The banking cartel has a long way to go if last week’s performance at the NAB AGM is anything to go by.
Charles is a 65 year old Melbourne-based business establishment figure who was born at Harrow in England and educated at Oundle school and then Corpus Christi College. He rose through the global Shell network to be CEO of Woodside Petroleum for 14 years until 1996.
He joined the NAB board in 1992 but only picked up the chairmanship a couple of months ago when Mark Rayner fell on his sword because of the mud that stuck from his chairmanship of Pasminco when it collapsed owing $3 billion.
Banks are very cynical when it comes to PR and yesterday was no different. Charles and managing director Frank Cicutto strung out their formal addresses for more than an hour, labouring on everything from NAB’s generous role in the community to the $1 billion a year in taxes they pay and swipes at the union movement.
Ask your Homeside questions first
Charles then called for all Homeside questions to be asked in a separate batch up front which was the first time Crikey has ever seen this occur. Still, they blew up $3.6 billion so there was plenty of offerings from frustrated shareholders.
However, the Homeside debacle is fundamentally different from other corporate wipe-outs because the NAB share price remains robust at $30.90, even after a 70c dive on Thursday.
Shareholders you have held NAB shares for 10 years have still made more than 500 per cent on their money so a $3.6 billion loss in some far-flung place doesn’t really register, especially when it does not affect the dividend in any material way.
A number of the usual suspects go up and blasted the bank over Homeside but using the article from Stuart Mackenzie, Crikey hit the softest mark with the point about former auditor Christopher Lewis.
Let’s just quote from Stuart’s article for a moment to set the scene:
“The board of directors as a whole is responsible for the content of both the concise and full annual report and the principal executive engaged on its preparation is the chief financial officer – Bob Prowse in 1998 and 1999, then Richard McKinnon for the 2000 and 2001 reports.
KPMG gave the full accounts an unqualified audit report for all years and reported to shareholders that the concise report was ‘free from material misstatement.’ KPMG also audited HomeSide’s accounts from April 1998.
The 2000 annual report, with no explanation about MSR risk, was signed on behalf of KPMG by the same Christopher Lewis who became NAB’s executive general manager, group risk management in July this year.”
Th obvious question is why an auditor who failed to spot an impending $3.6 billion disaster is taken on as a key executive at the bank managing risk.
Charles Allen uttered the usual blandishments about Mr Lewis being “an extremely competent and high performing executive and we were very fortunate to secure his services.”
Crikey can now inform the public that this is the same Mr Lewis who was sent to Florida at the time of the Homeside acquisition to head a KPMG due diligence team that recommended the deal to the NAB board.
He then became the auditor who didn’t blow the whistle on it in the 2000 accounts and now is the guru managing global risk for the bank. Since he joined in July, they’ve pulled a $3.6 billion loss out of the hat.
Richard McKinnon was the executive in charge of due diligence from the bank’s point of view at the time of the Homeside acquisition and from Crikey’s perspective he is the executive more than any other who should carry the can and be fired when this exhaustive external review is finally finished.
McKinnon is not on the board but was sitting up on the stage at the AGM and even answered a Homeside question, suggesting he is the man most in the know.
It was surprising how little heat the board felt for the outrageous bonus payments paid to the two former Homeside CEOs, Joe Pickett and Hugh Turner. Giving these blokes $5.8 million and $5.6 million last year when they were fired was an absolute disgrace, but Charlie simply claimed they related to past performance so everything was above board.
The ousting of chairman Rayner
The ousting of chairman Mark Rayner was also given only a cursory mention and Crikey was the only shareholder or proxy to ask a question about it.
When someone else mentioned Pasminco in passing, Charlie dismissively said he did not “have the foggiest” about Pasminco’s hedging because “that has got nothing to do with us”.
I got up and pointed out that there was a massive related party transaction between the two companies because the bank was facing a loss of up to $200 from loans and hedging exposures to Pasminco, which at the time was chaired by the NAB’s chairman in Mark Rayner. It had everything to do with NAB.
The board is to be congratulated for moving so quickly on Rayner but his $1.47 million retirement package leaves everything to be desired.
Non-executive directors should not get superannuation or retirement lump sums. Their role is to be a watchdog on management for an average of one day a month and for this they should get everything up front so that they have no financial incentive to keep quiet if dodgy things are going down.
However, the exact opposite happens in Australia with all these balloon payments going to retiring directors provided they have served enough years on the board to qualify.
The biggest lump sum paid to a non-executive director that Crikey had seen was the $1.1 million that ousted Woolworths chairman John Dahlsen picked up this year after he fell out with CEO Roger Corbett and them decided to join the board of New Zealand competitor The Warehouse Group.
But now Rayner is the new record holder so I asked chairman Allen what the formula for the payment was as it appeared to be about 6 times his annual fees and the Dahlsen golden parachute was based on a formula of 5 times the annual fees.
Afterall, the annual report merely stated that Rayner was paid the figure which “reflects payments in respect of retirement (including superannuation)”.
So, how did the ever helpful Charles Allen answer this one: “The payment is comparable to other companies and entirely in line with the retirement payout to directors.” This is one area that Crikey is planning a big assault on next year. We’ve seen the Southern Cross Broadcasting board defeated by shareholders when they tried to increase their retirement payouts to long-serving directors to 5 years and now outgoing chairmen are starting to walk out with 7-figure lump sums.
The simple fact is that there should be no balloon payments or good behaviour bond cheques for time-servers. Non-executive directors have usually finished their management careers with big superannuation payouts and lining up again this way is just greedy double dipping and bad corporate governance.
But what hope is there when the worst offenders are the companies like NAB which manage tens of billions in superannuation for Australians and are meant to be the guardians and enforcers of good corporate governance.
Shareholder resolution knocked back
NAB’s corporate governance is pretty ordinary. Afterall, they knocked back a duly lodged resolution put forward by 100 union-organised shareholders on the grounds that it related to a management issue and not a shareholder issue.
Australia has no culture of shareholder sponsored resolutions like the US so it really is a travesty that properly constituted resolutions can be dismissed by NAB when they themselves should be firing shareholder resolutions at Aussie companies left, right and centre as a major fund manager controlling almost $100 billion. The complete lack of shareholder resolutions is one reason why Australia has no culture of shareholder pressure and a resulting tragically bad corporate record.
After at least an hour on Homeside, Charlie called for other questions so I got up twice and threw in questions about the Rayner payout, the cynical PR stunt to arrange for all the bank AGMs to clash and the 200,000 options that CEO Frank Cicutto exercised and sold a few months back.
Charlie’s answer to the clashing AGMs was a complete joke as he raved on about what a brilliant effort it was by the banks to get all their financial material together so quickly given that they used to hold their AGMs in January.
He refused to answer the question about the clashes, so I reminded the audience that we were dealing with an industry so cynical that they were prepared to get together and pay John Laws $1.5 million to stop criticising them.
But the cynicism did not stop there. Can you believe they switched off the internet broadcast after the formal addresses so no shareholder could watch the shellacking being dished out from their home or office.
The next question about Cicutto’s options received an equally dismissive and inadequate response from Charlie.
I asked when the sale took place in relation to the various Homeside announcements and whether the CEO had any further plans to unload his 240,000 ordinary shares or 1.6 million options. In addition, given that NAB allowed former CEO Don Argus to keep his last lucrative tranche of options after retiring early, what would the status of Cicutto’s options be if he was sacked by the board over Homeside?
The brief answer was that Charlie discussed the move with Frank and simply said it was “right above board”. There was nothing on future sales, the terms of the options if Frank goes or the dates of the sales.
By the time we finally got around to the election of directors it was well past 1pm and the majority of shareholders were already outside hoeing into the sangers.
Charlie finally did something commendable when he got the candidates to speak to the meeting but he then slipped back into his bad old habits of not answering questions.
Former Southcorp CEO Graham Kraehe copped a lengthy sledge from one shareholder which was a little unfair given that he tripled the share price and doubled the market cap of Southcorp during his 6 years in the top job.
But there is the question of the NAB audit committee so I asked the chairman to clarify when Graeme and Catherine Walter, the current chairman of the audit committee, were appointed to this vital board sub-committee which is responsible for risk management.
Charlie didn’t answer it on the Kraehe resolution so I got up and asked it again on the Catherine Walter resolution and again he didn’t answer it.
It was only when another shareholder got up and insisted on an answer that Charlie said Catherine joined the audit committee in 1999, although this was a little ambiguous and we’ll be checking if this was when she became chairman of the committee. Charlie’s amazing reticence would suggest he was trying to protect his directors from individual criticism over the Homeside debacle.
As it turned out, the Fin Review reported the following day that Catherine Walter actually joined the audit committee in July 1997 and therefore was in part responsible for the Homeside debacle.
The company secretary also wrote to Crikey shortly after the meeting clarifying this point on behalf of the chairman.
Both Catherine and Graeme were reappointed with only about 10 per cent of the shareholders opposing the resolution and they got the usual 99 per cent of the vote thanks to all those wonderfully complicit institutions.
That’s all we’ve got time for at this point but we’re keen for feedback from people who were at the meeting or from those who read the accounts of the meeting elsewhere and noticed anything interesting.