How investors ousted a bank boss


After emergency board meetings, Maxsted said later that Sunday that Hartzer remaining in the job was “far and away in the best interests of the company”. There was a caveat — it was ultimately up to the bank’s shareholders — but the chairman was “very committed” to keeping the CEO.

A little over 24 hours later, things had changed radically. Hartzer was going, and Maxsted would step down early. Public outrage was a major factor — but it was a powerful group of investors who ultimately forced the bank’s hand.

And so by Monday evening, when Maxsted phoned in to a meeting of the board, which convened on the 21st floor of its HQ in Kent Street, Sydney, it was virtually a foregone conclusion that Hartzer would be gone. Not only that, Maxsted would retire in the first half of next year and another director of the bank, Ewen Crouch, could not stand for re-election in two weeks’ time.

The bank had been pitched into a leadership crisis, the climax of an extraordinary week. Westpac is the third Big Four bank to lose a CEO to scandal in a little over two years.

Politicians and many investors welcomed the decision as a sign of accountability, something the Hayne royal commission declared had too often been lacking among the highly-paid leaders of the finance sector.

Yet recriminations from the crisis look set to dog the banking giant for months to come. As Westpac prepares for a fiery annual general meeting in less than two weeks, there is also debate over whether more scalps from the boardroom are needed.

Big investors intervene

The list of politicians demanding consequences over the money-laundering scandal was a long one, including Prime Minister Scott Morrison, Frydenberg, and Home Affairs Minister Peter Dutton.

But the people who ultimately brought the guillotine down on Hartzer’s time as CEO were far from Canberra. The input of a handful of powerful investors proved decisive.

Ironically, many of these investors came from a group many in the Coalition seem to view as political enemies: industry super funds, which have unionists and employer groups on their boards.

When financial regulator AUSTRAC filed its blockbuster lawsuit last week, it happened to do so at a moment of maximum leverage for large investors. As this week’s events showed, they used it.

In meetings booked well before the lawsuit was lodged, Maxsted was this week due to talk with investors about the AGM on December 12. These  were always going to be high-stakes discussions, because Westpac is desperately trying to avoid a backlash on executive pay after a revolt last year.

But the money-laundering scandal gave these meetings a huge level of importance. Investors were being given the casting vote on whether the board should throw out a CEO.

One fund on Maxsted’s list was the $180 billion AustralianSuper, the largest super fund in the country, which holds $1.8 billion in Westpac shares.

While the fund has been unafraid to flex its muscle in the past, sources who did not want to be named said the powerful fund did not express a view on whether Hartzer should go.

Maxsted received a tougher message, however, at a meeting hosted by the Australian Council for Superannuation Investors (ACSI), a governance group that advises funds on how to vote with their shares.

Attending or dialling in to the discussion were several industry super funds including university staff fund UniSuper, health workers’ fund HESTA, construction fund Cbus, LUCRF Super (established by the predecessor to the National Union of Workers), First State Super and the asset manager IFM Investors. Collectively, the funds in that meeting control more than $400 billion in retirement savings. While they make their minds up independently on how to vote, the message to Maxsted was clear: more was needed.

John Pearce, the chief investment officer at UniSuper, later backed the bank’s leadership upheaval, saying: “We totally support the decision that Lindsay has made.”

Westpac Chairman Lindsay Maxsted at Westpac head office in Sydney. Credit:Renee Nowytarger

Also speaking with Maxsted on Monday was Vas Kolesnikoff, the head of research at governance advisory firm Institutional Shareholder Services. Given the sentiment among investors, he says it was “inevitable” the CEO and chair would go.

“The market wasn’t going to let this go,” he said. “There is a higher standard applying to banks now and they need to be aware of that. There isn’t much sympathy for bankers, you just can’t just do what you want and expect the gravy train to keep rolling.”

By the end of the day it was clear to Maxsted and other directors what needed to be done. As the board met on Monday evening, it did not take long to decide that Hartzer needed to go, or as Maxsted put it on Tuesday: “We needed to go a step further.”

In a meeting that stretched past midnight, the directors put together a plan to restore some stability, including the installation of finance chief Peter King as acting CEO.

Shortly before 8am on Tuesday it was announced that Hartzer was falling on his sword, Maxsted would step down in the first half of next year, and Crouch would not seek re-election at next month’s board meeting.

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Politicians were quick to welcome the decision. However the bloodletting at Westpac has also sparked debate about accountability and whether this week’s action by the board went far enough.

Given the sordid nature of the allegations, and the fact that banks are already on the nose, politicians are demanding more explanation on how Westpac got here. Labor this week attempted to have Hartzer and Maxsted called to explain themselves at the economics committee, a move rejected as a “show trial” by the Coalition.

Two different financial regulators – the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission – will crawl over the lender with their own investigations.

Class action lawyers are also circling, with one launching an investigation this week. An investor lawsuit is seen as highly likely because it was only weeks ago that the company raised $2 billion from large investors, but the scandal has wiped off about $6 billion in market value since.

When Westpac raised the capital, it said the bank had breached anti-money-laundering laws because it failed to report a “large” number of payments from overseas. It did not say there had been 23 million breaches, nor did it refer to child exploitation, but the bank has maintained it did not know about this explosive part of the allegations at the time.

After the Hayne royal commission exposed examples of bankers not being held accountable for misconduct on their watch, there has also been criticism of Westpac’s initial response. While it has apologised profusely from day one, to critics the response was a sign the bank hadn’t learned essential lessons.

Its “Response Plan”, announced last Sunday, included commissioning an independent review on the scandal; the freezing of bonuses until accountability was determined; and about $80 million in extra spending to beef up systems to fight financial crime.

University of Melbourne professor Ian Ramsay says the bonus changes appeared to be the only real sign of accountability — and they weren’t enough. “To me, and no doubt to others, that was in a sense ‘Well is that demonstrating accountability, when you’ve acknowledged wrongdoing?’. As of Monday I think they were still in damage control but were not proactive enough,” he says.

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Maxsted on Tuesday defended the bank’s approach, saying due process needed to be followed on an “irreversible” move to change CEO. “Whilst it seems like an eternity to me and I’m sure to you in terms of how long we’ve known about this, it is only six days,” he said.

Meanwhile, with its AGM looming, there is still potential for a showdown with big investors, amid demands for further action on cultural and governance problems.

There is likely to be some level of protest vote against long-serving director Peter Marriott at the AGM, after two advisory firms this week called on shareholders to oppose his re-election. ACSI, however, supported Marriott.

While investors demanded accountability from the bank, they are also acutely aware of the value of their Westpac shares. That context brought calls for stability.

UniSuper’s Pearce says if there are more “scalps” they should be further down the management line, and not from the boardroom. “Any more turnover at the board level just for the sake of it, I don’t see the logic from a shareholder point of view,” he says.

Acting CEO Peter King also emphasised the need for stability this week, while Maxsted said more turnover on the board would be “very dangerous”.

But ultimately, as recent events have shown, whether there is more blood spilled in the Westpac boardroom will be in the hands of the bank’s investors.

with Charlotte Grieve

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