Gail Kelly proud of Westpac cultural change

WESTPAC chief Gail Kelly, who has announced her retirement, says her proudest achievement at the bank is its culture.

GAIL Kelly’s yield-hungry investors might not agree, but the retiring Westpac chief executive doesn’t rate the impressive financial performance of Australia’s second-biggest retail bank as her greatest feat.

As chairman Lindsay Maxstead noted, Westpac’s market value has more than doubled to $104 billion on her watch, as has net profit to $7.6bn. Return on equity — at 16.4 per cent — trails only its bigger rival Commonwealth Bank of Australia.

But Kelly, who yesterday announced plans to retire as chief executive and hand over the job to Brian Hartzer in February, said her proudest achievement at the bank was its culture. Westpac’s people “care deeply about the customers that they serve and the communities in which they operate’’, Kelly boasted yesterday, “and they set out to do the right thing by those communities’’.

The customer satisfaction ratings put Westpac at the top of the big four banks, with its subsidiary St George, which Kelly ran for six years before she was poached to head Westpac, right at the top.

Ted Evans, who chaired Westpac from 2007 until 2012, says those ratings are a fair reflection of Kelly’s impact on Westpac. A chief executive sometimes criticised sotto voce for lacking the numeracy or technical expertise of some other executives, Kelly has delivered on the hard financial numbers as well as what are seen as “softer’’ or intangible areas such as cultural change and sustainability.

Evans rates the hiring of Kelly to succeed David Morgan as chief executive in February 2008 as his finest achievement at Westpac and the decision from which all else flows.

“She has been a quite extraordinary leader,’’ Evans told The Australian. “That is what I would say is her main quality. Many people are good at a number of technical things, but lack the leadership skills. She does it quite naturally.’’

Brian Hartzer: Path to CEO

A South African native and mother of four — including triplets — who gave up teaching for a 35-year career in banking in Australia, Kelly has blazed a trail for women in the industry as chief executive of two major financial organisations. The first woman to head a big-four bank departs as the longest serving of the current crop of big bank chief executives, and its highest paid, taking home $12.8 million in the year to September 30.

A gifted communicator leading an organisation with nearly 36,000 employees, Kelly made it a point to engage with staff. She answered staff emails personally and made a point of talking to frontline staff and customers on visits to the bank’s branches.

“She had a personal view that relationships were critical and that was her focus,’’ Evans says. “She believed that you had to earn all of your customers’ business. She never liked the term ‘customer satisfaction’ and believed staff should delight their customers.’’

Brett Le Mesurier, a banking analyst at BBY and long-time observer of Australia’s financial services industry, rates Kelly eight out of 10, noting she inherited the second-biggest retail bank in the country and hands over one that has held that position after the indigestion of the St George deal and the disruption of the GFC.

“She was not fortunate enough to get soft competition in her time,’’ Le Mesurier says. “CBA ran its business pretty hard.

“She has done very well considering where she came from, running a retail bank and moving up to a very large, complex organisation.’’

He notes that the $19bn takeover of St George, while lifting Westpac’s retail presence, also increased its exposure to commercial property lending and international funding markets just as they were about to seize up because of the global financial crisis.

Financial services may have been her crowning achievement with the BT Financial Group that houses Westpac’s funds management, life insurance and financial planning businesses now the most profitable among the big four. This month the business, which sits in Hartzer’s Australian financial services division, reported a 16 per cent increase in profit, with double-digit earnings growth in all major business. Le Mesurier notes the life insurance business in particular escaped some of the high claims and lapse rates that have beset rivals after the bank decided to steer clear of third party distribution and group policies with the industry funds.

Evans says her best achievement is in having a senior management team able to step into her shoes. As well as Hartzer she had Rob Whitfield running the institutional bank, John Arthur who she appointed as general counsel, long-time chief financial officer Phil Coffey and Bill McKinnon, who she poached from CBA to overhaul Westpac’s dated systems and technology.

Kelly made it clear early on that she wanted a good team around her. She cited US author and consultant Jim Miller’s maxim to “get the right people on the bus and the wrong people off the bus”.

Her arrival at Westpac precipitated a clearing out of the senior management ranks, among them long-time BT executive Rob Coombs. The leading internal candidate to take charge of Westpac — Phil Chronican — also left shortly after Kelly’s arrival. He is now seen as a contender to replace Mike Smith at ANZ.

She had seen such clean-outs before. Fast-tracked into management at Nedcor in South Africa before she moved to Australia, Kelly was among a raft of senior executives who left CBA when it dragged its heels over appointing a successor to David Murray. Kelly, John Mulcahy and David Liddy all left for CEO roles at smaller institutions: St George, Suncorp and Bank of Queensland, respectively.

Westpac will be wondering whether Hartzer’s elevation will prompt some such as Whitfield to reconsider his future at the bank.

Kelly has had her critics. In her early years at Westpac there was muttered criticism that she lacked the grasp of numbers and technical skills of other bankers. Kelly had numerous positions in her career, including strategic marketing, human resources and retail banking. She even stumbled in the public’s eye when her bank pushed through a super-sized interest rate rise before Christmas 2009 and the bank later produced a video comparing rising mortgage costs to “banana smoothies”.

But Evans says her strengths were in those intangible areas such as leadership and communication.

“It is a very hard thing to measure or model the value of relationships,’’ said Evans, a former Treasury head. “You have to have faith that it matters, and she did.’’

As she heads for the exit, there are questions, too, as to whether Kelly has done enough — beyond her personal example — to advance the cause of women into senior ranks. Just two of her 12 direct reports are women. But, she pointed out yesterday, the bank has made advances since 2010 when it set a goal of reaching 40 per cent in management ranks held by women by 2014 and 50 per cent by the bank’s bicentenary in 2017. The 40 per cent target was reached in 2012 and stands now at 44 per cent.

Carol Schwartz, founder of the Women’s Leadership Institute Australia, thinks the criticism is unfair, noting that Kelly has become more outspoken on advancing women in management. By all accounts Kelly never made gender an issue in her rise through the ranks of CBA or at St George and Westpac. When asked yesterday whether there should have been another woman succeeding her, Kelly said she thought it was great that her successor had come from her own management team. “I think we have made the perfect choice’’.