Dump directors or we’ll oust the lot, Westpac told

The $170bn Future Fund joins major Westpac investors in threatening to force a spill of the entire board.

 

The $170bn Future Fund has joined major Westpac investors in threatening to force a spill of the entire board unless more directors follow chief executive Brian Hartzer out of the bank and senior management guarantees the child exploitation scandal cannot happen again.

As Mr Hartzer announced he would quit the bank from next Monday and chairman Lindsay Maxsted brought forward his ­retirement, The Australian has confirmed that the bank’s management has received demands from major investors for “further board renewal’’ and “strengthened’’ governance.

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If it fails to satisfy the shareholders, it could face a “second strike’’ protest vote on its ­remuneration report. Mr Maxsted would be forced to put a board-spill resolution to shareholders next month should more than 25 per cent of investors lodge a protest vote against the company for the second time in two years.

The bank now enters an ­extended period of instability in its top ranks after Mr Hartzer’s resignation and his temporary replacement by chief financial officer Peter King.

Mr King was due to retire late next year and an international search for a permanent replacement for Mr Hartzer will not begin until after the Westpac annual general meeting on December 12.

Departing Westpac CEO Brian Hartzer. Picture: Jane Dempster

Mr Hartzer will pocket $2.7m after being paid out his 12-month notice period, but he will forgo up to $22m in short-term and long-term bonuses.

Mr Maxsted said he would bring forward his retirement to early next year and would not be ­involved in the CEO search, but he hoped internal candidates would “throw their hat into the ring’’.

It was also announced that the chairman of the board’s risk and compliance committee, long-­serving director Ewen Crouch, would not seek re-election at the AGM.

Mr Hartzer’s resignation followed a week of pressure from major shareholders and government MPs, including Home ­Affairs Minister Peter Dutton, who accused Westpac of giving “a free pass to pedophiles”, and revelations by The Australian that the embattled chief executive had played down the scandal in closed-door meetings.

The Australian reported that Mr Hartzer told his executives on Monday that the scandal was “not an Enron or Lehman Brothers’’, and mainstream Australia was not overly concerned so “we don’t need to overcook this’’.

Following Mr Hartzer’s resignation on Tuesday morning, Mr Maxsted said: “They were very disappointing statements to read and clearly I and the board and all of Westpac do not agree with those statements in isolation.” The ­departures came after Mr Maxsted held crisis talks in Melbourne on Monday, including meetings with the $180bn AustralianSuper, the Future Fund, the $70bn UniSuper, and the Australian Council of Superannuation Investors, which included the $54bn Cbus.

READ MORE: Maxted calls for calm as CEO exits | What a difference six days makes | How Westpac’s board decided Hartzer’s fate

Mr Maxsted also called proxy advisory firm Institutional Shareholder Services.

The country’s oldest bank has lost almost $10bn in shareholder value since the anti-money-­laundering regulator Austrac filed its lawsuit in the Federal Court last week and faces its worst crisis since 1992-93 when it was rescued by Kerry Packer after it was exposed to a series of corporate collapses.

The bank has been accused of facilitating transactions linked to child exploitation in The Philippines. These were ­allegedly among more than 23 million breaches of anti-money-laundering laws that could result in fines of more than $1bn.

“The bank isn’t taking this nearly seriously enough,” said one major investor, who met with Westpac and was shocked by Mr Maxsted’s suggestions that Mr Hazrter did not have to resign.

“It tells you that it’s not a board that is attuned to the public. When it becomes too late, it becomes too little. I think they’re heading for a second strike and a spill.

“The serious investors will be voting for a second strike and to spill the board.”

Another investor said while they didn’t explicitly push for Mr Hartzer to be sacked, they made it clear the bank’s proposed ­response to the scandal ­issued on Sunday was “wholly ­inadequate”.

Chairman of the Board of Westpac, Lindsay Maxsted. Picture: Hollie Adams

Louise Davidson, the head of ACSI, which represent 40 institutional investors with $2.2 trillion in funds under management, said the “crisis warrants further board renewal in the new year to support rebuilding public trust”.

“Investors want to see Westpac’s culture and governance strengthened to avoid a repeat of these issues,” she said. “ACSI will continue to engage with Westpac on a range of issues to determine whether further action is needed.

“It is still unclear how these significant issues came to occur, and why a fulsome investigation was not ­initiated earlier.”

The promise of a new chief has not significantly reduced an appetite for further recriminations, and puts the company’s board on a collision course with ­investors, as the company believes that in sacrificing its chairman, chief executive and chairman of its risk committee it has satisfied demands for ­accountability.

John Pearce, chief investment officer at UniSuper, said further leadership overhauls would damage the bank’s prospects.

“I personally do not see any logic in shareholders wanting to destabilise this situation anymore than it is already,” he said.

“The only party that will benefit from that is the short sellers.”

Mr Hartzer’s departure is the latest senior banking scalp claimed by a scandal at the country’s biggest lenders. National Australia Bank’s former chairman Ken Henry and chief executive Andrew Thorburn were forced to resign following a drubbing at the royal commission, while former Commonwealth Bank boss Ian Narev resigned after Austrac stung the bank with 50,000 breaches of anti-money-laundering laws.

Standard & Poor’s banking analyst Sharad Jain said the continued failures were damaging the “major banks’ franchise within the Australian community” and said the problems were “a ­reflection of overall industry weaknesses rather than bank-specific issues”.

“Strong political criticism of the Australian banks’ lapses in recent times largely reflects rising community expectations,” he said.