Lessons from the Westpac crisis
What can brands learn from the banking industry's latest scandal? Tony Jaques explores what's gone wrong for Australia's oldest brand, and how the failings of Westpac hold key lessons for other executives facing a reputational crisis.
Looking back over 2019 there is an increasing expectation that CEOs should personally take the blame for a corporate crisis and resign. But the Westpac money-laundering crisis last month showed a distinct reluctance to accept that the buck stops in the executive suite.
Australia’s second largest bank was accused by regulators of failing to report more than 23m transactions alleged to have breached anti money-laundering laws, and some allegedly linked to child sex exploitation. It was unquestionably a massive reputational crisis, with the Westpac share value taking a $6bn hit and the company facing a potential $1bn fine.
After an emergency board meeting, Westpac chairman Lindsay Maxsted issued what News.com called a grovelling apology, saying the board were deeply distressed and truly sorry. However CEO Brian Hartzer survived. He took issue with the suggestion that the whole fiasco reflected a systemic failure by senior management; claimed he had heard “high-level” reports about the child exploitation matters only about a month earlier; and said he knew nothing of the detail until the regulator lodged its allegation.
Yet the bank CEO insisted he was the right person to “fix the problem” and attempted to push responsibility down the line.
“It is clear,” he said, “that there has not been enough attention at a working level paid to resolving these issues.”
As the Financial Review commented: “This simply isn’t good enough.”
Days later Hartzer held a private meeting with his senior managers and reportedly told them the scandal was “no Enron” and was not playing out as a high street issue.
“For people in mainstream Australia going about their daily lives, this is not a major issue, so we don’t need to overcook this.” He urged them to focus on securing mortgages, and added that he was very sorry they would have to cancel staff Christmas parties. A few hours later he resigned and the chairman announced he too would step down.
Contrast this with AMP CEO Craig Meller who resigned in April 2018 just days after the Australian Banking Royal Commission exposed shocking financial wrongdoing at the wealth management and insurance giant. Meller insisted he did not know about the company’s misdeeds, but acknowledged that he was ultimately responsible.
“As they occurred during my tenure as CEO, I believe that stepping down as CEO is an appropriate measure to begin the work that needs to be done to restore public and regulatory trust in AMP.”
Chairwoman Catherine Brenner fell on her sword a week later and two other senior executives soon followed.
It’s been a tough period for the finance industry and a real learning experience about crisis leadership and responsibility at the top. An earlier money-laundering scandal, at the Commonwealth Bank in 2017, saw the departure of the CEO, followed by four senior executives. And revelations at the Banking Royal Commission in 2018 also cost the jobs of the chairman and the CEO of National Australia Bank, and the chairman and CEO of wealth manager IOOF.
Beyond crises arising from individual executive misbehaviour – where the answer should be obvious – it seems clear that public and shareholder expectation about executive responsibility in a systemic crisis is hardening and that the idea of “staying on to fix the problem” is less acceptable.
It’s also clear that CEO reputation can be a mixed asset for the organisation. One global survey showed that 45% of company reputation and 44% of market value is directly attributable to the reputation of the CEO. That’s great when things are going well. But when a crisis strikes, it’s now increasingly likely the CEO (and chairperson) may need to walk the plank.
This piece first appeared in Tony Jaques’ Managing Outcomes newsletter. You can subscribe here.
It’s not Australia’s oldest “brand”. Westpac as a “brand” came into place in the early 80s (in fact there was a Westpac before that – a fruiit and vegetable wholesaler at the Perth Markets who effectively got put out of business due to this).
Prior it was Bank of NSW.
User ID not verified.
Nothing a few more ads about the rescue helicopter won’t fix.
User ID not verified.
Your lessons learnt seems to be as high level as what typical Board of Directors want to hear about AML/CTF. Board of Directors need to hear ‘the issues’ without these being filtered by the CEO or some commitee or legal department or some Board member. The organisation structure should be such the Group Head of Compliance Department has ‘direct’ reporting (even if this means having dual reporting lines) to the CEO and the Board. The Board needs to hear the issues directly and without being filtered or downplayed. Organisation strutures commonly have Compliance Dept reporting to Legal Department or Risk Management Department, and in doing so, the CEO/Boards have in effect buried ‘the details’ and the potential impact (reputational) of a regulatory breach and what Compliance resources are needed. The concept of Compliance V2.0 does not appear to be taken up by Australian banks.
User ID not verified.