1. CBA takes the retail path

2. Norris seeks release from Air New Zealand contract

3. Retail versus the rest

4. A manager and not a banker

5. CBA’s politics informs selection of Norris

6. Murray drove timing of CEO handover

7. ASB model vindicated by Norris’ promotion

8. Shareholder returns eclipse customer service

9. The kiwi connection

CBA takes the retail path

Two themes seem to explain Commonwealth Bank’s selection of Ralph Norris as managing director.

One is retail marketing, a topic the bank cited among the reasons for his selection.

The second is CBA’s internal politics, a topic rarely aired.

Norris joins CBA from Air New Zealand, where he is seeking a release from his contract.

He was the manager who sold Auckland Savings Bank to Commonwealth Bank in 1991, and went to work with help and capital from his new owner, and devised sales methods and management practices that pushed ASB from a distant fifth to rank second or third in New Zealand’s banking market. Norris quit ASB in 2001, and took on the job of chief executive of Air New Zealand in 2002.

The bank line is that Norris managed first the resuscitation of a sleepy mutual bank, and then an airline traumatised in the same industry dislocation that killed Ansett.

If the interpretation that CBA plans to emphasise retail financial services over the rest is right, then the appointment of Norris raises a couple of quick conclusions.

One is that CBA customers will have to expect more product advocacy when they ring up, or visit, the bank.

The other is that it’s a strategy likely to reduce the capital needs of the business, which should mean the bank hands capital back to its shareholders more often than it goes asking.

At this early stage, this newsletter’s take on Norris appointment is not only that it is surprising, but that Norris lacks one of the key credentials for the job, which is banking experience.

Questions not asked at today’s briefing include: what’s the most money you’ve lent anybody? How much capital has ever been at risk on this bloke’s say so? How much oversight did Norris receive from headquarters when growing ASB Bank?

Also not asked adequately of John Schubert, chair of CBA today were: why this bloke, why an external, what’s the reason. Why is that no internal candidate made the grade? What’s this appointment all about?

There’s talk of teamwork and values and – of course – cultural change. What does everybody who uses that phrase really mean?

It looks to this newsletter that CBA gets as chief executive a compromise candidate, some who is an internal motivator and also good at meetings, when the joint could be about to run by a real, live banker.

Norris seeks release from Air New Zealand contract

There is no fixed term to Norris’ contract.

He gets $1.9 million annual base payment, another $1.9 million annual at risk payment, and another $3.8 million worth of long-term incentive payments, paid in shares.

Norris won’t start until Air New Zealand let him go, or in six months, which ever comes sooner. Norris said there was flexibility in his contract, and you’d have to expect Norris to start soon.

David Murray will hang around, Pentagon style, checking on the plans and analyses and options paper ready for the arrival of Norris, who when he gets there, will have a smorgasbord of options to choose from.

Retail versus the rest

Don’t expect Norris to spend too much time on the theorising and gaming, as it’s easy to see which option the board prefers. In their selection of Norris, and the reasons advanced, CBA’s prime growth plan is to try harder at flogging insurance and investment products to the masses.

This strategy has appeal, but at some point all banks, including CBA, are going to hit a peak in their market share, where the public supposed to buy this stuff doesn’t want it.

The CBA vision is to push on and promote products that haven’t proved easy to sell, which might be for good reasons. Those reasons include unsuitable products, awkward sales channels, a “sold rather than bought” mentality, and a major over estimation of the willingness of anyone without savings or insurance to reduce their spending.

Never mind. CBA’s board have a vision, and Norris is their point man for leading everybody on.

Assuming savings continues to migrate to market-linked investments on which CBA can earn periodic fees, the emerging shift in strategy ought to consume less capital than one that involved more actual banking.

A manager and not a banker

This fear may be misplaced, but you’d have to wonder how much more of a push CBA plans to make in investment banking – the bank’s most notable achievement of the Murray era. And what kind of offshore growth strategy does the board now have in mind?

Norris doesn’t really have the background: he’s a trustee bank executive engaged to run one of the world’s top sixty banks.

This bloke’s a performer, clearly, and the board and the search firm will mostly be supportive of the decision. But it’s got to be said: there are essential banking credentials for the job of running a big bank, and it’s worrying that Norris doesn’t seem to have them.

What’s gotten the board enthusiastic for Norris over the genuinely internal options is that he built a sales culture on a rusted-out banking model once before, and can be relied on to do it again.

One of the terms used more than once in today’s briefing was “turnaround”, but, as always, what are the messages the protagonists are sending? Perhaps that there is some deep seated problem in need of vital management, a task beyond the internal choices for the job as CBA’s CEO.

CBA’s politics informs selection of Norris

There is one more theme worth reading into the board’s decision.

The selection of a halfway house candidate – an executive both internal and external to Commonwealth Bank – raises questions about what was on the mind of board members? In the choice between internal and external candidates, they compromised.

This newsletter’s interpretation is that CBA’s destructive internal politics partly explain the board’s selection: they heard the cry for change and went looking.

This cry, which fuelled the Gail Kelly speculation with such gusto, emanates from the behaviour of David Murray for much of his 13 years at the helm, and the loud complaints from victims and friends of victims at the ways of the chief executive.

As to whether Kelly was in the running, who knows. But the argument advanced in yesterday’s newsletter about Kelly’s lack of credentials applies equally to Norris.

CBA – surely – does not need an external chief executive. The place has flaws, but in the context of the bank’s profit and share price and business in general, things are going well.

In these circumstances, aspiring chief executives from within the ranks expect to get picked, so why didn’t it happen?

And then there’s the earlier question of the meaning of “cultural change”. The bank ‘s chair and incoming CEO seem to imply that the issues stretch from the top tier, throughout middle management and into the now de-unionised labour force. The caveat is that everybody’s doing wonderfully well so far, but would all and sundry try harder.

The alternative explanation is that the cultural change John Schubert and Ralph Norris are talking about is really required at the top.

This newsletter yesterday argued that sexism within the management culture as the top challenge facing the incoming CEO.

To that’s let’s add another: whatever it is about the bank that denied advancement to one of David Murray’s direct reports on this occasion has got to get fixed.

Murray drove timing of CEO handover

Commonwealth Bank’s board chair, John Schubert, explained the timing of David Murray’s retirement was worked out between him and the board, with the timing in the end dictated by the need to have a new chief executive in place to formulate the bank’s strategic plan for the period after that covered by the “Which new bank” plan, that covers the period up to 2006.

Schubert said that Murray recommended, “bringing in a new CEO ahead at the completion of the Which new bank program would give the new CEO a chance to develop a strategy for the next value creation phase of Commonwealth Bank,” and that “the board supported that view.”

Schubert said the board wanted to “maintain the momentum and not allow the transition process to interfere with the bank’s competitive position … We are well on track to achieve all the objectives within the [stated] time frames [and] the emphasis of the next 12 months will remain on delivery.”

Which new bank, Schubert said, “was dramatically changing the way CBA is able to compete and very important in putting in place a solid platform.”

As for the selection of Norris, Schubert said he, Norris, had “a proven track record of success in this industry, in cultural transformation and customer service … in people and team development and business growth.”

Schubert praised Norris’ “outstanding work at ASB [Auckland Savings Bank] from 1991 to 2001 … CBA is still reaping the benefits of the very positive legacy he left behind.

“At ASB and Air New Zealand, Ralph has demonstrated great vision, and at ASB an ability to motivate strong teams and instil a positive culture and values.”

Schubert’s key messages included words like teams, culture and values, and there was little talk of banking.

Asked to explain the board’s search process, and why the CBA board preferred an outsider over the internal candidates, Schubert said “I’m not going to go into a lot of detail,” and didn’t go into any.

As to the preference for an outside person, Schubert said, “We had a number of internal candidates … tremendous quality people.”

Asked to elaborate on the timing of the handover, Schubert said this was “carefully planned to ensure that with the momentum we have on with Which new bank, that will continue and Ralph is a person who will ensure that will continue.”

David Murray squeezed in the clarification that it’s the chief executive who takes the plan to the board and not the other way around.

Murray also fielded the question on public perceptions about CBA’s profits and his and Norris’s pay packets. Murray used the line about the 50 per cent reduction in net interest margins over all these years, and didn’t respond on the issue of fees.

ASB model vindicated by Norris’ promotion

Ralph Norris, CBA’s incoming chief executive, said at the briefing that, “having witnessed Which new bank as an outsider …I had no doubt that program was delivering.

“No organisation can achieve a truly solid base for competition and future growth without tackling the underlying culture. For me, customer service is really the only true differentiating factor that any organisation can have. If you can get it right with your customers and get it right with your staff, you well on the way to get it right for shareholders. Which new bank does precisely that.

“I’m really appreciative of David’s timing and strategic consideration in the timing of this handover.”

Asked to comment on the significance to CBA’s business in Australia of the Which new bank program, Norris said, “I feel somewhat vindicated that those particular options [that is, ASB’s sales management] have been selected.”

Shareholder returns eclipse customer service

CBA’s new management team managed to stay on message about the importance of customer service for about half an hour in this morning’s briefing, but wandered back to more typical point of such briefings, which is that the object of all this endeavour is the share price.

Asked about the significance to CBA of the relative rate of economic growth in Australia and the cyclical decline in property prices, Norris said, “I think the issue as far a the [property] market is concerned, we all know the market goes in cycles. In the period ahead, it’s not as propitious as more recent times. My job is to make sure … we are going to perform better than the market. That’s how we’ll be measured.

“We have to perform better than our competitors. We’ll endeavour to beat the market.”

The kiwi connection

Another dimension to the selection of Norris is the opportunity it may bring to explore an alternative way forward for the harmonisation and ultimately unification of banking systems in Australia and New Zealand.

New Zealand’s bank regulators caught Aussie banks on the hop at the time of ANZ Bank’s takeover of National Bank of New Zealand. Most involved assumed NBNZ could be run at lower costs on ANZ’s infrastructure in Australia. Then the Reserve Bank of New Zealand turned around and schemed up a new set of rules supposed to quarantine a New Zealand subsidiary from the failure of an Australian parent.

A lot of bank investment at the moment is geared toward compliance with a project in which many do not believe. Most bank boards and managers must hope that all is not lost, and that banks can manage their trans-Tasman banking businesses the way they prefer.

The savings from this one political decision would be worth quite a bit to all four big banks, and if Norris could carry that off, he’d make a few friends.

The New Zealand position on containing bank failures to one side of the Tasman seems unworldly. It’s just hard to imagine how, in a real banking crisis, CBA would quarantine ASB Bank from Commonwealth Bank.

Are they not, after all, one and the same entity?