Shareholders reject contrite Westpac chair Lindsay Maxsted and call for board to hand back fees

Shareholders roast Westpac board as ‘at best incompetent and negligent, and at worst complicit and culpable’.

Westpac chairman Lindsay Maxsted, acting CEO Peter King and non-executive director Peter Marriott at the AGM in Sydney. Picture: Ryan Osland

Furious Westpac investors have roasted the board and called for directors to hand back their fees over the bank’s child exploitation scandal.

Outgoing chairman Lindsay Maxsted faced more than two hours of questioning at a marathon annual general meeting on Thursday in Sydney, with shareholders demanding to know how Australia’s second-largest bank would atone for allegedly allowing money transfers that could be linked to child abuse in Asia.

The annual meeting comes just weeks after the financial crimes regulator launched legal action in the Federal Court against the bank, alleging 23 million breaches of anti-money laundering law and plunging it in to a crisis that has claimed the scalps of CEO Brian Hartzer, who stood down at the start of the month, and Mr Maxsted, who was forced to announce an early retirement.

One shareholder called the board “at best incompetent and negligent, and at worst complicit and culpable”, while others demanded further accountability beyond the departure of Mr Maxsted and Mr Hartzer.

“You should go now, you should all go,” one shareholder said to applause. “But before you do, you should hand back your fees.

“You have comprehensively stuffed up and so has your board. I have no faith in you, you have lost all credibility.”

Asked what rectification shareholders could expect, Mr Maxsted noted he had offered the “deepest of all apologies” in his chairman’s address.

The shareholder responded that words of apology were “cheap”.

“Do something meaningful,” he said.

Chairman Lindsay Maxsted addresses shareholders at the Westpac AGM in Sydney. Picture: Ryan Osland

At the start of the AGM, Mr Maxsted again apologised to shareholders for the bank’s culture and governance failures, but said he was “very satisfied we made the appropriate disclosures given what we knew at the time”.

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Acting chief executive Peter King said he was devastated by the anti-money laundering allegations levelled at the bank last month and vowed to “put this right”.

Appearing before a room full of angry and frustrated shareholders at the lender’s annual general meeting in Sydney on Thursday, Mr Maxsted provided detail on how the bank botched the monitoring of 23 million transactions, some of which potentially led to child exploitation.

“Westpac absolutely accepts responsibility for this mistake,” he said.

“Your board is deeply distressed about the issues raised by Austrac in its statement of claim of 20 November 2019.

As class action law firms circle the bank over its disclosure practices, the shareholder said there had been no indication from Westpac about the type of enforcement action Austrac was contemplating, despite the board knowing it had a problem with non-reporting of IFTIs (international funds transfer instructions) since August 2018.

Mr Maxsted said there had been no provision raised in the 2019 accounts because the accounting standards did not allow it.

“(The standards) do not allow what we might have thought might have been the number,” he said.

“So we have no choice about putting it on as an actual liability, which is why we went to great pains to disclose (the matter).

“We are very satisfied we made the appropriate disclosures given what we knew at the time.”

Second strike or spill

With last year’s remuneration report voted down by 64 per cent of investors following the bank’s royal commission mauling, Westpac’s board is bracing for a second strike against its pay report later in the meeting.

It is, however, expected to avoid a spill and the ousting of non-executive director and former ANZ Bank executive Peter Marriott, having secured the backing of a number of institutional investors.

While Mr Marriott is tipped to survive a re-election vote, it is expected to be by only a small margin because of a large proxy protest vote.

Board director Ewen Crouch is not seeking re-election at the AGM.

Mr Maxsted admitted the scandal-hit bank did not act quickly enough to implement “robust” monitoring of money transfers potentially linked to child abuse but said the remuneration adjustments made to date were adequate. “The whole remuneration piece for 2020 will be judged by the board going through 2020,” Mr Maxsted told shareholders in Sydney on Thursday.

“We do have lots of contractual arrangements in place, I do think that what we have done so far with regards to remuneration has been adequate, but I understand you might not agree, and other people here might not agree.” The chairman has also defended the final pay packet of Mr Hartzer, stating the $2.7m fixed income to the end of his 12-month notice period was not “overly generous”.

Peter King and former Westpac CEO Brian Hartzer announcing company results earlier this year. Picture: Hollie Adams

The board has scrapped 2019 short-term bonuses for executives and several members of the general management team, subject to the outcome of an external investigation into the AUSTRAC allegations.

Executive pay debate

Westpac has introduced a clawback mechanism for executive pay that reaches back seven years.

The mechanism, however, only took effect from last October, so it doesn’t cover much of the behaviour that led to the Austrac non-reporting scandal.

Mr Maxsted told the bank’s annual meeting that the deferred executive pay of accountable executives could be affected.

He said part of independent expert Promontory Financial Group’s brief was to determine what happened in the Austrac matter, and identify “who said what to whom, and who didn’t do what”.

He also said Westpac would announce next week the composition of its advisory panel of three independent experts to consider Promontory’s report and provide recommendations on governance and board accountability.

The recommendations of the reviews will be made public.

Significant task ahead

Earlier in the meeting, Mr Maxsted said: “As a board and as individuals, we are devastated that anyone may have been exposed to the risk of harm as a result of a failing by Westpac.

“For this, we are truly sorry.”

“Every one of us in this company has been shaken by the events of the past few weeks and we know this feeling is shared widely throughout the community, and in this room,” he added.

Mr King, who took on the acting chief executive role earlier this month after Brian Hartzer was forced to step down, also offered his apology, saying the bank had let down customers, shareholders, the community and its staff.

“We have a significant task ahead of us... We must put this right, and we will.”

Mr King said he would work to implement the bank’s response to the scandal and focus on its financial performance.

“Last year was disappointing. The 2019 result reflected both a deterioration in the conditions for banks along with our determination to deal with outstanding issues.

“In particular, our review of products to identify where we didn’t get it right for customers has led to an increase in provisions for remediation payments.”

Looking ahead, he said operating conditions were likely be soft this year because of sluggish growth, falling interest rates and ongoing regulatory intensity.

“While this environment will continue to drag on performance in the 2020 year, we should see some balance sheet growth without a significant deterioration in credit quality. However, there will be extra costs as we work through the remaining regulatory issues,” Mr King said.

Commenting on questions of weakness in the bank’s culture, Mr Maxsted said it would be tested through reviews that are currently underway.

“Clearly, we have more to do. A company’s culture is something that requires constant review, and I want to assure you we are taking this seriously and will reassess our approach as we learn more from the findings of the external reviews that I have talked about.

“We see this as a positive and necessary investment in Westpac’s long-term sustainability, but, I do not underestimate the task ahead of us. It is complex and it will take time, but we are determined to invest what is necessary to build a better organisation.”

No evidence of an internal whistleblower

Mr Maxsted also told shareholders there was no evidence of an internal whistleblower in relation to the Austrac matter.

Amanda Wood, a former financial crime executive in the bank, was recently described by Labor Party MP Andrew Leigh in a parliamentary committee hearing as a whistleblower.

She said in a media interview this month that Westpac lacked an ethical culture, and there was a backlash against her after she warned internally that an Austrac civil penalty was likely.

From May 2017 to May 2019, Ms Wood was Westpac’s money-laundering reporting officer (MLRO) - the bank’s focal point for anti-money laundering and counter-terrorism financing.

After leading the response to Austrac’s investigation for 10 months and regularly briefing the board’s compliance committee, Ms Wood was told last May that the bank wanted a MLRO with more international experience.

She knocked back a different job on the same pay with less responsibility, instead accepting a redundancy and starting up a consultancy.

In response to a shareholder question, Mr Maxsted said it was “incorrect reporting” to say that Ms Wood had been punished and demoted.

He said she was not fired or penalised because of any negative commentary she had made, and it was wrong to say that Westpac discouraged staff from speaking up on issues of concern.

“Far, far from it,” the chairman said.

“(This is not) an episode of a whistleblower.”

with wires