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Make or break time – and Maxsted sees strengths

04:00pm November 08 2017

Westpac chairman Lindsay Maxsted says shareholders "genuinely like the fact that when they invest in Westpac they have a fair idea what they’re investing in". (Aaron Francis)

Westpac chairman Lindsay Maxsted says consistent corporate strategy and leadership has never been more important as the industry confronts challenges and rapid digital changes that will leave some banks languishing behind in the coming decade.

Writing to shareholders today after the bank’s annual results and in its 200th year, Mr Maxsted says the “seamless transition” between the past five chief executive officers and consistent strategy had been critical to the company’s long term success. Since 1993, Westpac’s share price has risen from around $3 to north of $30 as profit expanded to $8 billion from $39 million.

“If you think about companies that underperform – not just banks – there’s no continuity. There’s stop-start on strategy,” Mr Maxsted told Westpac Wire.

“That involves the organisation incurring substantial costs and there is disorientation as employees thought what they heard last week was the right way forward and now they are being told to do things differently.

“There have been many examples of companies investing offshore and then pulling back or deciding they wish to base strategy around pricing only to return to the pack in due course. In the short to medium term, the lack of consistency is very disruptive for an organisation.”

After Westpac this week reported annual results, Mr Maxsted said investors wanted certainty, which the bank had regularly delivered on big strategic decisions such as remaining focused on Australia and New Zealand while operating offshore through a targeted presence in major financial centres.

“Basically we’re delivering the same message and that’s the feedback I receive from shareholders. They genuinely like the fact that when they invest in Westpac they have a fair idea what they’re investing in,” he said.

Having worked extensively in corporate recovery as a partner of KPMG and subsequently as that firms’ CEO, Mr Maxsted said Westpac had benefited from CEOs who brought their own unique skills and experience but were very aligned on “strategy and their focus on customer service”.

Since the early 1990s recession, he said even though CEOs Frank Conroy, Bob Joss, David Morgan, Gail Kelly and incumbent Brian Hartzer had to deal with different environments, the baton had been passed with minimal disruption.

“They were/are all really good leaders capable of adapting to the times. I’m sure some were better suited to different external environments, such as overseeing turn arounds in a deep recession or maximising opportunities in times of growth, but their leadership skills meant they could sense what’s required at the time and deliver,” he said.

Westpac this week posted a 3 per cent rise in annual cash profit to $8.06 billion, assisted by strong underlying cost control and lower bad debts, but weighed by the new bank levy and a provision for customer refunds and payments.

Net operating income increased 2 per cent amid a softer top-line growth environment for the industry. In a report analysing the big four banks’ annual results, EY said while performance remained solid in a challenging environment, “they must now show they can successfully execute on the digital, customer and regulatory compliance agendas to deliver long-term performance”. “At the same time, banks need to optimise their balance sheets by using technology to improve services and reduce cost, manage risk and regulatory compliance, and rebuild trust,” EY said.

Mr Maxsted said despite the outlook for credit growth being slightly lower, executing the right strategy well in the next decade was critical to prosper and he was confident in the leadership team.

“People ask me about growth and where’s it coming from. And yes in terms of system growth within Australia and NZ it’s hard to see the same 6 per cent credit growth in housing which we have experienced in recent years, but my suspicion is there’ll be major shifts here in market share,” he said.

“I’m on the record as saying that during my career there’s been big four banks in Australia and naturally someone’s number one and someone is four. And eventually the pecking order changes, usually because number one makes a strategic error. But these days given the paramount importance of how well we respond to regulation and more particularly the response to digital, I can definitely see a world in ten years’ time where one or two of the big four banks are really stand out banks.

“And that’s the growth we’re playing for. You don’t want to be one of the losers in that environment. Conversely if you’re a winner, which I’m confident we are well placed to be, I think the upside will be significant.”

Mr Maxsted added the Board would look to appoint up to two new non-executive directors in 2018. At least one of the potential new directors would be female to achieve at least 30 per cent women on the Board. He said Westpac would also benefit from further “deep financial skills and experience” to ensure the Board was well placed for renewal over time. Westpac last week announced Robert Elstone had decided to retire at the annual general meeting in December after nearly six years on the Board.

Michael Bennet is Editor of Westpac Wire. He joined Westpac in 2017 after more than 12 years in journalism, mostly recently at The Australian as the national newspaper’s banking reporter based in Sydney. Michael has worked at various News Corp publications and other media companies covering industries including financial services, resources, industrials, markets and economics. He is originally from Perth, Western Australia, where he also wrote across magazines covering the arts with a focus on music.

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