Finance

Lessons for all companies in ANZ’s Opes Prime fiasco: Gottliebsen

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All chairmen of Australian public companies will feel for ANZ chairman Charles Goode.

All chairmen of Australian public companies will feel for ANZ chairman Charles Goode. Whether he should remain as chairman of ANZ is an issue that will be debated, but what is certain is that very few chairmen could have discovered an Opes style problem in their company while it was not known to the chief executive.

Indeed former ANZ CEOs Don Mercer and John McFarlane have often commented that the ANZ chairman took a very close interest in credit control. As Charles Goode moved around the bank, he took the bounds of the role of chairman to the limit. Goode also has a reputation for encouraging boards to change CEOs whenever he believed it was necessary. He swapped Don Mercer at the ANZ for John McFarlane and then brought in Mike Smith. At Woodside he encouraged the board to swap John Akehurst for Don Voelte.

Goode comes from a share broking background and had he spent 30 minutes looking at the ANZ-Opes mess he would have known that the loan structure was high risk. But he never had any idea that the Opes arrangement existed.

Why did a chairman who was alert to the detail of the bank’s affairs, not know about Opes? In short because his chief executive did not know. It is extremely difficult for a chairman (or an audit committee) to discover something in a big enterprise that the senior executive is ignorant of.

Why didn’t John McFarlane know? There will be many versions of this story that will come out in the weeks and months ahead. But let me tell you the one that I think makes the most sense.

McFarlane was one of Australia’s best chief executives, especially in his first seven years at the bank. Traditionally after seven years in the job it’s always harder to be CEO. McFarlane appointed Steve Targett, in charge institutional and corporate banking in 2004, recruiting him from Lloyds TSB, Britain’s fifth largest bank.

Targett was seen as McFarlane’s successor, but according to ANZ folklore the two never really hit it off. Once that happens in an organisation, usually the CEO does something about it, irrespective of who is right or wrong. If Goode knew about the relationship problem perhaps he would have interceded. But nothing happened.

It’s vitally important in every company that the CEO and his direct reports have long discussions about the detail of the operation. According to ANZ people, the McFarlane-Targett discussions were never as long as they should have been and the facts of the Opes situation were not revealed. Of course that’s only part of the explanation. But it is an important part.

ANZ is fortunate is that Goode and the ANZ board did not appoint McFarlane for another term after his decade at the top. Instead it began a process that produced the appointment of one of the region’s top bankers, Mike Smith, as CEO.

When the Opes crisis erupted there was no need to replace the CEO, in contrast with what we saw when the NAB crisis emerged. The decision to appoint Smith as ANZ chief executive will therefore probably go down as one of Goode’s best at the ANZ. If the bank had to go through a CEO purging process in this climate of global inter-bank distrust, it could have been very serious.

But the market demands a head lopping ritual when something goes wrong and Goode has been chairman for 13 years. However Charles Goode is a very determined person and he will not stand down unless he believes he has found the right person to replace him.

This article first appeared in Business Spectator

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