Westpac’s CEO search a finely balanced task, board should tread with caution

Westpac’s board is under pressure to ensure an orderly CEO changeover. Picture: AAP

It’s a finely balanced task and there’s a lot at stake for Westpac’s board in identifying the bank’s next chief executive.

The Steven Gregg-led board is on the hunt for the person with the right mix of banking and leadership skills to lift the lender’s performance and propel growth for the next five to 10 years.

The board also wants to ensure a smooth baton change from incumbent CEO Peter King, who has had traction in rectifying compliance failures at Westpac and getting the bank on a more even footing operationally.

Westpac has headhunting firm Heidrick & Struggles on hand assisting with the CEO search, which has put the bank’s rivals on a defensive footing as they seek to retain top staff.

Several fund managers gauged by this column said their preference was for the board to appoint an external candidate to lead Westpac. One noted an external appointment would be better placed to institute an overhaul of culture and performance, in the way Ross McEwan was able to at National Australia Bank or Ralph Norris did at Commonwealth Bank with technology investment.

Norris had been an ASB and CBA executive earlier in his career before leaving and having a stint running Air New Zealand before returning to the bank for the top post.

Another investor said Westpac required a “change agent”, while others said the bank had strong internal CEO candidates in consumer banking chief Jason Yetton and head of business banking Anthony Miller.

For those leaning toward an outsider, there are risks associated with bringing in an external candidate or an offshore-based executive.

ANZ’s investors know all too well the challenges associated with parachuting an offshore candidate in. They remember Mike Smith’s reign as ANZ chief executive from 2007 after he was lured from HSBC.

Smith launched a buying spree in Asia, in a strategy intended to make ANZ a super-regional bank, which was then somewhat unpicked by his successor.

What’s clear is Westpac’s board has to tread with caution as it hasn’t had a lot of luck recruiting from outside Australia in recent times. Chris de Bruin, who led the consumer bank and then also took over business banking, exited in August after joining in early 2021, while Guilherme Lima, who ran the business division, left in 2021 after arriving from HSBC in late 2019.

Another issue for any offshore-based candidates being assessed for Westpac’s CEO role may be relative levels of remuneration in Australia. NAB was, however, able to attract Andrew Irvine to this market from Bank of Montreal, perhaps helped by the fact Canada has a similar-sized banking sector.

He joined as head of NAB’s business banking division before taking over from McEwan earlier this year.

Deal waltz

The situation between Myer and Solomon Lew’s Premier Investments was always going to come to a head once the latter got effective control of the department store group via the savvy use of creep provisions.

Almost like clockwork, Premier has raised its stake in Myer on a consistent basis around every six months, as allowable with the creep rules, which facilitate buying of up to 3 per cent in a target after a potential suitor reaches 19.9 per cent.

Lew’s plans for his empire, particularly the respective demergers of Smiggle and Peter Alexander, certainly put the rump of Premier in focus. And Myer was an obvious dance partner given Premier had amassed a 31.4 per cent holding.

Solomon Lew’s Premier Investments has long been stalking department store retailer Myer. Picture: NCA NewsWire / Max Mason-Hubers

Now Myer and Premier are weighing a scrip-based marriage of the department store group with Lew’s brands including Just Jeans, Portmans and Dotti.

Separately, Lew is also no doubt pondering succession planning given he’s 79 this year, and the carve-up of the Premier empire provides options around that.

With the spin-off of Smiggle and Peter Alexander under way the proposed Myer tie-up is the final piece of the puzzle and would deliver Lew a seat on the Myer board alongside several of his current and former lieutenants.

Terry McCartney, Premier’s board nominee and former managing director of Myer Grace Bros, joined the Myer board in late 2022 while Gary Weiss was appointed in late in 2023. Weiss is somehow considered an independent Myer director, which really is laughable given his longstanding affiliation with Lew and Premier.

Weiss retired from the Premier board in 2018 after 23 years of service, and Myer appears to be drawing on the ASX Corporate Governance Council’s principles on this matter. They state a director should not have been employed in an executive capacity by the company or any of its affiliated entities within the last three years, nor should have been in a material commercial relationship with the company or its affiliates over the same time frame.

While Weiss meets those requirements, the perception around the appointment should have been enough for Myer to take a different approach.

Either way, were a transaction to get to the stage where it could be put to shareholders, an independent expert would be brought in to assess the merits and pitfalls of a deal.

Given the details that need to be nutted out between Myer and Premier it’s interesting the parties got on the front foot with continuous disclosure. That was likely due to the risk the discussions and the commencement of any due diligence would leak.

There will be a period of two-way due diligence as topics such as private label brands, store footprints and lease liabilities are broached and assessed.