Proxy advisory firms turn up the heat on Westpac

The pressure on Westpac’s board has intensified as two influential proxy advisers took aim at a high-profile director.

Peter Marriott is in the sights of two proxy advisory firms.

The pressure on Westpac’s board intensified on Wednesday as two influential proxy advisers took aim at the bank’s high-profile director Peter Marriott, setting the scene for further bloodletting in the bank’s boardroom.

The shareholder push came as details emerged about a key meeting in March, when the financial crimes regulator briefed the bank’s board on a litany of compliance failures.

The meeting with Westpac’s board — which included Austrac’s boss Nicole Rose — detailed many of the shortcomings identified by the regulator around the bank’s systems and lax approach to anti-money-laundering and counter-terrorism financing laws, sources said.

Executives that were part of chief executive Brian Hartzer’s leadership team were also aware in the first quarter of 2019 of many millions of potential breaches of the law.

Details of the links to payments funding child exploitation and pornography were yet to been revealed during the March meeting. Those started to become more evident at the regulator in October, when it issued the bank with a string of legal notices requesting more information on questionable payments.

That chain of events casts doubt on Westpac’s claims it was blindsided by the shocking allegations made public in a legal statement of claim on November 20. The bank has been rocked by the Austrac legal action, which alleges 23 million breaches of the law and links to enabling the financing ­pedophiles.

The court action has prompted political and investor uproar and the exit of Mr Hartzer. Westpac chairman Lindsay Maxsted is bringing forward his retirement to early next year, while non-executive director Ewen Crouch will step down at the bank’s December 12 annual general meeting.

An Austrac spokeswoman declined to comment specifically on the case on Wednesday but said: “Austrac constantly works with reporting entities to support them in improving their compliance with their obligations under the AML/CTF Act (Anti-Money Laundering Counter-Terrorism Financing Act), including by publishing education products and through engagement with entities and sectors.

“As the matter is before the court, it would not be appropriate for Austrac comment further.”

Mr Maxsted this week told journalists of a March meeting between the entire board and Austrac, in response to questions about why the bank did not act or engage with the regulator sooner.

“Austrac met with the whole board of Westpac in March of this year. So there is communication generally with Austrac,” Mr Maxsted said.

1 2 3 4 5

Westpac’s board is in the process of appointing independent experts to review the compliance failures and understand who know what when. Finance chief Peter King steps into the CEO role on Monday on an acting basis.

The Westpac board met again on Wednesday evening as it assessed three reports out from the proxy houses.

While Westpac is expected to seek a legal settlement, the Federal Court has set a case management hearing for Austrac’s action against the bank for December 9. It will be heard by the most senior judge on the Federal Court, Chief Justice James Allsop.

Two proxy advisory firms added new pressure to the Westpac board on Wednesday as they called for investors not to back the re-election of Mr Marriott, a longstanding director. ISS and CGI Glass Lewis said investors should vote against his re-election given he has served on the board since 2013, chairs the audit committee and is a member of the board risk and compliance committee.

He is a former ANZ executive, including a stint at chief financial officer until 2012. ISS also called on fund managers to vote down Westpac’s pay report and to vote against the re-election of director Nerida Caesar, who joined the board in September 2017.

The ISS report obtained by The Australian said there were significant concerns about the bank’s remuneration structure, including a “misalignment” between pay and performance.

A “no” vote in excess of 25 per cent would mean a second strike for Westpac, following last year’s stunning 66 per cent vote against the bank’s pay framework. Proxy firms provide recommendations to fund managers and other investors, among other things, to help guide their voting decisions at ­annual general meetings.

The early retirement of Mr Maxsted and the decision by Mr Crouch not to seek re-election could be regarded as “reasonable steps” in a program of board renewal, ISS said, saying it would not recommend shareholders vote for a spill of the entire board.

Despite the actions by the board, the AGM looms as a hostile affair. The ISS report also calls on fund managers to vote in favour of new Westpac directors seeking election, Margaret Seale and Steven Harker. Yet ISS also raised concerns about Mr Harker’s independence, noting he had a significant related-party loan of $15m provided by Westpac.

ISS said its recommendations were “warranted given the material governance and risk failures identified at the (royal commission) and regulatory interventions, and allegations by Austrac regarding inadequate systems and statutory reporting of AML and suspicious transactions which are now the subject of civil penalty proceedings in the Federal Court”.

But proxy house Ownership Matters was supportive of Westpac’s board, advising fund managers late on Wednesday to vote in favour of all directors up for re-election and election and for the remuneration report.

The report did note that some shareholders “may wish to vote against the remuneration report given the Austrac legal action”.

Westpac shares fell 0.2 per cent to $24.81 on Wednesday, after retracing sharper losses earlier in the day. The stock remains 6.6 per cent lower than the $26.55 it was changing hands at before the Austrac action became public. Investors and analysts are concerned about a prolonged period of leadership instability and a penalty for Westpac that could top $1bn.

JPMorgan analysts cut their Westpac target price on Wednesday following the CEO exit and early departure of the chairman.

Additional reporting: Richard Gluyas