 |
| John Stewart CEO |
Soon after I became CEO in February 2004, I started to build a new National that would meet the expectations of all stakeholders – employees, shareholders, customers and the communities in which we operate. I did not realise how challenging that would prove to be.
The $360 million in foreign currency options losses released years of pent up anger amongst our stakeholders about the write downs of the HomeSide business in the United States, our poor share price performance and our weak relationship with our communities.
The Board and Group Executive Committee quickly recognised that there were more broadly based issues for the National to address than just fixing our currency options trading systems.
Many things that happened this year as well as the poor overall performance of the Group must concern shareholders. We are also disappointed by what occurred.
I believe in a simple philosophy: Happy staff and communities create happy customers, which in turn means happy shareholders.
During the year I met with about 4,000 staff at specially organised functions, chatted with customers and met with shareholders on various occasions.
This provided me with constructive and thoughtful feedback. I was encouraged by the goodwill expressed toward the National.
But it was clear that we had fundamental issues that needed to be tackled.
The causes of our long-term under-performance falls into four areas:
1. Too bureaucratic and cumbersome
Our business structure was complex and we tended to over-engineer the way we did things. Management lacked ownership and accountability for costs.
This resulted in a high cost structure and poor project management. Some of the write-downs this year reflect this situation.
2. Inward-looking and not customer-focused
The National was operating in silos and there was a lack of divisional cooperation. The customer segment approach reduced the focus on providing competitively priced products. Lending processes became progressively more complex.
The outcome of this was poor cross-sell performance, customer churn and attrition, and lower margins.
3. A weak compliance framework
The foreign currency options trading losses showed that our people did not have sufficient awareness of our policies, and in some cases policies and procedures were not well developed.
There were processes for monitoring compliance but these were complex and did not allow issues of substance to be identified and escalated.
Individual responsibilities were not clearly defined, especially with regard to managing the consequences of compliance breaches.
The foreign currency options trading losses is one of several examples that demonstrate this problem. Others include the HomeSide losses, the MLC unit pricing compensation, and the High Court Inspectors Investigation into National Irish Bank. These are all symptoms of a weak compliance framework.
The cost of this weakness in our compliance framework is high remediation costs and lost opportunity as management focus has been diverted to rectifying these problems.
4. Major gaps in our cultural fabric
While the National had an agreed set of values, people were not held accountable and values were not reflected in the way people were assessed. Culture change programs were voluntary and there was a lack of visible and consistent leadership in this area.
This led to a focus on achieving short-term profits without regard to the way in which this was done, and low levels of employee engagement.
Our Strategy
We have started to address all these problems.
We are stripping out complexity, improving the focus on project management and streamlining our corporate centre.
Eliminating business silos has increased customer focus. In Australia we have merged the retail bank, Wealth Management and elements of Corporate & Institutional Banking. In the United Kingdom we are implementing the legal entity merger of our Clydesdale and Yorkshire banks.
The work done in conjunction with PricewaterhouseCoopers, the Australian Prudential Regulation Authority (APRA) and the Australian Securities & Investments Commission (ASIC) in relation to the foreign currency options losses has provided a valuable review process for our compliance framework.
A new Board and executive team is committed to leading culture change by example. A new set of Corporate Principles has been developed and sent to every employee.
Our overall goals have to be speed to market, sustainable growth and customer focus.
There is no instant cure. Time is required to allow the work to be done.
I would like to thank all employees for working so hard to deliver what our customers expect and deserve, and thank our shareholders and customers for their support during a difficult year.
I intend to continue listening to all our stakeholders.
The reputation of the new National will be carried on the voices of all our stakeholders.
John M Stewart
Managing Director and Chief Executive Officer
Click here to download a PDF of the Concise Annual Report 2004 (2,596KB)
|
