There’s been quite a debate about the baggage carried by new NAB chairman Graham Kraehe so check out how this unfolded in recent Crikey sealed sections.
The problem with Graham Kraehe
February 17 subscriber-only sealed section
Alan Kohler had a fairly harsh column on Graham Kraehe in The Age/SMH today saying that a company with risk management problems should not appoint the chairman of the risk management committee as chairman of the board: The risk guy gets the top job
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This is unfair because Kraehe only took over the new risk committee in September and this committee was to take the weight off the underperforming audit committee led by Catherine Walter.
Walter is the only other director Crikey believes should be ousted from that NAB board because she chaired the audit committee through the Homeside debacle. When NAB arguably should have been suing auditor KPMG for missing Homeside, Walter’s audit committee was reappointing KPMG for another 7 years. Kraehe was on the committee at the time so this is a black mark against his name and it should be noted that KPMG are the long-standing Southcorp auditors.
Kraehe was the third longest serving NAB director after Allen and Walter but, importantly, he did not join the audit committee until after Homeside blew up. Having joined the NAB board in August 1997, it was also a bit much to expect the newboy to single-handedly stop the dictatorial former CEO Don “Don’t Argue” Argus buying Homeside in October 1997.
However, the Argus-Kraehe relationship is a classic example of how the directors’ club works in Australia, especially the clubby Melbourne scene. NAB was Southcorp’s house banker so the CEO was invited to join the board a full four years before retiring from the wine giant having done a great job. When Argus retired from NAB in 1999 he went straight onto the Southcorp board which has been a disaster for the past two years.
Argus also picked up the chairmanship of Brambles in September 1999 and Kraehe joined him on that board in December 2000. Brambles shares have halved from $11 to $5.50 since Kraehe joined the board so if he’s looking to lighten his workload this is the obvious place to start given the disappointing performance. News Corp is six trips to New York a year so why would anyone give that up?
When BHP-Billiton was looking for a chairman of its steel offshoot, the Argus-led board opted for Graham Kraehe who has done a terrific job doubling the share price of Bluescope Steel.
And both Argus and Kraehe have a connection with that pillar of the Melbourne establishment, JB Were, now merged with Goldman Sachs. Argus sits on the Were fund AFIC and Kraehe has an office at Were’s headquarters and sits on the board of one of its funds.
This is all too cosy and Kraehe needs to get the hell out of 101 Collins (if he hasn’t already) and sever all ties with JB Were as the four boards he sits on will have a conflict of interest whenever it comes to corporate activity or capital raisings.
The NAB-JB Were nexus is also at the apex of the corporate club in Melbourne and it is about time this was broken down once and for all.
GRAHAM KRAEHE’S NAB BAGGAGE
February 18 subscriber-only sealed section
By Stuart Mackenzie
NAB executive turned freelance journalist
Newly appointed NAB chairman Graeme Kraehe appears to be distancing himself from the bank’s $360 million forex losses on three grounds: the board risk committee that he chairs was not formed until late last year; the board as a whole sets risk policies; and executive management, not the board, is responsible for day-to-day risk management.
As Alan Kohler said in The Age on Monday, Kraehe clearly wants it known that the forex losses are not his fault.
Yet, according to NAB’s 2003 annual report, the board’s responsibilities for risk management are to “establish, monitor and review the risk management processes with the guidance of the Risk Committee.”
The committee was established on 28 August 2003 but according to the annual report dated 11 November 2003, held no meetings during 2003. Its responsibilities include “implementing and reviewing risk management and internal compliance and control systems throughout the Group.”
Prior to the risk committee’s formation, the board audit committee had responsibility for “the adequacy and effectiveness of the Company’s and the Group’s risk management and financial control, and other internal control systems and evaluat[ing] the operation thereof.”
As Kraehe has been a member of the audit committee since 2001, he was at all relevant times both a member of the board that set risk policy and the committee charged with monitoring the risk controls that appear to have failed in the case of the forex losses.
While executive management are responsible for the day-to-day management of market risk, they do so within the policies established by the board and controls monitored by the risk committee or previously by the audit committee. Should next month’s PricewaterhouseCoopers report find deficiencies in those risk policies or controls, Kraehe may again find himself explaining why the forex losses were not his fault.
Of course, he might also be asked about some other little matters like his membership of the audit committee when KPMG were reappointed after the $4 billion Homeside debacle and his chairmanship of NAB’s ill-fated e-commerce investment vehicle O2-e.
Established in April 2000, O2-e was to “create and accelerate” NAB’s new economy businesses and introduce “value added Internet capabilities to our core businesses.” The bank forecast that the venture would represent a “significant proportion” of its operating profits by 2005.
In fact, by October 2001 it was “not active” after writing off more than $45 million of shareholders funds in failed dotcom investments – something that was largely overshadowed at the time by the Homeside revelations.
THE FIN REVIEW’S GRAEME KRAEHE DISTORTIONS
The Fin Review’s Chanticleer columnist John Durie last week accused Graham Kraehe’s risk committee of not meeting which is a little harsh because the annual report only reports meetings in the financial year, which in NAB’s case finished on September 30.
The committee was fulfilling its program of eight meetings a year and the first was obviously in October. Durie also stuffed up with the following line in his column today:
“Many in the Australian market remain sceptical, remembering accounting issues at Pacifica and the overblown price paid for Rosemount in the ill-fated merger with Southcorp.”
Kraehe spent seven years as CEO at Southcorp and doubled the share price but it was announced on September 13, 2000, that he would be succeeded by Tom Park and the official handover happened on February 9, 2001, when Kraehe retired from the board.
The Rosemount deal was first publicly flagged 12 days later on February 21, 2001, and then formally announced on February 27, 2001. Check out the announcement here.
Crikey is being told that Kraehe was a big proponent of the Rosemount deal but he’d left by the time it was consummated and is apparently furious with the way Keith Lambert managed the disastrous integration. That said, it is unfair of Durie to blame Kraehe like he did when the board opted for Rosemount’s Keith Lambert ahead of Tom Park. Durie should read the fabulous feature a few weeks back by his colleague Colleen Ryan which detailed all the integration stuff-ups by Lambert.
Given that Tom Park was the CEO-designate right through the Rosemount negotiation, it would be interesting to know whether he and Kraehe were united in their support of the deal and whether Kraehe felt Park should have run the combined operation.
Finally, wasn’t that a joke for the Fin Review to quote former JB Were chairman Bruce Teele saying Kraehe was a “good choice” and had no baggage. Of course Bruce would say he has “a very high regard” for Kraehe when the NAB chairman has been provided with an office at JB Were and sits on the board of one of its investment funds, Djerriwarrah.
This clubby Melbourne back scratching should not be encouraged by credible papers like The Fin.
Check out our earlier coverage on the Kraehe ascension here:
DURIE CORRECTS HIS ERRORS
This appeared in Durie’s column on Thursday, February 19:
“New NAB chairman Graham Kraehe wants the following put on record in response to yesterday’s note: the accounting issues as Pacifica were not material and were dealt with in a transparent way and he left the Southcorp board so as not to be associated with the Rosemount deal, letting other board members make the final decision.”