his Chairman’s address, John Ralph pointedly touched on the issue of continuous disclosure. The Chairman noted that the Bank had been forced into making ASX releases on a couple of occasions during the year simply to quell media speculation that had been building up. It was frustrating for the Chairman that the Bank should have to do this and while an advocate of continuing disclosure, he hinted that the process was being abused when unfounded rumours were being fed to the press.
Managing Director, David Murray, was under the spotlight today, as he was putting his case for a hefty pay rise. Well, not really, because the proxies were already in and well and truly in his favour. But as he pointed out, the Bank can expect a difficult period ahead. He dwelled for some time on the issue of risk management and noted several factors in the Bank’s favour in this regard.
First, there were no bad debt exposures of more than 10% of the Bank’s capital and only two bad debt exposures in excess of 5% of the Bank’s capital. Secondly, the Bank follows the prudential and regulatory benchmarks that are set and enforced by the RBA and APRA. That would be the same APRA who oversaw the recent collapse of HIH. That inspires confidence. Thirdly, the Bank operated within a control framework that was managed by internal and external auditors. Ah yes, auditors the same people who signed off on the books of HIH four months before they collapsed.
When the floor was opened for questioning, I opened proceedings with the new ball from the Darling Harbour end off the short run with a bit of a breeze at the back. I referred to the MD’s comments regarding risk management and noted that the Bank’s Bad Debt charged had gone from $196 million in 2000 to $385 million in 2001. I asked what this said about the effectiveness of the Bank’s risk management policies.
The Chairman slapped the new ball straight back over my head by first pointing out that the 2000 figure I quoted did not include Colonial Bank’s Bad Debts (as the 2001 figure did), and when including Colonial’s Bad Debt charge, the increase between the two years was around 27%.
Still, this was a pretty hefty increase and with an Australian economic downturn a real threat and with it, more corporate failures CBA shareholders would hate to see a return to the early 1990s bad debt purge.
Next the Greenies took over, with a shareholder asking about the Bank’s 16% investment (via Colonial First State) in Tasmanian company Gunns Limited. The inquisitor asked how the Bank could claim in its Annual Report to be a good corporate citizen as far as the environment is concerned when it invested in the logger of Tasmanian old growth forests. The shareholder pointed out that Colonial had separately indicated that they only invest on the basis of economic considerations.
Both Ralph and Murray at first seemed to not understand the question. Ralph referred to Gunns as a “customer” and said that the Bank doesn’t inquire into what its customers do they merely assess financials when lending. Murray (who, when later questioned on Gunns, indicated that he thought the question was about a “Tasmanian gun company”) indicated that Colonial’s fund managers must act as directed by a client’s mandate. It is only in enforcing its credit policy that the Bank will take environmental considerations into account.
When later questioned about Gunns, Murray stressed that fund managers must adhere to their fiduciary duty to clients. He added that the Bank doesn’t ask questions about Colonial First State’s investments as this may cause conflicts of interest. He added that Colonial First State has a “fantastic track record” of investment and the ability to adapt their investment policies if clients indicated they wanted to adopt an “ethical investment” portfolio.
Frankly, this just doesn’t stack up. On the one hand, in their annual report, the Bank claims to be following environmentally friendly practices. On the other, they are saying they can’t direct their funds management arm how to invest, as that is the prerogative of their clients.
The CBA’s claim to be green-friendly is meaningless because an important part of their business funds management operates independent of any concern for environmental policies that the Bank might claim to adhere to.
Next, a feisty shareholder queried whether the Bank’s “Mortgage Provider’s Discount” was a securitisation which brought income to account early and discounted the later mortgage payment stream, in effect bumping up current year profits to increase the MD’s bonus entitlement.
The Chairman suggested the latter part of the question was “not the sort of insult I’d like to hear” and confirmed that the Bank did not in fact recognise income on such a basis.
Then the Unionists took over.
A representative from the Finance Sector Union resplendent in a “smiley face” tee shirt with “More staff, less stress” splashed over it stuck it up the Board big time, referring first to the Johnny Farnham Paris junket. Her gripe was that while the plebs out there are having the whips cracked at them, the Bank’s finance advisers were whooping it up in Paris and being entertained by Johnny Farnham. (A junket which was reported in some not always 100% accurate quarters not naming names, Crikey as costing $800,000.)
Yet in the midst of this extravagance, customers (and shareholders) were angry at the well-publicised fees they were being slugged with. After a solid rant, one shareholder piped up with “I’m not angry”. The FSU muck-raker said “excuse me, but I have the floor” to the accompaniment of an audible groan.
Chairman Ralph explained that this particular junket was an incentive scheme which was awarded to agents who were not Bank employees and was similar to incentives awarded by the Bank’s competitors. Colonial committed to the junket before the CBA acquired Colonial and Ralph added that the Bank was trying to phase these types of deals out, although in a competitive market they will continue to do what their competitors do. Ralph added that the true cost of the junket was nowhere near what was reported. Are you listening, Crikey? (Now listen, we simply ran what Gerald Tooth reported on Radio National’s Background Briefing program.)
In addressing the concerns that FSU employees were slave-driven to the brink of breakdown, Murray pointed out that those employees had received over $160 million in free shares that the agents did not receive, had bonus entitlements and he was personally “proud” of the conditions that the Bank was able to negotiate.
After another nip by the FSU representative about accountability, Ralph responded that “we are accountable to shareholders for every dollar of expenditure”, for which he received a warm round of applause.
It’s a reasonably compelling argument this “market forces” business, which is why it gets a run at every conceivable opportunity. It can be used to justify most anything, from exorbitant salaries to Johnny Farnham crooning junkets in Paris for financial advisers.
And while it’s all very well to say “we’ll continue to pay top dollar to attract and keep the best people”, for mine that’s a cop out for doing the hard yards and searching hard and smart for value.
To paraphrase my old Grade 4 teacher Mrs Slattery, “would you jump off a bridge just because the market tells you to?”
If I may indulge in an analogy, in Muddy Waters’ blues bands in Chicago in the 50s he used to have the best musicians beating down his door to get a gig. Did Muddy pay top dollar to attract the best musos? No he pitted musos against each other on stage in “cutting contests” where they would “cut” each other until they bled. (Figuratively, of course.) The best would play for the prestige of being in the Muddy Waters band. Once an ego got too big for the band, they were cut loose and there were plenty of other talented musos ready to fill the breach.
The point is this. There are probably plenty of people already in the organisation who are capable of filling the top jobs. If there are not, then the Bank isn’t doing its job in cultivating the next generation of senior management. And yet the incumbents perpetuate this myth that “if you don’t pay me $X I’m going elsewhere”, hence distorting the market and the amount paid is way in excess of good value.
Surely there are plenty of execs in the ranks of the CBA who would do the job as well as the incumbent? It’s time for someone to start calling bluffs like Muddy used to do and stop peddling this garbage that “we pay top dollar to attract and retain the best people”. What bollocks. Has anyone ever investigated whether they are getting value or could be getting better value? Not likely.
Unfortunately, no organisation has the balls to take a stand and say “you can work for us at our price or not at all”. It’s hard to envisage a Board taking a punt on someone who is young, lean and hungry yet talented it’s much easier to shell out a ludicrous salary and preserve the status quo. Well, at least when it comes to senior management.
Another FSU representative attacked the Board for the so-called “Mystery shopper” policy, where a CBA operative makes random checks on branches and makes sure that staff are not infringing any sackable offences. These were said to include failure to refer to the customer by name twice and saying “may I help you” instead of “can I help you”. Or was it “can I help you” instead of “may I help you”? Cloak and dagger stuff, this.
Ralph yadda-yadda’d about “customer service of the highest order” being what they were after which explains the myriad of staff redundancies and branch closures over recent years. (In fairness, MD Murray did allude to the fact that banks were continually stretched by their responsibility to derive a return to shareholders on the one hand and meet these nebulous “community service obligations” on the other.)
A female shareholder then referred to the MD’s comments earlier that the Bank was proud of the esteem in which it is held as an equal opportunity employer, yet of the 12 Board members on stage, only one was a member of the fairer sex.
The Chairman responded by saying that all nominations for the Board were considered on an equal basis and they would not make “tokenistic” appointments. When it came time for a seconder for the re-election of Barbara Ward, this particular shareholder yelled “yeah hooray” to the amusement of the crowd.
The meeting then moved on to the re-election of Chairman Ralph and Directors Ward and Clairs, which were passed by overwhelming majority and virtually unanimously on a show of hands.
Then came the most contentious issue, the awarding of up to 1 million options and 200,000 shares to MD David Murray over three years.
Ralph once again spent plenty of time saying “we have to pay what the market dictates to keep the best people”. He pointed out that Murray is the best-regarded of his contemporaries yet he is not the most handsomely remunerated of them. The Chairman also pointed out that Murray had tough performance targets to meet and it wasn’t a lay down misere that he would get the maximum emoluments available. In fact, in the past year, Murray had met only about 60% of his targets. 60 per cent?!!! What are they paying this dud for?!
After some spirited and long-winded questioning from the Australian Shareholders’ Association the resolution was put to a vote.
The Chairman revealed that more than 260 million proxies had been voted in favour and only 28 million against, so it was a fait accompli.
But it was heartening to see the blue rinse set in attendance show some disapproval, with the vote on show of hands being about 65-35 in favour by this humble scribe’s reckoning. That was a far cry from the other votes, which were pretty much unanimous.
Hopefully that will send a message to the Board that punters are sick of outrageous salary packages.
But we at Crikey won’t be holding our breath for the trend to be reversed.
If you enjoyed Neal’s report or you want to bollock him: [email protected]
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