NAB changes: ‘It’s all in the best interests of the company’

NAB’s Andrew Henry and Ken Thorburn always knew the time would come for them to go.

NAB has lost its two most senior leaders.

Andrew Thorburn set the tone for his leadership of National Australia Bank on his first day in the job.

On August 1, 2014, he announced sweeping changes to the bank’s top executive team, vowing to lift sagging shareholder returns by refocusing on the core domestic and New Zealand businesses.

Business banking boss Joseph Healy and group executive for transformation Lisa Gray were early casualties, and chief risk officer Bruce Munro and products and markets head Rick Sawers ­retired. It was the first of several management upheavals as Thorburn sought the right mix of leaders to haul NAB out of its torpor.

The next stage was a frenetic sequence of asset sales that culminated in Project Charlie — a successful exit from damaged British business Clydesdale, which had eluded several of his predecessors.

In an interview with The Australian in 2016, Thorburn said he and the then chief financial officer Craig Drummond had juggled four major transactions over the previous year: the $1.5 billion sale of Great Western Bank in the US, the Clydesdale demerger, the wind-down and sale of the bank’s commercial real estate and the $2.4bn sale of 80 per cent of the life business to Japan’s Nippon Life.

Drummond crisscrossed the globe, often beating a path from Melbourne to Dubai, on to Glasgow, back to Dubai and over to Tokyo for the Nippon Life deal, and finally back to Melbourne.

NAB shares last traded at $24.62

He and Thorburn alternated so that one of them was in Glasgow every three weeks.

Thorburn did his bit for the Great Western Bank exit, booking a flight to Sioux Falls, South Dakota, for a farewell dinner in his role as chair of the agricultural bank.

“It’s more difficult to get to than Glasgow,” he said. “You fly to San Francisco or LA, then to Denver or Chicago, then to Sioux Falls, and the planes get smaller and smaller.

“I made it as far as Chicago but got snowed in. So we had a teleconference dinner.”

While Thorburn set a cracking pace that left others floundering, the day was always going to come when everything was sold and the CEO would be accountable for the bank’s remaining crown jewel: its industry-leading business bank.

As it turned out, he had a plan for that too. At the 2017 annual ­result, Thorburn unveiled a massive transformation plan to slash about 6000 jobs, or 18 per cent of the NAB workforce, and hire 2000 digital natives with 21st century skills.

A further $1.5 billion would be invested over the ensuing three years.

While the scope of the plan was audacious, morale inside the ­organisation was falling apart.

Investors turned hostile late last year when chairman Ken Henry introduced a new remuneration plan that enabled executives to pocket huge bonuses, despite NAB emerging as the industry’s surprise villain in the financial services royal commission.

Thorburn and Henry were torn apart in the final round of the ­commission’s public hearings, and the bank’s remuneration report earned an extraordinary 88 per cent “no” vote.

The feral mood at the bank ­deteriorated further when the CEO announced he would take long service leave for most of February, returning to work for a few days early in the month to oversee NAB’s response to the royal commission’s final report.

When The Australian asked Henry, who was standing with Thorburn after the December ­annual meeting, if the CEO would return after long service to finalise his three-year transformation, the chairman said: “At least.”

The final nail in the coffin for Thorburn and Henry was commissioner Ken Hayne’s finding against NAB in the industry-wide fees-for-no-service debacle.

On page 411 of the final report, Hayne castigated the pair for their handling of the festering sore.

Thorburn, he said, acted as if fees-for-no-service was a processing error.

“Having heard from both the CEO, Mr Thorburn, and the chairman, Dr Henry, I am not confident as I would wish to be that the lessons of the past have been learned,” the commissioner said.

From that point, it was only a matter of time before NAB’s two most senior leaders were shown the door.

Ironically, it’s an outcome that Henry foresaw in 2017, when the pair appeared at a business lunch in Melbourne.

Looking at Thorburn, Henry said: “He knows, although I’ve never said it to him like this before, there will come a time when I have to throw him under a bus. He has to trust me that when I am doing that, I am actually doing that in the best interests of the company. Even if he might regard it as being unfair to him personally.”

The chairman added that the roles could be reversed.

“There could also come a time when he comes to me and says, ‘Ken, you know what, I think you’ve lost the support of your fellow directors, I just need to tell you that’,” he said. “And I would have to say, and know him well enough, that he’s also speaking in the best interests of the company.

“That’s how the relationship has to be.”