Crikey is already sick to death of the NAB forex scandal as a story.
It’s been done to death and we’re now onto Act V with the upcoming
proxy battles between Catherine Walter and the board.

Crikey’s very own Don Boardwalk was quick to pump out his thoughtful
analysis on Friday night explaining why Walter should have quit. Check
it out here:
Why Cathy Walter should have gone

The Age had the best read in terms of who Catherine Walter is and where
she came from: Career woman stands defiant in eye of the storm

Alan Kohler was right when he said Walter would definitely lose and the
major reason is that shareholders prefer stability and fund managers
want those MLC fees to keep flowing: Boardroom saga has a predictable end

Stephen Bartholomeusz took the line that there would be no winners from
this battle and even said the Walter’s strategy was “sad”:
NAB’s boardroom confrontation is a battle that no one can win

Walters seemed to get most support from her old buddy Terry McCrann in
The Australian who suggested there should be an inquiry into her
claims, something he repeated on Business Sunday. McCrann’s colleague
Bryan Frith also felt that she landed some punishing blow against the
gang of seven: Stayput Walter lands some punishing blows

Robert Gottliebsen clearly got his own board leak in what was arguably
the best detail of what happened inside the board room: A long time coming but it’s now Cathy go home

Finally, the SMH’s Kate Askew has a good piece pointing out what a
small world the directors’ club is: Walter’s web wide-reaching

Kohler, Walter, Gottie and leak protocols

Sealed section – 24 March

The Australian’s Robert Gottliebsen has weighed into the debate on Alan
Kohler’s controversial column about whether isolated NAB director Cathy
Walter was his indirect source attacking the independence of the PwC
report into NAB’s forex scandal. Check out what Gottie had to say here.
The key lines from Gottie were as follows:

“Like most journalists, I go to extraordinary lengths to make sure the
source of the leak can never be discovered. But under board rules of
conduct, leaking information on debates is one of the worst things a
director can do because it strikes at the heart of board
confidentiality and causes directors to lose confidence in each other.
The board can become unworkable. Once a person is a proven board
leaker, they really have to leave the boardroom because no one can be
sure they will not do it again. But it is hard to prove.

“What has happened at the NAB has few precedents in Australian board
meeting history. The business commentator for Melbourne’s The Age (and
The Sydney Morning Herald) Alan Kohler last week wrote about a split on
the NAB board over PricewaterhouseCoopers independence. Yesterday he
revealed that the source of the report was a third party. Although he
does not know who was behind it, ‘Cathy Walter seems to be a fair bet’,
Kohler says.

“I can imagine that Walter, who puts enormous effort into all her
directorships (including the NAB), would feel hardly done by, which is
why she missed an easy opportunity to go with grace. But now she is
being accused of probably leaking board information through a third
party by the respected journalist who published the leak. It’s another
chapter in an incredible saga.

Alan Kohler is not taking this lying down and told Crikey today that he is “definitely not a source-dobber”.

“When I wrote that ‘Cathy Walter would be fair bet’ as the person who
leaked to me, I meant it would be a fair bet for the board because,
apparently, she was the only one complaining in board meetings about
PwC’s independence,” Kohler told Crikey.

“I still don’t know who it was and there has been no further contact
through the third party. I wrote what I did because I felt I was in a
difficult position commenting about the consequences a boardroom leak
when the leak was to me and a reader would reasonably think I knew who
was behind it and therefore had a conflict.”

CRIKEY: Okay, Kohler was not speculating who his source was, he
was only saying it was a fair bet for the board to think that. We
reckon Kohler probably regrets putting that line in. Crikey has been in
this situation on many occasions. We have numerous sources who we don’t
know but generally try to avoid speculating as to who they might be.
Readers presume that you are best placed to name an anonymous source so
if you do it, people believe you are correct. Maybe the lesson from
this is that leakers should be direct and identify themselves, that way
a journalist can’t even get into the speculation game as Kohler did on

Alan Kohler’s extraordinary Cathy Walter column

Sealed section – 23 March

Alan Kohler had an extraordinary column in today’s Age/SMH which really
turned up the heat on former National Australian Bank audit committee
chair Catherine Walter who is fighting a rearguard campaign to stay on
the board.

We say extraordinary because Kohler talks openly about who was the
source of a controversial column on March 10 which came indirectly from
a director and attempted to undermine the then upcoming
PricewaterhouseCoopers report into NAB’s $360 million forex loss.

Kohler writes:

“In fact the NAB board believes that because of that expectation she
[Cathy Walter] tried to undermine the credibility of the report by
leaking – to this correspondent – that there was dissent within the
board about PwC’s independence.

“There was, indeed, plenty of disagreement but we now learn – thanks to
my colleague Malcolm Maiden’s story over the weekend – that it was
Cathy Walter versus the rest.

“For the record, contact with me was made through a third party; I did
not know who was behind it and still don’t (although Cathy Walter seems
to be a fair bet).

“And as discussed in the context of the Telstra board leak about the
abortive Fairfax deal a few weeks ago, no board can tolerate leaking.”

Read Kohler’s full column here: Walter had time to jump – now push must shove

Crikey hears that Catherine Walter has a difficult relationship with
Craig Hamer, the PwC partner who handled the forex investigation and
also led the unsuccessful pitch to pick up the NAB audit contract from
KPMG after the Homeside fiasco.

Walter is said to be very close to KPMG and was clearly expecting a
spray from PwC so she launched a rearguard campaign of
self-preservation which included attempting to undermine the very
report which was going to restore confidence in the NAB.

Directors can’t do this sort of thing so we reckon today’s Kohler
column is the final nail in the coffin for Walter. She either has to
point blank deny that she put the third party onto Kohler or admit it
and resign immediately.

The Catherine Walter debate

First sealed section – 22 March

The power struggle on the NAB board has dramatically escalated
after The Age reported on Saturday that a majority of directors were
considering calling an extraordinary meeting to boot former audit
committee chair Catherine Walter from the board.

It was a good get by Malcolm Maiden which you should read here: NAB split as director digs in

Labor’s Stephen Conroy then cranked it up another notch on Business Sunday as you can see from this transcript.

key Conroy quotes were as follows and apologies for the Packer
transcribers laughably coming up with Kathryn (sic) Walter and Graham
Cray (sic):

CONROY: Well I’ve consistently said more heads
should roll. The Price Waterhouse Coopers report is an indictment on
the board and in particular the audit committee of the board.

ALI MOORE: So Kathryn Walter – she should go, despite reports that she is resisting board attempts to make her resign?

Well I think that certain members of the audit committee should take
responsibility for what has happened and ultimately they should step
aside. I understand that …

ALI MOORE: All members of the audit committee?

At a minimum the Chair should step down off the board. It is up to the
shareholders ultimately, and if the audit committee and the members of
the audit committee don’t want to take responsibility, ultimately it is
in shareholders hands. There are provisions in the corporation’s law
for shareholders to seek the dismissal of directors and people
shouldn’t lose sight of that. It is shareholders money, the
corporations law allows shareholders to take these mattes into their
own hands.

ALI MOORE: So if Kathryn Walter, should go, who else – name names – who else should leave that board?

Well at a minimum the Chair of the audit committee has to take
responsibility but I believe other members of the audit committee have
a responsibility. Unfortunately, what you have seen is most of the
other members of the audit committee have been promoted into new
positions so it is very difficult to understand how people have got
promotions after being on the audit committee.


naturally gave the Monday papers plenty to run with, especially with
Australian Shareholders’ Association chairman John Curry renewing calls
for Walter’s resignation.

Check out today’s business lead by Richard Gluyas in The Australian here.

The Age also led with yarn as follows: Reveal all on fiasco, NAB told

And this was backed up by a strong Malcolm Maiden comment as follows: Shareholders may have say in NAB board feud

makes a very good point. What on earth were the institutions doing just
three months ago giving Walter another three year term with 615.7
million votes in favour and just 7.5 million against? Crikey spoke out
against Walter at the 2001 and 2002 AGMs, citing her role in Homeside
and the decision to reappoint KPMG as auditors for another 7 years. But
no-one listened. As as nation we still lack a culture of shareholder
pressure and a culture of corporate accountability amongst
non-executive directors. Part of the problem is that NAB pays huge fees
to third party fund managers through its giant MLC division so
institutional Australia is very reluctant to upset the bank by voting
against a director. This is a good example of why Australia needs a
church and state type separation between big banks and fund managers.
You can’t provide the debt and equity for an economy.

should not just resign because of her position as the long-standing
audit committee chair. Crikey hears that she was the director referred
to by Chanticleer columnist John Durie in the Fin Review attempting to
undermine the PricewaterhouseCoopers report by pointing to various

This was first raised in an Alan Kohler column on March 10 as follows: NAB’s expert not so independent

doubt that Walter would have directly spoken to Kohler but suspect a
“supporter” might have been behind that column. Boards cannot tolerate
leakers (assuming Durie is right about Kohler’s source) and the rest of
the directors should press ahead and see the back of Walter promptly.
The only problem with this approach is that two of Walter’s fellow
audit committee members, Graham Kraehe and Dr Ken Moss, have seemingly
been promoted. However, she is the clear third in line and the leaks
cement the argument.

There are some interesting parallels
between Catherine Walter’s struggles at NAB and the only Melbourne
woman with a better portfolio of directorships, Margaret Jackson. By
hanging on and campaigning so publicly, Walter is risking her
reputation although we very much doubt a NAB resignation would
jeopardise her other board seats such as ASX and Orica.

Crikey’s opinion, Jackson should have been booted from all the boards
she sat on because she chaired the BHP and Pacific Dunlop audit
committees as billions were lost.

However, shortly after
Don Argus took over as BHP chairman in 2000, Jackson quit the board and
the spin she used was that her appointment as Qantas chairman meant she
had to lighten her workload.

Check out the Argus explanation from BHP’s 2000 annual report.

Jacko’s departure from the Pacific Dunlop board, where she also chaired
the audit committee, was announced on May 28, 2000 Retirment of director.

seems that as long as you slink off a board with a good excuse, it is
not held against you, even if the performance has been disastrous.
Afterall, Jackson remains on the ANZ board (including its audit
committee), subsequently followed her mentor Gary Pemberton onto the
Billabong board and was even reportedly offered the governor
generalship by John Howard after the BHP and PacDun disasters.

So much for people being held accountable for poor performance.

Jim Kennedy comes out swinging for Catherine Walter

Sealed section – 19 March

While Crikey has been questioning Catherine Walter’s
responsibility and accountability over NAB’s forex trading fiasco, not
everyone is calling for her head. This letter appeared in today’s Fin

Wrong to make Walter scapegoat

On a
number of occasions it had been reported by your newspaper – as well as
other publications – of calls by the Australian Shareholders
Association and others that National Australia Bank director Cathy
Walter should be sacked or should resign from the board because she
chaired the NAB audit committee.

Such calls are unfair and
fail to appreciate the fact that the audit committee role – at the NAB
and other banks – is responsible for the half- and full-year accounts.
The risk committee is required to monitor the other risks, whatever
they are, including credit risk, liquidity risk, currency risk etc.
This approach is encouraged by the Australian Prudential Regulation
Authority for all banks.

There is no doubt in my mind that
the NAB board lost the plot and it seems from its latest appointment of
a director specifically to deal with shareholder matters that it still
doesn’t have a clue about what a board’s role and function is all
about. However, attempts to make a scapegoat of a dedicated,
experienced and competent director such as Walter are wrong.

Jim Kennedy
Hawthorn, Qld

CRIKEY: This isn’t any old Jimmy Kennedy. It
happens to be the best regarded and most powerful professional director
from Queensland and he also happens to sit on the ASX board with
Walter. Surely this should be disclosed.

Crikey is a big
fan of Jim Kennedy and rates him in the top 10 Australian independent
directors. But we are disappointed that he has allowed his personal
friendship with Walter to get in the way of good corporate governance.

is powerful stuff for an influential director to go on the record
saying that another board “lost the plot” and he is directly trying to
sheet blame for the fiasco home to Graham Kraehe as chairman of the
newly formed NAB risk committee, a committee that was formed because of
the failings of the audit committee.

Walter chaired the NAB
audit committee during Homeside, the forex scandal and the
reappointment of KPMG as auditor. It is a case of three strikes and
you’re out and club members like Kennedy do themselves no credit trying
to protect her.

Chanticleer reports in the Fin Review today
their are rumours of mass departures from KPMG because of the SEC
investigation into the failure to uphold independence of the NAB audit.
Surely the chairman of the audit committee knew about these illegal
secondments from the accounting giant into the bank.

the Fin Review letters editor deserves a rap over the knuckles for not
alerting the news desk because this is actually a very strong story
because the power struggle between Kraehe and Walter is now out in the
open. Crikey is happy to break if for them and any business section
worth its salt will be onto this story in tomorrow’s papers.

McCrann protects his friend Catherine Walter

Sealed section – 16 March

Dear oh dear, remember the huge campaign that Terry
McCrann ran against AMP audit committee chair Richard Grellman last
year. It was a good effort and we totally agreed with what he was

So why isn’t McCrann extending the same logic to Cathy Walter, the chair of the NAB audit committee who has just been demoted.

“The call for heads to roll is way out of proportion,” McCrann wrote this morning.

Hmmm, we wonder if McCrann’s “soft on Walter” approach reflects the fact that he is friends with Cathy Walter.

Walter should not be ousted because of the forex scandal but she should
be ousted because she was also chair of the NAB audit committee when
Homeside blew up and she was the person who drove the process that
re-appointed KPMG as NAB’s auditor.

Meanwhile, Chanticleer
had a very strong comment this morning about the appointment of Dr Ken
Moss as “senior independent director” at NAB.

“Kraehe has
vowed to change all that, so why do we need Moss to double his team? In
short, the concept is a joke and smacks of a board ridden by guilt of
past mistakes and running scared.”

Crikey agrees. The
entire NAB board is independent, with the exception of new CEO John
Stewart who represents management. “Senior independent directors” are
needed when you have a dominant chairman like Frank Lowy. For instance,
Macquarie Bank appointed a “senior independent chairman” because it has
four executives on the board, including executive chairman David Clarke.

NAB clean-out – well done

Sealed section – 12 March

The National Australia Bank board should be congratulated
for the blood-letting announced this morning after the release of the
PricewaterhouseCoopers reports into the $360 million foreign exchange
trading loss.

Before today we’d already seen the four traders suspended and the departure of CEO Frank Cicutto and chairman Charles Allen.

the traders were “summarily dismissed” and also departing are their
immediate boss Gary Dillon and three of the bank’s top 10 executives:

  • global head of risk management, Chris Lewis,
  • head of corporate and institutional banking, Ian Scholes and;
  • head of markets, Ron Erdos,

Lewis is the sacking that was most important as he
headed the KPMG due diligence team that recommended buying Homeside,
completely missed the emerging Homeside crisis when he was the audit
signing partner for NAB and then oversaw this forex fiasco.

NAB released three statements to the ASX today which you can access here.

first announced the reaction to the report, the second was the 69-page
report itself and the third was a one-pager announcing some important
changes to the board committees.

So what is new out of the
report? Firstly, there were profit over-statements totalling $52
million BEFORE October 2003 when the scandal is said to have started.

the December quarter of 2003 the boys then increased the US dollar
exposure from $US271 million to $1.548 billion and dropped $49 million
in the process.

The fun then really started from January 1
till January 9 when another $85 million in losses were accrued at which
point the lads were suspended and the market informed. After that, the
portfolio was revalued by $175 million, bringing us the final figure of
$360 million in losses.

NAB hasn’t minced its words in the
18-page summary which you really should read in full. The summary talks
of the “false data” entered by the traders to “manipulate” the figures.
They had “open contempt for controls” and were motivated to protect
bonuses which ranged between $120,000 and $265,000 in 2003.

board appears to have protected itself with references to “biased”
board briefings by senior management and “insufficient escalation” of
the problem once it became apparent. However, there is a line in the
full PWC report saying the board should have taken more decisive action
when first informed.

The board changes are subtle but
important even though Fin Review journalists John Durie and Andrew
Cornell were both calling for more heads to roll at this afternoon’s
press conference. Former Shell CEO Peter Duncan replaces Graham Kraehe
as chairman of the risk committee and former Merrill Lynch heavyweight
John Thorn replaces Catherine Walter as chairman of the audit committee.

hasn’t “resigned” or been “sacked” but we predict she will “retire”
well before the next NAB AGM in December. It will be interesting to
track how far away the next increase in retirement benefits is for

Strangely, Kraehe today tried to argue that
Walter’s demotion had nothing to do with the PwC report. Hmmm, that’s a
bit like Southcorp chairman Brian Finn claiming the departure of Don
Argus and Dick Warburton from the Southcorp board had nothing to do
with the $1 billion loss and impending Australian Shareholders’
Association campaign to sack them.

Even though Graham
Kraehe is an independent chairman, former Howard Smith CEO Ken Moss has
been appointed “senior independent director” which is effectively
deputy chairman and heir apparent to Kraehe.

The other
interesting snippet in the PwC report is that the traders “colluded”
with an external provider of revaluation rates. Hmmm, could be a writ
in the wind over this one.

All up it is a decisive
package of changes and you cannot argue that this isn’t accountability
and transparency in spades. The next step will be to sack auditors KPMG
and they will probably be replaced by, wait for it, who else but PwC.