National Australia Bank chairman Michael Chaney tells Business Spectator’s Alan Kohler and Stephen Bartholomeusz:
- What incoming chief executive Andrew Thorburn’s greatest and most immediate challenges will be.
- Which characteristics the bank looked for in Cameron Clyne’s successor, and how it went about its search.
- There’s no deadline on the sale of its UK assets, which could happen “at any time”, and what NAB’s thinking is on Clydesdale in the event of a UK economic upswing.
- The ways in which disruptors are set to substantially change the banking sector.
- It's critical to be a 'digital bank' rather than a 'digitised bank' in order to keep pace with the sector's shifting landscape.
Alan Kohler: Michael Chaney, thanks for joining us.
Michael Chaney: Not at all, Alan.
AK: Firstly, congratulations on keeping it a secret.
MC: Thank you very much.
AK: Nothing leaked out. That’s amazing.
MC: Well, it’s a sign of a good culture I think.
AK: Well, it is. It’s quite unusual. So, when did you first know that Cameron wasn’t going to be here beyond five years?
MC: Well, he will be here beyond five years. He’s already done five and a half. But before Christmas he had a chat with me and then we had a chat with the board about his tenure. He had said “look I’m ready to retire sometime if you feel, the board feels that they have a suitable replacement. There’s no time limit on it.” He was prepared to go until we felt we’d found someone, so given we’d been doing succession planning exercises continually over the years, we just sharpened our focus on that and went through a process and came to where we are today where we announced Cameron tendered his resignation yesterday and the board met and…
AK: And it definitely wasn’t the other way around? You saying to Cameron it’s time to go.
MC: Oh, absolutely not and I think he’s made that abundantly clear. He’s found the last five and a half years pretty trying as any CEO does, but I happen to think bank CEOs have a much harder job than most and, you know, it takes a toll on the time you can spend with your family and so on and he’s keen to finish executive life and do just that, spend a bit more time with his young children.
AK: So, when he spoke to you, what… Tell us what the process was that you then undertook.
MC: Well, as I say, you know, in any well managed company you’re going through a succession planning process as a continual exercise. I mean ever since the day Cameron started, he and I would have discussions about if he fell under a bus, who would take over? Which people could do with some development opportunities? You know, how’s Mr X and Miss X coming on and so on? And so, when we had that discussion, it was just a matter of continuing that process, as I said, sharpening the focus a bit and saying: okay, firstly, are there external candidates we should look at? Which internal candidate should we look at? And so on.
It was only about six months after we’d gone out on an international search with a head hunter to look for a CFO and we’d charged that head hunter with having a look at CFO potential, but also people who might eventually have CEO potential. So we actually had a list of people around the world and we were able to just dust that off, you know, six months old and consider it. We came to the view pretty quickly that the talent we had inside was at least as good as that and we then pursued a process over the next couple of months where we came to today’s decision.
Stephen Bartholomeusz: When you looked at the type of CEO you wanted for the next five years or beyond, what were the characteristics you were looking for, the qualifications, and how does Andrew tick the boxes?
MC: Well, there are a few features. One, obviously having deep banking experience is really important if you’re running a bank. Secondly, you’ve got to be a good team builder: creating a team, holding it together, motivating it and so on. And thirdly, you’ve got to be a person of integrity I think to run any large company. And Andrew ticked all of those boxes. You know, his performance over the last five and a half years in the Bank of New Zealand has been outstanding. The bank, notwithstanding fluctuations in the economic cycle, has been a steady performer, outperforming the other banks in terms of return on equity and providing increase in profits as the years went by. And so his track record was very good. We had presentations from him over the years, the most recent in New Zealand in early March and, you know, that was another bit of information for us in helping to determine that outcome.
SB: I suppose what I was trying to get to is when you looked at what you wanted for the next five years, were you looking for more of the same -- someone who would just continue on the things that Cameron’s done -- or were you looking for someone who was going to take the bank in another direction or into another era?
MC: Well, the Bank of New Zealand over the last five years has been a place of innovation and that was important to us. I think the future of banking is going to be different to what we see today and we needed someone who was a proven innovator and had the energy and drive to actually take the bank to another place if that was required. It’s impossible to tell what the future of banking is going to be, but I have no doubt that there are going to be some disruptors coming in and trying to take away parts of the business and you need someone who is energetic and can build a good team and has demonstrated a flexibility and a spirit of innovation.
AK: Is one of the things you’re asking him to do to clean up the UK before you finish up next year?
MC: No. We have no such time targets. I mean all of us…
AK: Would you like that to…
MC: All of us would have loved the UK business to have been sold a few years ago, but there were no buyers and instead we rationalised it. You know, we cut the costs and reduced it back to a more savings bank type operation and that’s been very successful. It’s still a really hard environment to operate in and we still have an intention of selling in the long term, in the medium term hopefully, but it’s impossible to say when that’ll be and it’d be foolish to have a target like that because external circumstances just disrupt it.
AK: So, it’s just one of those houses that’s got a board out the front for years and years, is it?
MC: Well, yeah. There’s no ‘for sale’ sign hanging up. You know, we went through from May last year this huge restructuring and it is a much healthier bank in terms of an operating result. The environment over there in terms of regulation is still very difficult and, you know, the conduct regulator keeps finding new ways of either penalising the banks or causing regressed customers and that’s costly for all the banks. But we are interested in the long term in disposing of it and that could come at any time.
SB: So, are you ruling out retention? And Cameron stabilised it. The commercial real estate portfolio was running off ahead of schedule.
SB: The UK economy is a bit better than it was. If it continued to strengthen, why wouldn’t you keep it?
MC: Well, I must say, I’ve always been a believer in a thing called logical incrementalism and so having hard and fast targets time-wise or action-wise actually is fraught with peril because the world changes around you. And it’s possible that if the thing operated very well, the economy picked up, it was profitable and no one else was interested in buying it that we’d retain it for the long term. We don’t think it’s likely that we’ll retain it simply because it’s operating better. I think that would allow us to sell it.
AK: So, just circling back to what you were saying, do you think then that the key strategic focus of the bank will need to focus around technology and innovation; that that’s really where the changes are going to be and what you as a board need to focus on?
MC: It’s those things, Alan, and customer focus in a sense that we haven’t really had it. And I think we’ve had it in the NAB in the last few years, but generally the industry hasn’t. It’s putting yourself in the position of a customer and saying ‘what do I need, what do I want’ and not the position of the bank saying ‘how can we actually make more profits here?’ It happens I think if you successfully do that, you will be more profitable because people will support you. And I think our Breaking Up fair value strategy proves that point. But I don’t have any doubt that the future of banking will be different to today’s banking. And you’ve got to be a digital bank as opposed to a digitised bank and you have to be able to meet the disruptive forces head on. And that means getting your systems in place, getting your processes in place, getting your costs down and having the right team who are flexible and can react.
AK: Apparently, the customers want to do it on this [holds up mobile phone].
MC: Well, yeah. Fifty per cent of our online transactions are now mobile.
AK: And, you know, the founder of Twitter has launched a payments system in the US which is also based around mobile phones. It’s all happening outside of banking. Business software firms, accounting software firms are now linking up to non bank payment systems.
MC: Yeah. Well, they’re the things I’m talking about. And, you know, there will be a place for banks. I don’t have any doubt about that. The challenge for banks I think is to achieve growth as you go forward. If you look forward ten years, how do you make sure that you’re worth more to your shareholders than you are today in the face of those sort of disruptions? Regulation in a sense will favour the banks because no government is going to want minor players willy nilly running around controlling the financial system. And we’ve seen with Bitcoin recently some of the perils that can attend some of these new innovations. But there’s no doubt they’ll be there and we have to find ways I think of tying ourselves to the customer, so the customer feels ‘this bank is an integral part of my life and my needs and they support me and I’m going to stay with them’.
SB: At the analysts conference on Thursday Cameron said that he was leaving the bank in a stronger position than he found it, which I think everyone would say is a reasonable statement, but he also said that he was leaving unfinished business. From your perspective, when Andrew takes over, what are the two or three priorities? What are the urgent things he needs to get his mind around, apart from the technology?
MC: Well, when you say apart from technology, that’s a big one. You know, the next gen project is about halfway through an eight-year implementation and so it’s critical to the future of the bank. Organisational restructuring that we undertook last year is pretty well done, but is still being bedded down. And that is turning it into a more functional organisation where you have product creation here and marketing in retail, the business bank and so on down there. There’s still some work to be done there. And setting up the management accounting systems, for example, is work in progress. The resolution of the UK issues, the question of whether we’re a long-term holder of Great Western Bank in the US is another issue. In the wealth management space, we have moved in the last year to much more closely integrate wealth with banking. Now that’s…
SB: They now bank with you.
SB: MLC now banks with you.
MC: MLC banks with the NAB. You know, if you go into NAB banking branches, you’ll find wealth management products and so on. And there’s a fair bit of work to be done in that space. The insurance business in wealth management is suffering, like all life insurance businesses in Australia, and so there are some big strategic issues there. There are some structural issues in the industry which we need to address. And so, they’re some of the challenges I think.
AK: Thanks for joining us, Michael.
MC: Thanks, Alan. Yeah. Thanks, Stephen.
SB: Thanks, Michael.