Shock exit: The red flags that forced George Frazis out of BOQ

Rising tensions over George Frazis’s leadership style, including midnight emails and extravagance for travel and entertainment, became so obvious the board acted to end the stand-off.

George Frazis didn’t see the axe coming as he was preparing for BOQ’s annual meeting next week. Picture: Richard Walker

A stand-off inside the Bank of Queensland has come to a bloody finish with the brutal dismissal of high-profile chief executive George Frazis and the board – led by investment banker Patrick Allaway – reasserting control over the regional lender.

It’s a battle where victory for Allaway will be hollow, leaving the small bank adrift as it gets to the most difficult part of a complex integration and digital overhaul, while costs are piling sky high on funding, technology and most of all regulation.

Frazis didn’t see the axe coming as he was preparing for BOQ’s annual meeting next week, but bank insiders say tension had been building between Allaway and the chief executive for much of this year before the board made its move.

BOQ chairman Patrick Allaway.

Frazis’s style, which included extravagance from private wine cellars to travel and entertainment, is more a feature of the banking industry’s high excesses from decades ago. That and unconventional working hours – the rule of start late and finish late as well as midnight emails to staff sat uncomfortably with a regional bank, indeed even with modern management practices.

This had caused rising tension with Allaway, which insiders said had become obvious.

The chairman had earlier this year demanded some changes, urging Frazis to move away from Elon Musk-style of management to a more conventional offering suited for a bank. This included a Monday to Friday working week centred on bankers’ hours and more focus on BOQ’s Brisbane head office over Sydney. But the late calls and driving pressure on executives continued.

However, it was areas around risk and balance sheet where Allaway believes he was on solid ground to force the exit.

Still, some parts of what Frazis brought to the role were needed for a bank that has been long on low performance and for years had failed to untangle its IT outsourcing mess.

The former Westpac and National Australia Bank senior executive and one time RAAF officer pushed the bank and his senior staff hard. This led to a string of senior exits, and some departures were good for the bank. But others including the decision of chief financial officer Ewen Stafford to walk suddenly in June set alarm bells ringing.

Frazis was awarded just 75 per cent of his potential bonus last financial year, while the rest of his senior staff were paid 90 per cent. BOQ at the time said the decision was proposed by Frazis, although the board deemed the decision to be fair.

No ‘lame ducks’

Investors will push BOQ for a better explanation of the events heading into the bank’s annual meeting scheduled for December 6. Allaway’s claim there is a need to shift strategy in response to the economic environment part way through the existing strategy simply doesn’t fly.

The board signed-off on the risk and broader strategy of the bank, so Frazis’s failings in this area are part of their failings. And despite the small docking of remuneration for Frazis the annual report told investors that the digital road map was on track.

Allaway tells The Australian there is nothing to announce or indeed issues when it comes to concerns around financial performance or the balance sheet, which he described as “strong”.

Indeed Allaway notes that Frazis had delivered a return to growth across all of BOQ’s channels, while the acquisition and integration of ME Bank was fundamental to building scale and strengthening the organisation.

BOQ faces the loss of a CEO at a strategically important time. Picture: NCA NewsWire / Dan Peled

Rather, it is future risk that Allaway is looking to address. While the entire banking sector is currently seeing record low lending losses, even with the round of official interest rate rises, the test will come by the middle of next year when it will become clear which banks wrote the riskiest loans during the rush of the Covid-19 lending boom.

Allaway tells The Australian that Frazis’s exit is “really a function of the board pivoting strategy and the shifting priorities”.

“While our overall strategy remains unchanged, we are shifting our priorities to focus on elements of the strategy to make the bank stronger and optimise our returns. A big part of that is thinking about the economic environment that we’re going into,” Allaway says.

“It’s also about dealing with an uplift in our risk controls and culture, which is necessary, and it’s shifting our emphasis slightly from growth to more focused on optimising returns. The focus is more about quality growth, and ensuring that we get an appropriate return on that growth,” he adds.

“We felt that we needed different skills and capabilities to drive that change.”

To have Frazis remain in the role until a new CEO is found would be counter-productive, as Allaway and the board didn’t want to end up with a “lame duck CEO”.

“That’s not appropriate to the way we want to run the bank.”

Falling behind

Following his appointment from Westpac in late 2019, Frazis quickly gave BOQ a renewed strategic purpose and substantially bulked up the balance sheet through a fully-priced acquisition of super fund-backed ME Bank. Meanwhile he turned the long-drifting Virgin Money Australia venture into a growth lever.

At the same time he poured effort into a digital overhaul including the launch of a myBoQ app and moving to a cloud-based banking platform.

However, all these initiatives are a work-in-progress and could veer dangerously off track without a permanent CEO driving change. This could put BOQ even further behind rivals both big and small and result in the destruction of substantial value.

They also came at a cost with the investment cutting into the dividend, which fell below long- term targets.

Allaway, who some colleagues describe as being more closely involved in the running of the bank than most chairman, intends to take charge as executive chairman while a search for a new chief executive goes into the second half of next year.

Already former ANZ retail executive Mark Hand is being talked of as a possible candidate, while ANZ would look to lock in Suncorp’s well regarded Clive van Horen as it pushes ahead with a long-term merger of that bank.

There is little doubt the rapid exit leaves BOQ vulnerable as it rushes to keep up with the big bank game which involves massive spending on technology and regulation.

BOQ is an anomaly in the banking industry, with more than 110 owner-manager branches making a takeover messy. Meanwhile a high-cost multibrand strategy of Virgin Money and ME championed by Frazis and carried over from his Westpac days is rapidly going out of vogue in banking. Few would want to integrate a bank already in the process of a complex integration.

BOQ previously proposed a merger with Bendigo Bank. Now Bendigo, which missed out on Suncorp, will take a fresh look at a merger option as it seeks to build a super-regional bank.

For now though the search is on, with BOQ set for another strategy reset under a new CEO. But time is also running out for the board to prove the bank can be a viable independent alternative or find itself a buyer.

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Originally published as Shock exit: The red flags that forced George Frazis out of BOQ