New chairman fated to rejoin Mike Smith

On the board from 2001 to 2007, he was on the committee which undertook the search to find a successor to John McFarlane, with a mandate it be someone who could more deeply engage ANZ with Asia.

“Indeed, I saw out that role, which determined it should be one Mike Smith,” he tells BlueNotes in his first public interview since returning to the bank. But he left as Smith joined, an inauspicious back story one would think for the most important relationship in a company.

Gonski admits his CEO hasn’t forgotten. “He and I have chided each other for some years that my last job was to approve his coming and then I left myself,” Gonski concedes, “which he said he took – and he says this with tongue in cheek obviously - great affront to!  So perhaps my coming back shows that there’s no lack of love...”

Rather than leaving because of Smith, Gonski had another offer.

“I left the bank because I was going to be chairman of the ASX and I thought it was a conflict to do both given we had just bought E-Trade at ANZ,” he says.

The last six years however have brought not just a new CEO and strategy to ANZ but a financial crisis, a global regulatory restructure and a fundamentally different economic landscape.

“Like a lot of things that I’ve lived through - and that you’ve reported on, Andrew - it was a real wakeup call, 2007,” Gonski says.  “I think a number of people, including ourselves, saw it coming but no one can really say that we thought it would be quite as dramatic as it actually was.”

“I think there were many signs that most people overlooked.  They didn’t overlook them because they thought they were untrue, they overlooked them because they thought they had more time and I still remember debates at the bank and generally about the payment for risk and how basically risk was not being adequately rewarded and when that occurs, you know that something is wrong.”

A regular name in the Australian Financial Review’s annual analysis of power in Australia and widely considered one of the most networked and respected business people in Australia, Gonski returns to ANZ having delivered a comprehensive and controversial education review for the previous government – one which even sparked a movement “I give a Gonski” – and chosen to resign as chairman of Australia’s sovereign wealth fund, the Future Fund.

“Leaving the Future Fund was a very difficult decision to make,” he says. “I enjoyed very much my just under two year service there.  It’s a fabulous organisation.  The people are first-rate.  I think we had an excellent board which worked together very well and I would go further and say I think the seeds of the development of that fund under David Murray were very well put together.”

Gonski’s first exposure to the Future Fund was when then finance minister Penny Wong brought him in to review the hiring process for a successor to Murray. He was subsequently appointed chairman himself, a matter of considerable controversy. Gonski himself defends the governance position.

“Firstly I would say in terms of that episode I don’t feel that there was any conflict at all,” he says. “I was asked to play a role of being able to listen to the board and communicate that to the Department of Finance.  I did that; I completed that role and it was only after that, some months after that, that I was approached.

“I didn’t push for me to be approached even though it has been suggested I chose myself. I don’t know whether I should be complimented that people think I had the power to appoint myself or insulted that I would breach the role that was supposedly given to me!”

Nor did he envisage the role as being short-term, having been appointed for five years. Or indeed being in conflict immediately with the role of chairman of a major bank.

“From a governance point of view, I think overall you probably could do both,” Gonski says. “The problem would come if there was another GFC – this was my analysis.  The Future Fund was and is a very large source of capital for institutions in the whole world.  So how would I, as Chair, basically make the decision, if there were a number of say, trading banks in Australia, looking to either devolve assets to a fund like the Future Fund or to issue new paper to somebody like the Future Fund.

“Now, I think theoretically it could be solved by me dissociating myself from that decision. But it could be a very big one, depending on how many billions were going to the Australian economy. So I think it was sensible - not that I expect there will be a GFC in the short term - to move on.”

And he is quick to emphasise the attraction of the role at ANZ.

“I really want, with ANZ, to put effort and time into it and so I felt I should facilitate that. The concept of being able to be a chairman of a fantastic organisation like ANZ, coming as a person who’d been involved in banking for many years was too enticing.  I just felt that this would be a role that I must take.”

That decision was weighted by Gonski’s long held belief in how closely Australia’s fortune is linked to Asia, a view clearly shared by Smith and the ANZ board. Compared with when he was previously at the bank, Gonski notes how the strategy has moved on, particularly in relation to partnerships with foreign banks in which ANZ doesn’t have control.

“(When I was here before) it was different times,” he says. “There was a belief that you should take a number of marbles, so to speak, and put as many as you could in various locations in order to establish relationships.

“It is my perception - and obviously I haven’t even started as Chairman yet – that we’ve moved to the next stage where we know what we want from those relationships and we probably know to some extent which relationships we want.  So you don’t need to cast generally, you don’t need to just take a minority interest, you can look to a much more developed relationship and perhaps one that is more focussed on what we want to achieve.”

He is pragmatic about his education review, emphasising that despite the attitude of the new government, in NSW most of the principles of the review are in place.

“I take the attitude that I was given the job of chairing a group of talented people by the government of the day to do a review which we did independently and to the best of the ability of myself, our review committee and the excellent secretariat that we had,” Gonski says. “ I am very proud of the result which was completed on time.”

The new chairman returns to ANZ at a time of board renewal. JT Macfarlane has just joined the board to replace Peter Hay, while long term directors David Meiklejohn, Alison Watkins and Greg Clark have also stepped down. Paula Dwyer and Graeme Liebelt have been at the table less than a year and a half.

“John Morschel has done a wonderful job as Chairman and I’ve watched him in action, I’ve always thought highly of him and, if anything, I feel even higher in my respect for him now,” Gonski says.

“Obviously having a comparatively new Board has some negatives.  Corporate memory is very important but on the other hand we have continuity through directors such as Lee Hsien Yang and Ian Macfarlane, we have a CEO and senior management team who have been here for a fair period and we’ve got a couple of people in the bank who obviously have been here for some time.  I think that new boards often bring new outlooks and new perspectives and all I can say is that we’re aware that we’re going to be a new board and will work very hard within those confines.”

Gonski sees his first task as settling the board.

“In the first year, I need to ensure that board membership is completed as we do have a vacancy.  I need to make sure that the board are comfortable with the committee structure and the membership of those committees,” he says.

“I feel very strongly that I also need to work with my fellow directors to make sure that they’re happy with the approach that I am taking in terms of running the board so that we can maximise our effectiveness.”

Outside of the bank much of the new chairman’s attention will be on the man whom he succeeded as chairman of the Future Fund, David Murray, or more particularly the financial system inquiry Murray is chairing. Asia though is firmly a direction Gonski believes in.

“I’m a believer in the Asia strategy. But that strategy acknowledges that where you have a good base in Australia you spend time and resources ensuring that it continues at a good strength.

“There are good growth opportunities in the region in which we’re in.  On that basis I think that my role will be to assist and nurture our management in looking for opportunities and implementing them in the region. But at the same time, ensuring that the Australasia business is nurtured and brought to its full potential.”

Gonski may have missed the introduction of the Asian strategy and the first six years of Mike Smith’s reign but he’s watched it closely.

“I think the bank has been in very good hands and I would also say that it handled the GFC very well.”

Gonski though is not so sanguine about some more fundamental elements of the broader business environment and that comes back to an attitude to risk, the subject of a widely reported speech he gave recently.

“It’s an absolute concern for me,” he says.  “The first thing I would say is that taking risk is not generally a sin, the sin is to take risks that you don’t understand and therefore protect adequately against.  My feeling very strongly is one has to understand risk and one has to understand the fact that business, and I might say life in general, is filled with risk and what you need to do is understand it and adapt accordingly.

“If you go though to a situation of seeking a risk-free living then, in my opinion, you can’t really be successful.  So there has to be a modicum of risk just as there is in any sort of life.”

More specifically, the growing desire to be risk free – something which the Reserve Bank deputy governor has argued will undermine wealth creation in the Australian economy – has immediate impacts on the way directors do their job.

“Many people are seeing the directors of financial institutions as the guarantors that risks will not be adverse,” he says.

“I think it is fair that we guarantee that there are good processes for understanding risk but it is totally unfair that we be the guarantor of how business operates in terms of risk.  By its very nature business has to take risk, some risks will pay off, some won’t and the directors in my opinion must be shown to have understood the risk, taken what precautions are reasonable, but are certainly not the insurers of the outcome.”

Banks, in other words, are still in the business of pricing risk.