The Distillery: Murray mistrust

The decision to appoint David Murray to head the government’s financial inquiry has the commentariat divided. On the one hand, he has plenty of experience and expertise in the sector but, on the other, there is the potential for bias given his strong links to the industry.

Most commentators veer to the latter in their opinions, but all scribes expect the inquiry to still amount to something of substance.

Meanwhile, David Jones gears up for what should be one of the most interesting and potentially fiery AGMs of the season, with one jotter spotlighting the need for outgoing boss Paul Zahra to hold a smile for two hours against the better judgment of his internal grievances.

First to the heavily spruiked inquiry into the financial system. The Australian’s Glenda Korporaal notes that the last two successful leaders of financial inquiries in Australia have been esteemed business executives from outside the financial sector. As such, the appointment of former Commonwealth Bank of Australia boss David Murray is a risk. Still, with the financial system rapidly changing, his expertise sure could come in handy.

“[Murray] is a man of formidable experience in the financial system with no current business ties or vested interests and has the capacity to carve out another role for himself in the public service. He is a tough and experienced operator who could well overcome some initial perceptions of being rewarded for being a loyal Liberal Party supporter with strong ties into the banking system and the big end of town. But the proof, of course, will be in the pudding.”

The risk, of course, is that the pudding is half-baked.

The Australian’s John Durie rates Murray’s intelligence highly, but is adamant he wasn’t the best choice available to Treasurer Joe Hockey.

“David Murray is eminently capable of leading the government's landmark financial inquiry, but he is a divisive figure perceived as a big-business banker and is on any read the wrong person for the job. [However], if Hockey erred in his choice of chairman he at least delivered in spades with wide-ranging terms of reference, leaving the Murray inquiry with plenty of scope to lay down a comprehensive road map for the future.”

Fairfax’s Malcolm Maiden agrees that there is a big opportunity for improvements, but worries it might not be taken.

“There is no particular focus, and that creates both promise and risk for the probe that Hockey has asked former Commonwealth Bank managing director David Murray to conduct ... History tells us that inquiries that recommend changes the government isn't looking for gather dust. Some fear that the appointment of Murray, a high-conviction personality, increases that risk.”

Business Spectator’s Stephen Bartholomeusz, meanwhile, singles out one area of particular interest for the inquiry: technological change. The big four Aussie banks have readied themselves for an onslaught from new digital competition, but are the regulators ready?

“Digital challengers have wreaked havoc on other sectors. The media and the music industries are classic examples. The banking system is, however, at the core of the financial system and ultimately the economy. No regulator or legislator would want to see it destabilised.”

It is indeed an interesting time for the banking sector, with the increasingly fragmented industry in the US – where online-only banks are gaining an increasing share of the market – portending to change ahead. Australia’s big banks are more prepared, however, given their stronger balance sheets and more powerful competitive position.

In company news, the board of retailer David Jones is set to confront a hostile reception at its AGM today in light of recent criticism of the group’s succession planning and the controversial purchase of shares by two directors just prior to the release of sales numbers.

For The Australian’s Blair Speedy, the developments mean outgoing chief executive Paul Zahra will be left trying to feign enthusiasm for two hours with his performance crucial to a shareholder vote he wants to go his way on remuneration.

“Zahra is in an unenviable position – well, unenviable for anyone who was paid $2.6 million last year and has $3.7 million worth of David Jones shares under their mattress. Effectively disowned by a board he can no longer work with, he now has to maintain the happy family fiction or he won't get his golden handshake.”

It appears a case of head over heart.

Meanwhile, The Australian Financial Review’s Chanticleer columnist Tony Boyd takes a closer look at the succession plan and hits out at the decision to cancel a press conference after the AGM.

“That somewhat petty response is a red flag for much deeper problems at the retailer as it seeks a new chief executive to replace Paul Zahra … They need to find an individual who can pick up the momentum achieved in the latest quarterly sales results and drive the company forward. But in picking that person they are, to a large extent, picking a strategy. The problem for investors is that even if the board chooses the right person to put David Jones back on a growth path, the company will still present a myriad of imponderables.”

Again it comes back to the digital revolution. For executives with the incumbents in sectors like media and retail, now is a pretty scary time to be in charge.

In resources, the AFR’s Matthew Stevens criticises the response of the Victorian government to the report from the Reith Taskforce on energy. By continuing to delay development of coal seam gas reserves, Stevens wonders whether Premier Denis Napthine has even read the report.

Business Spectator’s Bartholomeusz, meanwhile, spots a “disconnect” between BHP Billiton’s optimism and the relentless pursuit of cost cuts in the resources sector.

Elsewhere, the AFR’s markets columnist Philip Baker ponders whether the US Federal Reserve is getting a little desperate. Right now the Fed seems to be a part of a vicious circle: some employers aren’t hiring because of fears about what the QE taper could mean to the economy, while the Fed is refusing to taper until there’s further jobs growth. In the meantime, the markets are lapping up the indecision.

Finally, Fairfax’s Michael Pascoe discusses the new face of globalisation that sees an Australian listed company incorporated in Bermuda, headquartered in Hong Kong, manufacturing in China and about to start making shoes in the US, while the AFR’s Laura Tingle continues to address the crisis with Indonesia. According to Tingle, Abbott must find a way to get Indonesia back on side, and silence won’t achieve it.