Maxsted calls for end to Westpac board changes as CEO exits

Westpac’s chairman has warned angry shareholders against pushing for more board scalps.

Westpac chief executive Brian Hartzer leaving his home on Tuedsay morning. Picture: Jane Dempster.

Westpac’s chairman Lindsay Maxsted has warned angry shareholders against pushing for more board scalps, labelling the move “very dangerous”, after the money laundering and child exploitation scandal claimed the job of chief executive Brian Hartzer.

After relentless political pressure and a crisis board meeting that stretched more than five hours, Westpac announced the swift December 2 exit of Mr Hartzer. As part of the shake-up, Mr Maxsted brought forward his departure to the first half of 2020.

The lodging of a damning lawsuit by financial crimes regulator Austrac last Wednesday also prompted non-executive director Ewen Crouch — who heads the board’s risk and compliance committee — to withdraw from seeking re-election at the December 12 annual general meeting.

Mr Maxsted said while the board had bowed to pressure to take further action following Austrac’s legal case, more departures of non-executive directors were not the answer.

“Investors will decide that. But there is a very fine balance here. We want to demonstrate to everyone that we very much understand accountability here … but we don’t want to go too far so that it’s very disruptive to the business,” he said.

“It was clear from these (stakeholder) discussions there was expectation that we make decisions above and beyond the response plan which we announced on Sunday.”

His comments came as Reserve Bank governor Philip Lowe weighed in on the scandal, declaring there needed to be accountability when high standards were not met.

“I do want to say I find the allegations against Westpac appalling and completely unacceptable,” Dr Lowe said at a function in Sydney late Tuesday.

“We demand very high standards from our financial institutions and it’s right we demand high standards to be met, and when they’re not met there needs to be accountability.”

The Westpac changes — which installed finance boss Peter King as acting CEO — were not enough to stop some investors from calling for more board exits. That ensures the bank’s annual general meeting on December 12 will be a fiery affair.

“At this point in time they’ve done the first move and there will be other moves as more people fall on their swords,” Wilson Asset Management’s lead portfolio manager Matthew Haupt said.

“I would have thought the (post-Austrac action) playbook would have been a lot quicker.”

The Australian Council of Superannuation Investors said it remained unclear why a “fulsome investigation” wasn’t started earlier by Westpac and called for further board renewal in the new year.

“Long-term investors made it clear to Westpac that accountability was required,” ACSI chief executive Louise Davidson said.

“Investors want to see Westpac’s culture and governance strengthened to avoid a repeat of these issues. We believe that this crisis warrants further board renewal in the new year to support rebuilding public trust.”

Westpac’s shares recovered some ground on Tuesday, rising 1.7 per cent to $24.86. That followed an 8.8 per cent slide in the share price — or a $7.5bn dent in market value — since Wednesday’s Federal Court action was lodged, alleging 23 million breaches of the law.

Sources suggested large investors and super funds could still send a strong signal at Westpac’s AGM by voting against the remuneration report and pushing for the resignation of at least one more longstanding board member.

The board’s decision to change course on its action plan came after it met with several large industry superannuation funds, including AustralianSuper, proxy adviser ISS and institutional investors thought to include Yarra Capital Management, Australian Foundation Investment Company and Martin Currie.

A search for a new CFO by headhunter Korn Ferry after Mr King announced his retirement two months ago has been put on hold while the board beds down a new chairman to spearhead the CEO search.

Another Westpac board meeting was understood to be taking place on Tuesday night.

The global search for a new CEO will take into account internal candidates, expected to include Mr King, head of the retail bank David Lindberg and acting CFO Gary Thursby.

Mr King on Tuesday said he would focus on pushing ahead with the bank’s strategy and its response plan to the Austrac saga.

“We will carry out this work with diligence and speed,” he said of the bank’s response plan to the Austrac legal action. “I know our people, and I know they have the highest integrity and are committed to doing their very best … we have a big agenda and I am committed to our strategy.”

Mr King said part of the issue with anti-money laundering and counter-terrorism financing systems and protections was that criminals continued to look for loopholes.

“We are forever trying to improve and catch up,” he added.

Mr Maxsted admitted the board of Westpac met with Austrac in March of this year, but reiterated that the child exploitation payment links were not raised with the bank until November 15.

The exit of Mr Hartzer marked the third major bank CEO to depart in the past 19 months, after a string of compliance scandals and heightened regulatory scrutiny.

“Stability is very important but there are still question marks around (Westpac’s) governance and culture and that will take a while to address,” Merlon Capital Partners principal Hamish Carlisle said.

Clime Investment Management chief Rod Bristow said while in the medium term the Westpac changes would be positive, further executive changes would follow.

They give “a new chairman the ability to select a CEO unencumbered by current issues. The market’s initial response has been positive accordingly,” he added. “Having said that, it has introduced much uncertainty and we expect more senior executive departures in coming months.”

Responding to questions on Tuesday, Mr Maxsted said the Austrac legal action and its impact on the bank’s reputation may prompt some customers to leave the bank, but noted the failings were not through “deliberate neglect”. He declined to comment on the bank’s insurance policy for legal penalties.

S&P Global Ratings said Westpac’s announced board and management changes should “stabilise stakeholder discontent, which has continued to mount” since the Austrac allegations.

“These changes will also help clear the way for the board and management to address governance and risk management matters and return its focus to managing the broader business,” its report said. “While Westpac will bear the direct financial penalties from the Austrac case, the broader damage from such lapses extends to all the Australian major banks, in our view. We consider that these events hurt the major banks’ franchise within the Australian community as well as its investor-base.”