Westpac avoids second pay report strike as chair John McFarlane announces plans to retire

Westpac chairman John McFarlane’s looming retirement has sparked a search for his successor, as the incumbent conceded more needed to be done to lift performance and cut costs.

Westpac chairman John McFarlane addresses the company’s AGM in Melbourne on Wednesday. Picture: NCA NewsWire / Nicki Connolly

Westpac chairman John McFarlane’s retirement this time next year has sparked a search for his successor, as the incumbent declared “progress in turning around” the bank but conceded more needed to be done to lift performance and cut costs.

At an at times heated annual general meeting, given dozens of questions about the bank’s climate change policies and cultural issues, Mr McFarlane said he would retire in December 2023 at the bank’s next shareholder meeting.

Attention will now turn to Westpac’s board succession planning, with director and former KPMG partner Peter Nash said to be an internal frontrunner to take the chairman’s reins. That is despite an 11.2 per cent protest vote against his re-election on Wednesday, which may have to do with Mr Nash also being a director of the ASX.

Other internal board names sources said would have a chance at Westpac’s chairmanship include Brambles and Origin Energy director Nora Scheinkestel, former Rio Tinto global finance chief Chris Lynch, and possibly former Macquarie Group director and Insurance Australia Group chief executive Michael Hawker.

Peter Marriott – who is also an ASX director – retired at this year’s AGM having completed the maximum three terms. Several investors raised questions at the AGM about whether board directors had enough technology experience given an increased focus on digital channels, artificial intelligence and cyber security.

Mr McFarlane, 75, took the reins as chairman in April 2020 when Westpac was embroiled in a scandal involving millions of breaches of anti-money laundering laws. That brought forward the exit of former chairman Lindsay Maxsted and led to former chief executive Brian Hartzer falling on his sword, eventually seeing the bank pay a record $1.3bn penalty to Austrac.

Westpac chair John McFarlane will leave the $82.84bn bank giant next December. Picture: Adam Yip

Mr McFarlane was ANZ CEO for a decade until 2007 and former Barclays chairman, among other roles.

“We have started the process of identifying a new chair and in looking for new directors that will bring additional skills to the board,” he said on Wednesday.

Mr McFarlane admitted Westpac still had work to do to lift operational performance even after it had fixed issues within its consumer and institutional units.

“We know performance is not yet where it needs to be and this was reflected in remuneration outcomes for the management team,” he said, also noting the bank missed its customer service targets and that the cost-to-income ratio was “still high” relative to efficient banks globally.

Mr McFarlane said 2023 would be a challenging period given aggressive monetary policy tightening by the Reserve Bank, and as lenders braced for an increase in loan losses that were yet to be seen.

Banks are benefiting from a rising interest rate environment, but are expected to confront higher loan defaults in 2023 given the RBA has raised rates sharply by 3 percentage points since May.

“We expect the combination of rising interest rates and the increase in cost of living to be felt more fully by consumers and businesses after Christmas … we’re well placed to support customers through what will be a tougher period,” Westpac CEO Peter King said. “2023 heralds a new phase for Westpac.”

Westpac’s stock dipped 0.4 per cent to $23.57 on Wednesday, bucking a 0.7 per cent gain in the S&P/ASX200. The bank’s shares have climbed almost 42.9 per cent so far during Mr McFarlane’s tenure, albeit that includes a recovery from the depths of the pandemic in April 2020.

In September 2020, Westpac agreed to pay a record $1.3bn penalty to financial crimes regulator Austrac for breaching the law given a spate of compliance failings. The breaches including the bank facilitating payments made for child exploitation material in Asia.

Mr McFarlane said Westpac had made progress on its simplification plans and in addressing risk and cultural issues.

“We have successfully strategically repositioned the company,” he added.

Mr King said he hoped capital charges imposed on the bank by the prudential regulator for compliance shortcomings would be lifted within 18 months.

The bank’s shareholders overwhelmingly supported this year's remuneration report, averting a second strike.

Westpac chief executive Peter King speaks at the bank’s AGM in Melbourne. Picture: NCA NewsWire / Nicki Connolly

Votes cast at the bank’s AGM were 93.5 per cent in favour of Westpac’s pay report, while about 6.6 per cent were lodged against it. That comes after more than 30 per cent of the votes cast by shareholders last year were against the adoption of the bank’s remuneration report. Two consecutive strikes can spur a spill of the board.

Shareholders also signed off on granting Mr King’s long-term variable reward that has a face value of $3.25m, and is subject to performance hurdles.

The bank was peppered with questions over its stance on lending to high emitting companies and climate change.

But climate advocates failed to secure changes to Westpac’s constitution that if passed would also see investors vote on a resolution regarding climate risk safeguarding. The bank urged shareholders to vote against these resolutions and proxy votes did not support them, despite 10.2 per cent cast in favour of climate risk safeguarding.

Market Forces’ asset management campaigner Will van de Pol said investors were calling out the bank “for greenwashing of the highest order” at its AGM.

“In just the last six months, Westpac has contributed to billion dollar loans for Woodside and Santos, companies pursuing new oil and gas projects,” he said.

Mr McFarlane said the bank was taking action and focusing on supporting a transition of the economy to cleaner sources of energy.

“We are a financier and therefore we do have commitments, existing commitments, that we’re unable to break with customers,” he added. “Government hasn’t yet created an environment for us to move forward faster, and that would be welcome.”