Proxy advisers support Westpac’s inept board

The four proxy advising groups should never be listened to again after they joined the board of Westpac in the stupidity corner.

The four proxy advising groups have announced they should never be listened to ever again on any subject regarding votes at company annual meetings after all of them joined the board of Westpac in the stupidity corner.

The four have done so by urging their institutional investor clients to vote to endorse the entire or almost the entire Westpac board of directors — a board, which in its response to the Austrac disaster, has demonstrated it is a pathetic rabble.

Such a vote defies all and the most basic common sense and directly contradicts the self-interest — whether enlightened or otherwise — of those shareholders; and indeed, of all Westpac holders.

This board has presided over a debacle, which has shredded the Westpac share price.

It has run a $2.5bn share issue without either adequately disclosing the seriousness of what was about to break over everyone’s heads, or being so collectively asleep at the board table that it didn’t have a clue.

The four proxy groups have “announced” they are totally cool with all that. But, as I detailed last week, it gets worse, much worse: for the board really “revealed itself” after the Austrac disaster burst into the public domain.

It took five days — repeat, five days of, as chairman Lindsay Maxsted put it, very detailed analysis and consideration of the situation — to come up with the response plan.

Under the plan, no specific, identified and unqualified penalty was going to be imposed on CEO Brian Hartzer — only the generalised possible loss of “all or part” of his 2019 short-term bonus. He was not departing, certainly not immediately and not even on an extended timeline.

The — to repeat, carefully considered and arrived at Plan — imposed no penalty at all on directors and not a single director either was going to depart. That is to say, the board under Maxsted had zero intention of even marginally “refreshing” itself and the chairman cemented himself even more firmly in the chair.

Correction, that should be then-CEO Hartzer.

For, of course, by the Monday night the board had done a 180. Hartzer would go and go immediately. He would lose all his bonuses; and not just one year’s short-term bonus, but all short and long-term ones.

One non-executive director, Ewen Crouch, would go. Maxsted himself would go in “the first half of 2020”. But still no penalty would be applied to the board.

As I wrote last week, the first statement was an utterly inadequate and inept response to the crisis and was sufficient to damn the chairman and every director.

The second statement just made it worse. The two statements were fundamentally contradictory and irreconcilable. In blunt terms, after speaking to the instos on Monday, Maxsted threw his CEO under the bus.

Either Sunday was “right” and Hartzer was the best person to be the CEO of Westpac into the unquantified future; or Monday was and he had to go immediately.

That is to say, either the board had got it “right” on Sunday, yet it was prepared to abandon what was right under pressure. Or it got it “wrong” on Sunday after five days of supposed careful deliberation.

No chairman and indeed no board should survive that. Yet the four proxy groups want holders to actively endorse a board which was that pusillanimous or inept or, in my judgment, both. And in the process have condemned themselves as simply not worth listening to. All four proxy groups have advised against voting to spill the board.

Indeed, three of them have advised against even censuring the board, by voting against the remuneration report. Indeed, the three are effectively urging holders to deliver a positive vote of confidence in the board. Incredible; (should be) unbelievable; and utterly, well, stupid.

Only two of the four have even urged a vote against any director standing for re-election; one of them against one director; the second, also against that director and just one other of the four standing for re-election.

The question now moves to the individual institutional Westpac investors: will they also move to the increasingly crowded stupidity corner by a formulaic tick-the-box vote in accordance with the proxy advice.

Let me — try to — explain to these instos, and indeed all other Westpac holders what is clearly beyond the ability of the proxy advisers to understand.

Westpac holders have to vote against the remuneration report and then to spill the board — or they will cede to the current chairman and the current board control over the process of changing the board and the selection of a new chairman.

The signs are very clear that the chairman and the board are intent on circling the wagons — to both limit any new blood coming in to the boardroom and to ensure that Maxsted’s replacement is one of them.

In the wake of what I have described, you would have to say they are living in an alternative reality. But what does it say about the proxy advisers and the major insto holders if they allow it to happen?

What words could describe advisers and holders that had not simply allowed a board that had revealed itself to be both pusillanimous and inept to control its own destiny, but actually urged a vote to endorse such a board?

Uber-pusillanimous? Uber-inept? At the very least, stupid.

The idea of a spill is so shocking and fearful to the instos. To me, more shocking and fearful, is to continue with a board that has revealed itself with its behaviour over the past fortnight.

A spill does not mean every director needs to be sacked. More subtly — true, proxy groups don’t do “subtle” — the threat of a spill should be sufficient to take control of board and chairman renewal out of the hands of the incumbents.

Led by a commitment by Maxsted to go immediately and be replaced immediately by someone outside both the existing board and banking more broadly. Then, the board renewal can begin.