The Wash Up from the Royal Commission. Part 2 in a 4 part series – “How NAB lost its way”

Part II in this four part series is based on my 25 years in NAB’s frontline business, corporate and retail banking network as well as conversations with current and former customers and staff. I left NAB in 2008 so I am unable to rely on personal experience to opine on events after this time. This article is offered as a constructive contribution to the debate which is a critical component in rebuilding trust in Australia’s big banks.

The saying “Know from whence you came. If you know whence you came, there are no limitations to where you can go” is applicable to a bank as it is to an individual. A few brief historical observations about NAB’s culture re customers and sales provide some context.

After the recession of the early 1990’s, ANZ and especially Westpac which was bailed out by Kerry Packer, were in disarray and the recently privatised CBA was only just sorting itself out. Customers flocked to NAB whose “can do” approach to winning new business saw it dramatically increase market share in core segments of business and retail banking.

The appointment of the American sales training firm Cohen Brown, who later worked for CBA, super charged this growth momentum with mantras like “Born on Monday, die on Friday.” Bankers were required to make public sales commitments on a Monday morning and front the team on Fridays with actual results. Branch and individual sales league ladders recognised top performers and shamed those on the bottom.

Jack Welch, the legendary CEO of General Electric, was the business guru of the time and NAB subscribed to his 20/70/10 theory where the bottom 10 per cent of performers were constantly managed out.

For those at the top of the ladder, life was good with bonuses and trips to luxurious holiday destinations. Leaders all the way to the top drove this culture and it benefited them greatly. In comparison to their leaders, bonuses for high performing frontline staff were nominal and for those further down the ladder, the primary motivation to hit their numbers was simply job retention. The old sporting adage of “you’re only as good as your last game” applied and targets would increase each year.

The sales and growth focus continued into the early 2000’s but change was adrift and the GFC in 2008 was a turning point. With that as background, I have identified ten causes of NAB’s malaise. I stress these issues are not new and are largely inter-connected.

1. CEO Leadership Void.
There has not been a CEO able to unite the entire group since Don Argus who retired in 1999 after 8 years at the helm. The characteristics that set Mr Argus apart were his vision, passion, clarity of purpose, deep understanding of the business, decisiveness, accessibility and authenticity. None of Argus’s successors – Frank Cicutto, John Stewart, Cameron Clyne and Andrew Thorburn had the full package. The average term of the last three CEOs is four years and Andrew Thorburn is into his fifth year. I don’t intend to delve into the how NAB’s boards or senior management teams have contributed to its current position, that’s for another time.

2. Lost connection with customer.
It would be inaccurate to conclude that the sales culture and associated remuneration structures alone caused NAB to become internally rather than customer focused. They were major factors but there were many others.

There has been much talk about losing “sight” of the customer. I prefer to use the word “connection” as it has a deeper meaning. “Connection” implies a personal relationship and building relationships takes time and requires both parties working together through tough as well as good times. Going back, bankers visited their clients, they “walked the floor” and “kicked the tyres” followed perhaps by a lunch. They exercised personal judgment based on character, reputation and past conduct. They did their own credit assessment and had authority to approve loans. They went into bat for their clients and this loyalty was appreciated and reciprocated.

This changed over time driven by regular restructures which usually involved centralisation of functions in order to reduce labour count. Bankers lost their approval authorities, they had more clients to look after but with less support. Staff turnover increased which meant customers had less stability in their connection with the bank.

Bankers now spend a significant amount of time, as much as one day per week, on compliance. Previously much of this time would have been able to be spent with customers.

For the big banks, the traditional business banking relationship model is no longer viable and there is no turning back but it interesting that former NAB and ANZ EGM Joseph Healey has established Judo Capital, a challenger bank premised on bringing back the “craft of relationship banking” exercised by experienced career bankers.

3. Loss of NAB identity.
NAB had a unique culture as did the other banks. This has changed largely due to the significant numbers of people who move from one bank to another. Once it was a badge of honour to be a one team player but nowadays, if you have not worked for more than one bank the inferred question is “Is there something wrong with you?” This has been a major factor in the big four banks becoming a homogeneous oligopoly.

4. The fun has gone out of banking.
There are many factors, some mentioned above, that have caused staff to feel less engaged but the bottom line is that the fun seems to have largely gone from banking. Fear of being made redundant is commonplace so it’s understandable that loyalty and commitment levels have fallen.

5. Expansion into areas outside of core competencies.
NAB’s failed expansion into banking in the UK and USA has been costly to its balance sheet and brand. And vertical integration including wealth management, insurance, private equity and stockbroking has been similarly unsuccessful.

6. It became too big to control.
With a diverse group businesses which once spanned three continents and employed over 40,000 people, NAB was, and still is, a huge business. This poses challenges for both management and the board and it is clear now that it has not handled all these challenges as well as it could have. It hasn’t had the right resources and processes to manage it.

With the exit from the overseas banks and the current simplification strategy already underway, NAB should be an easier organisation to manage. There is a strange irony that one of former CEO John Stewart’s favourite pieces of advice to customers was “I’ve never seen an organisation shrink to greatness” but this is precisely what NAB is now seeking to do.

7. Hard to get things done and it takes too long.
Feedback from staff is that in recent years it has become harder to get things done. This ranges from credit approvals, development and implementation of new technology platforms, new products and processes.

ASIC recently named NAB as the worst offender when it came to identifying problems relating to bank errors impacting on customers, taking an average of more than four years to recognise there was a problem to begin with.

8. A culture of fear.
People are concerned about speaking up for fear of the consequences. There has been a view that leaders wouldn’t listen anyway based on perceived or actual lack of engagement with senior leaders.

9. Slow to understand & embrace diversity.
Over the journey, banks and NAB in particular have been laggards in gender diversity. One wonders if NAB’s plight might have been different if more women held board and senior management positions earlier.

Staff and customers from different ethnic and religious backgrounds were not always treated respectfully. I recall one senior credit manager advising a young banker “don’t lend to anyone whose name ends in a vowel.” It may have been a joke, but even so…

Many staff in their 50’s leave NAB when they still have much to give. The bank hasn’t always got the best from its older employees and in hindsight more could have been done to help older male bankers in particular deal with their social norms on issues like personal conduct, political correctness and affirmative action.

Corporate memory and a culture of mentorship were amongst NAB’s most valuable intangible assets and brand differentiators. Technology is powerful but a CRM or online training modules cannot replace the experience and wisdom which comes from long serving team players who themselves were mentored from the time they joined.

In all areas of diversity NAB has progressed enormously but it has come from so far back that damage has been done and opportunities missed.

10. Combative approach to potential conflict situations.
Customers and other stakeholders have said NAB is hard work to deal with. Descriptions used to describe how NAB has engaged particularly on contentious issues like loan defaults include “defensive, bureaucratic, arrogant, avoidance, litigious and stalling.”

A conflux of factors over a long period of time have lead NAB to where it is today. They are self-inflicted and can only be resolved by NAB. This is the challenge for Andrew Thorburn and his leadership team under the stewardship of Ken Henry and his board.

Like the boy with the wheelbarrow, they have the job ahead of them. Dr Henry has been a director since 2011 and Chairman since 2015 whilst Mr Thorburn was appointed in 2014. So how time they have remains to be seen.

Coincidentally, last Friday NAB released a document NAB Self-Assessment on governance, accountability and culture. This follows APRA’s request to NAB to provide a response to the same questions posed to CBA as part of APRA’s prudential inquiry into that bank.

This 56 page report contains 26 specific actions this first of which is “The Board will require and oversee a significant lift in the importance given to the voice of the customer and a more intense focus on customer outcomes.”

NAB is to be applauded for making this document public, it didn’t have to. That said, it appears no engagement took place with customers and engagement with staff consisted of 23 focus groups comprising only 150 employees.


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