Board survival matter for investors

Westpac chairman Lindsay Maxsted has begun engaging with shareholders ahead of the bank’s December 12 annual meeting. Picture: AAP

Westpac chief executive Brian Hartzer has survived the immediate crisis triggered by Austrac’s ­extraordinary statement of claim, but he is hanging by a thread as chairman Lindsay Maxsted starts to engage with investors ahead of the bank’s December 12 annual meeting.

Maxsted made the obvious point to this newspaper on Sunday: directors either survive or get tossed off the board according to the will of investors.

If there is a groundswell of hostility towards Hartzer’s tenure, the board will have no option but to cut him loose.

There are many large Westpac shareholders who believe the CEO has already been extended far too much leniency, and the chairman as well, for that matter.

While Maxsted was able to present a loose framework for how the board will handle the issue, the reality is that Westpac is managing a rolling crisis.

Intervention from Canberra is a daily event, reinvigorated regulators are brandishing their new tailor-made laws, and investors are lining up to condemn Westpac for “indifference” to its compliance obligations, in Austrac’s words.

The pace of events is colliding with Westpac’s desperation to impose some order.

Amid the clamour for heads to roll, the bank is falling back on process.

It will appoint an independent expert to review the debacle and help determine accountability.

Once that’s done, Maxsted said the review is likely to take closer to 3-4 months than 3-4 weeks.

That’s assuming it’s not swamped by rapidly unfolding events.

In the meantime, there’s the annual meeting to consider, and the very real prospect of investor opposition to the re-election of ­directors, and a second strike on the remuneration report that could result in a board spill.

Maxsted said a second strike was by no means a foregone ­conclusion.

Is it a realistic assessment, or more a case of blind optimism?

The way the chairman sees it, there are two possible scenarios, bearing in mind the devastating 66 per cent “no” against the ­remuneration report at the 2018 annual meeting.

The first is investors will put the Austrac statement of claim to one side, and instead focus on the measures taken by the board in 2019 to improve the remuneration structure.

All shareholder criticisms had been taken on board, Maxsted said.

The other scenario calls for ­abject surrender because the Austrac issue trumps everything.

The chairman said he had started his pre-AGM conversations with shareholders.

“There will be many more,” he added.

The chairman is not exactly burdened with counterarguments. However, Westpac made the right decision to junk the LitePay product which enabled the low-value, high-volume transactions to The Philippines and lay at the core of Austrac’s concerns about child exploitation.

LitePay had finally been updated to incorporate the right detection scenarios, albeit about 18 months after it should have been fixed.

But the board made the judgment that LitePay was permanently tarnished.

It’s gone forever. And rightly so.