Why Westpac's next CEO needs to be an outsider

Brian Hartzer knew it was over the second he picked up his phone. Last Monday, as CEO of Westpac, Hartzer had called his senior executives into a room for the we-can-survive-this-speech, an attempt to rally the troops after the money laundering scandal of the past few days. The front page of this morning’s Australian newspaper contains the contents of that conversation word-for-word.

With quotes like “It’s not a major issue so we don’t need to over cook this” and “this is not an Enron or Lehman Brothers”, it doesn’t read well. Hartzer’s resignation, announced this morning, was a fait accompli, if it wasn’t already.

Every man for himself

Yet there is something more alarming about this than the contents of Hartzer’s speech. There was someone sitting in that room yesterday, in a time of crisis for the bank, who saw an opportunity to knife their boss in the back and took it.

Hartzer probably wasn’t surprised. Every man for himself is the culture that thrives at Australia’s domestic banks, and Hartzer probably did his own fair share of knifing to make his way to the top.

No easy fix

This culture is causing a lot of problems. Not just at Westpac. Across the whole Australian banking sector. It is not possible to design systems and processes that detect every piece of misbehaviour in an organisation of tens of thousands of employees. Your only hope is to build an organisation where the employees want the best for the company and its customers.

That’s clearly not what we have in our banks.

I’m not suggesting for a second that this is an easy problem to fix. These are giant institutions, the culture is well entrenched and the senior layers of management are stacked with people who thrived under the current system.

But recognising that there is an entrenched problem is surely the first step. Hartzer clearly had to go. So does Lindsay Maxsted. This is the same chairman who had this to say to the AFR’s Boss Magazine back in 2016:

“What’s this about a royal commission or there’s a huge problem in banks? There’s no culture problem in banks”

After everything that has happened over the past three years, he still doesn’t get it.

Time for some outside thinking

Most importantly, their replacements need to be outsiders. Hoping that someone who has been part of the establishment can fix it is like expecting Lance Armstrong to change the culture of doping in cycling.

Thousands of good people work for Australia’s banks. I know quite a few of them personally. Until they see significant change at the top, though, they will remain sceptical, dispirited and frustrated. And that’s an environment where the scandals will keep on coming.

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Steve Johnson
Founder & Chief Investment Officer

Steve began Forager Funds in 2009, and now manages approximately $350m across two funds. Offering a listed Australian Shares Fund (FOR) and an unlisted International Shares Fund, Steve focuses on long-term investing in undervalued companies.

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