More Blood to Flow at Westpac – Westpac Board in Trouble (ASX:WBC)

In case you missed it — and given the wall-to-wall coverage, there is little chance of that — this will be Westpac Banking Corporation’s [ASX:WBC] CEO, Brian Hartzer’s last week on the job.

As details emerged from financial transaction watchdog Austrac’s legal action, the headlines eagerly and dramatically reported that Westpac’s CEO had to ‘fall on his sword’.

From the time the story broke, the Westpac CEO and chairman were doomed. Especially when it was revealed that two years had passed since Austrac had first notified WBC that they had a problem. More so that the board of Westpac had met with Austrac in March this year.

While Westpac have stated that the more troubling allegations weren’t raised then, Westpac clearly didn’t grasp the seriousness of the situation.

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That arch-rival Commonwealth Bank of Australia [ASX:CBA] were hit only last year with a dizzying $700 million fine for Austrac breaches, makes Westpac’s lackluster response even more troubling.

As it turns out, Mr Hartzer is not the only one departing. Westpac’s Chairman, Lindsay Maxsted will now leave earlier than planned, in the first half of next year.

And another of Westpac’s directors will also vacate his seat, not seeking re-election at Westpac’s upcoming AGM in December.

Everyone from the federal treasurer down have lined up to share their disgust, with the minister of home affairs the most scathing. Even the governor of the RBA let it be known that he, too, was appalled.

As we are now seeing, however, the departure of Westpac’s CEO and chairman is just the start of it. There are other groups agitating strongly for more scalps.

Where the weight is

As a retail investor, often you feel as though the sum total of all your investments can add up to very little.

A small holding is, after all, a minute fraction when it comes to a company the size of Westpac. Perhaps even less than a rounding error.

That is why shareholder groups were created. The idea being to give retail investors more clout. Collectively, even if their shares number less than the institutional investors, they could together agitate for change.

Whether that be about the actions of the company, like a rights issue, for example. Or, the size of the pay-packets of those at the top.

Even if these shareholder groups don’t ultimately achieve their aim, they can still create plenty of noise. Particularly so at an AGM.

However, as we are seeing with WBC, there are much bigger forces coming to bear. And CEOs and boards of companies that choose to ignore it, might also see themselves flung out the door.

While perhaps not the loudest voice in all the noise this week, some of the country’s largest fund managers certainly let Westpac know where they stand.

Industry funds UniSuper and AustralianSuper — which together manage over $230 billion — will put enormous pressure on the board at Westpac’s upcoming AGM.

The $170 billion Future Fund has also stated that it might join to force a spill.

Adding to the pressure will be the Australian Council of Superannuation Investors (ACSI). Through its 40 members, it manages around $2.2 trillion. You can be sure it will give Westpac’s board a pounding when it meets prior to the AGM.

Depending on how Westpac responds will determine which, if any, board members remain. You can also expect some heavy voting against Westpac’s remuneration report.

What next for Westpac (ASX: WBC)?

This week has all been about accountability. Who knew what and when, and why weren’t senior management and the board across the detail?

The by-product of that has been, and will be, others falling on their metaphorical sword. Just like a leadership coup in Canberra, the media are baying for further heads to roll at Westpac.

However, from a shareholder’s perspective, Westpac’s outgoing chairman believes that getting grid of all directors simultaneously could prove even more damaging, as it further exacerbates instability.

It’s not often than you see a whole board routed, especially for a business the size of Westpac.

The other concern is that short selling funds could use the instability to further hammer the Westpac share price. Mind you, it would take massive pockets to carry such a large short trade.

The drama at Westpac shows that company boards and CEOs will need to be even more vigilant about compliance and corporate governance. Especially those that right now are asleep at the wheel.

One thing you can be sure of is that if this happens again at Westpac or another bank, the CEO shouldn’t even bother turning up to collect their things.

All the best,
Matt Hibbard,

Money Morning

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Matt Hibbard is Money Morning’s income specialist. With nearly three decades in the markets, Matt has traded just about every asset class there is. The one thing that has stuck with him over this time is a very simple premise. That is, it’s the cash a company generates that ultimately determines its value. Sure, some stocks might fly away to multi-digit gains. But unless these companies can convert the ‘story’ into real money, the market will eventually find them out. And when that happens, the share price quickly falls back to Earth. Matt is also the editor of Options Trader, where he shows subscribers how to use basic options strategies to generate income. This is income they can generate on top of regular dividend payments. Matt doesn’t play the prediction game, where the aim is to be proven ‘right’. Instead, his goal is to generate as much income as he can for his subscribers, irrespective of whether the market is going up or down.


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