Former Westpac chief executive officer David Morgan has warned that populist politics is a bigger threat to banks than competition from new fintech companies and called on the business community to speak out on the need for “quality” public policy.
Dr Morgan, who served in the Federal Treasury during the 1980s assisting with the Hawke-Keating government economic policy reform agenda, added that there needed to be a bigger focus on retraining and reskilling that part of the population “left behind” by globalisation and technological changes, “rather than trying to reverse those trends”.
Speaking at a recent event at Westpac, Dr Morgan also provided insights into how he improved culture during his time as CEO and increased the proportion of women in senior roles.
In the wake of the government’s new levy on banks in the May budget, Dr Morgan said the rise of populism was the biggest challenge confronting the industry, outpacing the threat from fintech companies and more onerous regulation. He said the commentary about disruption and technology was similar to when he was appointed Westpac CEO in 1999 and the US dot-com bubble was in full swing, also prompting observers to warn that traditional banks were doomed to fall by the wayside.
“There are challenges (facing banks) but populism in my view is the biggest problem. Others suggest fintech is the biggest challenge, but this is as much an opportunity as a risk,” he said.
“When I first became CEO we were in the big tech boom but I always thought we would be the big winners from technology if we did it well, by taking costs out of the back office, giving customers a multi channel and better service and so on. And similarly with fintech, it’s a threat but it’s also an opportunity.”
Dr Morgan, who chairs stockmarket operator Chi-X Australia, labelled the government’s bank levy as an “outrageous, completely unjustified, opportunistic” tax that had none of the hallmarks of good long-term policy for the economy.
“I was involved in tax policy in this country and the bank tax has got nothing to do with efficiency, equity, simplicity, good policy. Populist policies don’t work. Latin America, parts of Africa has tried them and they haven’t worked,” he said.
“But we are not the only country dealing with populism.”
From Europe to the US, populism has thrived amid record low interest rates, weak wages growth and rising asset prices at the same time as massive technological advances and ageing populations.
Prior to joining Westpac, Dr Morgan worked for the International Monetary Fund in Washington D.C. and then the Hawke-Keating governments on major reform initiatives including financial deregulation, capital gains tax and dividend imputation. He said the business community, including the Business Council of Australia (BCA) took a leading role in making the case for reform.
“There’s no quick fix,” he said, noting the greater challenge from the fragmented media market.
“I’ve always believed the quality of public policy is determined by the quality of public policy debate. And I’ve been part of this country when there has been quality debate and you can do difficult things.
“I think direct engagement with all stakeholders really matters, finding a way for constructive dialogue and then improving the quality of the public policy debate. Sponsoring terrific fact-based research on what works and why, which we saw in the lead up to the introduction of the GST.
“Business has got to speak up. I think the BCA was helpful in the golden age of reform in the 80s and 90s. It took on charlatans, made the case. It’s too hard for companies to do it by themselves, it’s got to be a united front.”
He added: “To counteract populism, we need to encourage good people into public life and give them more respect for the work they do for the common good.”
Dr Morgan said governments should also prioritise education policy in the years ahead to ensure people are getting the right skills to navigate the changes in the economy, such as digitisation and the rise of service industries.
“I think there’s been too much emphasis on getting a university degree rather than skilling people. Places like Germany for example are leaders in vocational education. Those are the sort of things that need to be prioritised in public policy and we need to advocate that,” he said.
During his time at Westpac, which spanned from 1990 to 2008, Dr Morgan played a pivotal role in setting its sustainability strategy, increasing the proportion of women in senior roles and forging partnerships with indigenous groups.
After experiencing the banking industry’s battle to improve community trust after the early 1990s recession when interest rates spiked, branches were closed and problem loans restructured, Dr Morgan said that rebuilding trust was “neither quick nor easy” and banks needed to focus on the needs of the community to retain their “licence to operate”, which was a privilege. He said he drew inspiration from his wife, Ros Kelly, a former MP and Minister for the Environment in the Hawke and Keating governments, who emphasised the importance of sustainability, and taking a longer and broader view.
As Westpac nears having women in 50 per cent of leadership roles, Dr Morgan said he was proud of his focus on increasing diversity during his time as CEO. This included women in leadership roles growing from 25 to 42 per cent, including working closely with the likes of Ann Sherry, Alexandra Holcomb and Rebecca Lim.
“It was always about merit though, not quotas,” he said. “This thinking was greatly influenced by my wife. In 1990 there were only three women in the House of Representatives when she entered Parliament, so her experience was inspirational. Most reinforcing of all were the women of Westpac in leadership roles who always justified the confidence I had in them. After that it became self-perpetuating.”
Dr Morgan added that focusing on merit was a key plank of how he tried to shape the bank’s culture after the early 1990s recession, which he labelled a “very challenging” time for Westpac.
“At the same time it is also a great opportunity to change people and culture, which is much harder to do in a steady environment,” he said. “One of my first priorities was to tackle cultural issues. At the time, although there were some great elements to the Westpac culture, there were also some less than great elements.
“My focus was to change the culture to a true meritocracy.”
But he predicted it would again take time for the big banks to rebuild trust with the community, using the analogy that they are like “oil tankers and they take a long time to turn”.
“It’s been nine years since I left Westpac and since then I’ve been on the Board of 10 companies, nine in financial services, located in six different countries. So I can say that, from a fact base, Australia has a great banking system and Westpac is a great bank,” he said.
“But it will take time to rebuild community trust.”