NAB tip for board revival may start at the top with Chaney
As the drums roll for National Australia Bank's annual meeting on December 19, the spotlight will turn to the issue of board renewal, including the bank's chairman Michael Chaney.
The talk in investment circles is that Chaney is carefully considering his future at NAB, which would not be a surprise given he is the longest-serving chairman in the banking sector - he has sat on the board for nine years and served as chairman for eight of those.
Chaney has been discussing tenure with investors in the lead-up to next month's annual meeting. The talks come as each of the other big four banks have all seen a change at the very top in the past few years. However Chaney has been telling investors he expects to see through a full 10 year term. This will take him through to 2015.
Westpac appointed Lindsay Maxsted as chairman two years ago, replacing Ted Evans, who had served as chairman for 4 years.
Commonwealth Bank appointed David Turner as chairman in February 2010, replacing John Schubert, who was chairman for 5 years, and ANZ, which is believed to be looking to replace its chairman, John Morschel, who took the role four years ago and is believed to be seeking to retire next year. The discussion comes as the ASX Corporate Governance Council released a draft of proposed amendments to its principles and recommendations, which includes adding tenure as a marker for a non-executive director's independence.
The draft, released in August, considers being on a board for more than nine years as an indicator that a non-executive director may not be independent.
All ASX-listed companies are required to benchmark their corporate governance practices against the ASX's recommendations and explain to shareholders that if they don't comply, why not.
A number of companies, including Westpac, already have a "director-tenure policy", which limits non-executive directors, excluding the chairman, to serve a maximum of nine years.
In Westpac's case the
chairman can remain on the
board for 12 years.
Many shareholders believe it is high time to ramp up board refreshment at NAB and such changes should be overseen by a new chairman.
Excluding Chaney, five of the bank's eight non-executive directors have sat on the board between nine and 13 years.
To put it in perspective, in the past four years there have been only three new appointments - John Waller, Anthony Yuen and Ken Henry - which suggests a new chairman would need to come from outside. There will also be shareholder pressure to appoint someone with a strong background in banking who understands the value of the best strategic option and the value destruction that results from poor board decisions and delayed actions.
This happened at NAB when the board decided to back the previous chief executive John Stewart's strategy of growth in commercial real estate and pushing further into the south of England,
where NAB had insufficient experience.
The board committed a similar error a few years later when Stewart's successor, Cameron Clyne, reviewed the UK business and decided to stick with it.
BBY banking analyst Brett Le Mesurier says Chaney should have taken action years ago on the UK.
"The time to sell an asset without strategic relevance is when the market is running, not when it is collapsing," he said.
"The board was too slow to recognise this and instead held on to the asset for too long and waited for the obvious to occur."
Suitable candidates for the NAB chairmanship include Michael Pratt, who built a career in banking, including running the Bank of New Zealand, senior executive roles at NAB and Westpac (where he missed out on the top job to Gail Kelly) and more recently senior appointments in academia and government; former CBA chief executive Ralph Norris, who built the bank into a financial powerhouse; former Macquarie Bank boss Allan Moss, who transformed the group from an Australian bank into a global empire.Any new board appointments will be viewed through the lens of becoming a chairman.
The importance of picking the right chairman with the right background cannot be underestimated as the bank plays a key role as intermediator in the economy, which means the chairman needs to be across the economy in far more detail than in other industries.
In the case of NAB, its performance over the past decade has been disappointing.
While its share price has soared in the past year, it has underperformed its peers over the past decade.
Indeed, since Chaney was appointed chairman in September 2005, NAB's share price has risen 11 per cent, compared with CBA, which more than doubled to 104 per cent, Westpac up 64 per cent and ANZ up 46 per cent.
Chaney left Wesfarmers a legend, but at NAB he clearly has had his work cut out.