The boards of the four major Australian banks have appointed chief executives with a communication skills gap.
Australian banks actually have a good case and should be making a reasonable fist of advocating their cause. Instead, they have locked themselves into a bunker and are being mercilessly bombarded from all sides of Australian politics, the media and the overall community. Increasingly they are being portrayed as criminals who require heavy punishment to teach them a lesson.
This is an extremely dangerous situation because in the end the politicians will want to satisfy the bank-bashing demands of the electorate and are likely to win. The four major bank CEOs — Cameron Clyne, Gail Kelly, Ralph Norris and Mike Smith — all know the banking business backwards and know how to run their companies. When they were appointed, they met the criteria set by their boards and, by conventional CEO measurements, were excellent appointments.
But they are now being measured by non-conventional measures — their ability to make their case in a public fight with the Australian parliament which threatens to substantially cut their profits.
They are all failing this test, but all are capable of learning a new skill. Their current strategy of trying to tough it out in the belief that the politicians are virtually powerless is high risk and foolhardy.
It’s unfair to pick out one bank CEO because they all have the same problem. Nevertheless, it was the CBA who immediately lifted interest rates at almost double the Reserve Bank increase. Norris needed to be on talk-radio stations, current affairs TV shows and other outlets explaining why this was necessary. Instead he was overseas.
Steven Munchenberg, of the Australian Bankers Association, has done his best but you need the top corporate people to pitch in. If Kelly, Clyne, Norris and Smith were prepared to learn how to handle a hostile interviewer, they have a case worth arguing in the public arena. Banks’ return on capital is not in the top performers and the major driver of bank profits is not always the difference between interest paid to depositors and received from borrowers.
Bank CEOs would need to be able to simply articulate the costs of money borrowed from overseas and from local depositors and the returns from housing loans. These can be powerful arguments. And when it comes to the bank CEO salaries, the simple situation is that the boards offered these sums and they are not high by world standards.
One of the reasons Australian companies have performed much better in recent years (and therefore have boosted superannuation returns) is that they have recruited better chief executives by paying closer to world rates.
I make these points to underline that the banks have a case. They will need to put that case before any parliamentary inquiry, but they must also go into the public arena. Unless the banks find CEOs who are prepared to stand up and put their case, then they will be punished and will deserve that punishment because hiding in a bunker is the wrong strategy.
All this comes at a time when the global banking industry is having an attack of the jitters via Ireland. The simple fact is that European banks are too far exposed to loans to European governments who cannot pay. There are going to be scares. If the world becomes frightened, we may see the US dollar rise again and the Australian dollar fall. Our greatest asset in such an eventuality will be our banking system. Our system needs to be strong because our banks are some of the biggest global borrowers in the world.
Cameron Clyne, Gail Kelly, Ralph Norris and Mike Smith should be trained to take up the fight, including defending their salaries. If they go onto the hustings they will, of course, make mistakes, but they will personalise the banks and make then much harder to attack.
*This article was originally published on Business Spectator.