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Global asset manager warned NAB before Hayne fallout

Global asset manager warned NAB before Hayne fallout

James Mitchell
— 1 minute read

NAB’s biggest institutional shareholder engaged the major bank’s CEO and chairman as early as 2017 about a raft of problems within the organisation that eventually led to their resignation.

Vanguard’s Investment Stewardship 2019 Annual Report, released on 30 August, noted that the $7.7 trillion global asset manager engaged with “a large Australian bank” to discuss its board composition, company culture, board oversight of risk and strategy, and executive remuneration.

“We did so given Australia’s royal commission inquiry into the country’s banking and financial services industry,” the report said. 

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“We’d first engaged with the company’s board chairman and its CEO in 2017, after the inquiry opened. During that engagement, we explained the importance of a well-composed board and asked about the board’s composition and oversight of company culture.

“In light of the inquiry, we emphasised that news, both good and bad, needed to be swiftly elevated to the board. We were encouraged by our engagement but continued to track the inquiry in order to inform our future conversations.”

Vanguard, which is NAB’s largest institutional shareholder (4.97 per cent) explained that its most recent discussion with the bank came after “months of company turbulence”. 

“The commission’s report harshly criticised the bank, key company leaders resigned, and shareholders rejected a restructured executive remuneration program,” the report said. 

“We discussed remuneration changes that the company was considering and further explained that we’d voted against its plan because we felt it overemphasised short-term performance.

“Although this topic was largely the focus of our engagement, we also aimed to discuss lessons learned from the commission’s findings. We believe these issues are important to explore, and we expect to speak more in the future about them and the company’s rebuilding efforts.”

NAB chairman Ken Henry and CEO Andrew Thorburn resigned in February, days after the release of the royal commission final report. 

Commissioner Kenneth Hayne singled out NAB in his final report, noting that he “cannot accept” Mr Thorburn’s explanation that charging fees for no service was “a product of poor systems and carelessness”. 

“NAB stands apart from the other three major banks,” Mr Hayne wrote in his final report. 

“Having heard from both the CEO, Mr Thorburn, and the chair, Dr Henry, I am not as confident as I would wish to be that the lessons of the past have been learned. More particularly, I was not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly.

“I thought it telling that Dr Henry seemed unwilling to accept any criticism of how the board had dealt with some issues. I thought it telling that Mr Thorburn treated all issues of fees for no service as nothing more than carelessness combined with system deficiencies when the total amount to be repaid by NAB and NULIS on this account is likely to be more than $100 million.

“I thought it telling that in the very week that NAB’s CEO and chair were to give evidence before the commission, one of its staff should be emailing bankers urging them to sell at least five mortgages each before Christmas. 

“Overall, my fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains.”

 

Global asset manager warned NAB before Hayne fallout
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