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Transcript: Commonwealth Bank Chairman media conference

Transcript: CBA Chairman media conference

Transcript of media conference with CBA Chairman on 14 August 2017.

Kate Abrahams: Good morning and welcome to everyone on the line. My name is Kate Abrahams. I’m the General Manager of Group Communications for CBA and I’ll be moderating the call. We just have 30 minutes today so we’d like to get to everyone with a question, so I ask you please just to stick with one question and a follow up. If you have a question, it’s very important that you register with the operator by pressing star one now, otherwise we won’t be able to get to you. 

If there are follow up questions at the end of the call that we haven’t been able to get to, you can send them through to me at CBA Media and we’ll do our best to respond to you this afternoon or before this afternoon. I will now introduce the Chairman, Catherine Livingstone, who has some brief opening remarks. 

Catherine LIVINGSTONE: Thank you Kate and good morning everyone and thank you for joining at short notice. I think you will all have seen the statement that we have released this morning to the ASX and I just thought I would make a couple of comments before we open it up to questions. 

So as you can see the Board has decided to provide details of Chief Executive succession process to ensure that the market is fully informed and also, importantly, to provide certainty for the business. This was done in discussion with Ian and we have agreed that it really is important for the business that we deal with the speculation that we have seen in the media and among commentators. The exact timing of any succession will be dependent on a comprehensive internal and external search process, but I do want to emphasise that today’s statement is all about providing clarity on this question and ensuring that Ian can continue to focus as CEO on successfully managing the business and obviously working with his very strong senior executive team. 

So with those comments, I am very happy to take any questions.

Kate ABRAHAMS: Thank you, Catherine, and if we can take the first question from Tony Boyd from the Australian Financial Review please. 

Tony BOYD: Oh thank you. Catherine, I wonder if you could just tell us when this process began and whether or not it was influenced by the anti-money laundering case that was lodged on August 4th. [Edit note: case was filed on 3 August] Is there a direct link between your decision to seek a new CEO and the latest example of a sort of conduct or risk governance breakdown at the Bank? 

Catherine LIVINGSTONE: Thanks Tony, well as you know, Ian is approaching the end of his sixth year in the role and I think as you would expect of any organisation, the discussion with a CEO as they go into the longer period of their tenure, the discussion on their potential succession timing is an active one and a continuous one and must be so between Chair and the CEO, and then more broadly with the Board. This has been the basis of ongoing conversations between myself and Ian and the Board since I became Chair and there were conversations before that as you would expect given the length of his tenure. So this is part of the orderly process of having those conversations and, as I said in my remarks, we just thought it would be helpful for clarity and certainty if we were transparent on where we were up to in that process. 

Kate ABRAHAMS: The next question, please, can come from John Durie, The Australian. 

John DURIE: Hi Catherine. Catherine, could you tell me when the Board became aware that AUSTRAC was concerned enough about what was going on at the Bank that it would launch legal action? 

Catherine LIVINGSTONE: John, we were not aware that AUSTRAC had decided to launch proceedings until Thursday, 3rd August when it did launch. 

John DURIE: Okay, thank you. 

Kate ABRAHAMS: The next question, please, from Richard Gluyas from the Australian. 

Richard GLUYAS: Catherine, there’s been a lot of speculation that a former CBA executive, Ross McEwan, might be part of the Board’s consideration. Is he the type of executive that could really be appointed in these circumstances given that he’s been, he’s spent a fair bit of time at CBA in the past? 

Catherine LIVINGSTONE: Thanks Richard. We don’t comment on the detail of these processes. The important point today was actually to give transparency on the fact that the process is ongoing and to give some indication of the timeline, but as you would expect we will undertake a very thorough process which will include both internal and external candidates. 

Kate ABRAHAMS: If we could take the next question please from Clancy Yeates from The Sydney Morning Herald. 

Clancy YEATES: Oh hi Catherine. To what extent might potential internal candidates for this role be somewhat tarnished by the recent allegations from AUSTRAC? 

Catherine LIVINGSTONE: Clancy we have, as I think you know, a very strong and experienced bench at the senior executive level and, again, the results that we have just announced is actually a testament to their capability and as part of our process we will include internal and external candidates and I am very clear about that. 

Clancy YEATES: Okay, and just a follow up, it’s a tiny bit different to the question John asked, when did the Board first become aware that AUSTRAC was investigating the CBA? 

Catherine LIVINGSTONE: We have contact with all regulators on a continuing basis and I think you are aware of the IDM TTR issue which goes back to 2015. The first we became aware that AUSTRAC had decided to take the action and launch proceedings was Thursday, 3rd August when they actually lodged their Statement of Claim. 

Clancy YEATES: Okay, thank you. 

Kate ABRAHAMS: The next question from Peter Ryan from the ABC. 

Peter RYAN: Yes, hi Catherine. I just wanted to follow up on Tony Boyd’s question that today’s announcement about succession planning for Mr Narev has occurred because of the speculation that’s come off the back of the AUSTRAC allegations. So you’ve done this to clear the air about Mr Narev’s future and so the AUSTRAC allegations are clearly related to that.

Catherine LIVINGSTONE: Peter, I think the speculation on Ian’s tenure has been going for some time in fact, which is what generally happens as a CEO goes through the four and five year mark. And bearing in mind that Ian’s predecessor was in the role for six years, so as Ian went into the sixth year, the speculation started then. And it certainly intensified over the last little while which is why we thought that the clarity and transparency that we have achieved through this announcement will enable everyone to get back and focus on the job at hand. 

Peter RYAN: Okay, but just to clarify that this has been brought forward as a result of those AUSTRAC allegations, I mean otherwise you would have been making this announcement some time later. 

Catherine LIVINGSTONE: Well what we are saying in our statement today is just confirming that there is a CEO succession process, which is what you would expect and we are clarifying the timing of that in terms of the end of the 2018 financial year. We are only saying what you would expect, which is, undertaking a CEO succession process given the length of Ian’s current tenure. 

Kate ABRAHAMS: Thank you. The next question from Emily Cadman from Bloomberg. 

Emily CADMAN: Good morning. Catherine, end of 2018 is only nine months away. How will Ian have the authority to make the changes and reforms to processes that you’ve outlined are needed with only such a limited time remaining to him, will he not just now be a lame duck CEO? 

Catherine LIVINGSTONE: Emily, Ian is absolutely CEO and the Board will hold him to account, as it has done, in terms of all of the actions and running of the Bank to make sure it is a successful business and we continue with our program of action which has been underway and involves the senior executive team and their respective groups. So everyone in the Bank is committed to following through on this program of action. Of course, as you know, we do have a Board committee now with four directors and chaired by Mary Padbury which will have oversight not just of the carriage of the AUSTRAC matter but also the follow through on the program of action. 

Emily CADMAN: Just a quick follow up on that. This announcement has obviously come out Monday and you made a number of statements last week which tended to confirm his confidence and place as CEO, what’s changed over the weekend? 

Catherine LIVINGSTONE: Nothing has changed. We have full confidence in Ian as CEO, and as I said, the ongoing CEO succession process is something which you would expect to be happening given Ian is at this point in his tenure. We have full confidence in Ian and recognising his huge achievements in terms of top quartile ROE, best in class cost management, the customer satisfaction results that we are achieving, and of course all of the technology innovations that we have been introducing. 

Kate ABRAHAMS: Jennifer Hewett from the AFR. 

Jennifer HEWETT: Oh good morning Catherine. Two quick questions on timing, I know that you said that the Board was only aware that AUSTRAC had decided its decision on August 3rd, but when were you aware that there was a real risk of this happening given the extent of AUSTRAC’s concerns? And if you weren’t aware of that, why not? 

Catherine LIVINGSTONE: Thanks Jennifer. In this context, and we have to be conscious that this matter is before the courts, so there is a limit to the response I can give on that detail, but we, what I can say is we had been working closely with AUSTRAC just as we work closely with all regulators and we have not been aware of their view and decision to launch proceedings until they did. But we are also very aware of our continuous disclosure obligations. 

Jennifer HEWETT: Okay, but are you, I understand the limitations on exactly what you can say on that, but are you suggesting that you had an understanding or you had a firm belief that legal proceedings would not be launched until they actually were? 

Catherine LIVINGSTONE: As you know Jennifer, AUSTRAC has, as with any regulator, has a range of options if it chooses to take regulatory action and in terms of AUSTRAC they determined to take this action and advise us on 3rd August. 

Kate ABRAHAMS: We will take the next question from Robb Stewart, Wall Street Journal. 

Robb STEWART: Yeah, good morning, it’s hard not to get the sense this has been rushed. I’m wondering what shareholders, investors have been saying to you in the last two weeks about the succession process and whether they want to see this push through and clarity on who’s going to be stepping in next? Are they wanting to see a change at the top? 

Catherine LIVINGSTONE: This statement has not been rushed. It has been carefully considered and the Board formed the view, in conjunction with Ian, that if we provided this statement and clarity as to the timing, then it would enable Ian and the team to focus back on, as I say, the running of the Bank. Shareholders will, at all times, ask you about CEO succession, even from the moment of the appointment of a new CEO. So it is always a question that they ask and they look to understand that the Board does have a process and will conduct the process in an orderly way. 

Robb STEWART: But the clarity is that you’ve just got a process that we’d expect you to have anyway. We’re not hearing that there’s a short list or that, you know, you’ve got an internal field that’s been narrowed down. 

Catherine LIVINGSTONE: We would not comment on that level of detail in this process. What we are saying is that we do have an orderly process and there is a timeline. 

Kate ABRAHAMS: Thank you Robb. Next question from James Eyers, AFR. 

James EYERS: Hi Catherine, you’ve just spoken sort of a lot about the clarity on the timeline and I just wanted to understand, are you talking about Ian potentially standing down sort of by the end of full year 2018, so potentially it may be Easter or April or are we sort of talking about the end of June? 

Catherine LIVINGSTONE: We can’t speculate on precise timing. I think we have said that the exact timing will depend on the outcome of the process which will be comprehensive, so that does mean it takes time. We would also have to make sure that it allows adequate time for transition and a professional handover from Ian. So that is why we are talking about the end of the 2018 financial year. 

James EYERS: And are you able, I know you can’t speak about particular candidates, but just further to an earlier question to the type of external candidate you might be looking for, would you be able just to outline the qualities, the experience that you might be looking for in or out of the banking sector, for example?

Catherine LIVINGSTONE: Well, I think as an overall statement, clearly this is a very significant role in a very significant company, so a solid track record of successful experience would be a threshold condition. But I think if you look at the question of what qualities would we be looking for in the individual, and you may or may not know, but I am a very strong believer in the importance of values, and I do not mean tokenistic values I mean real personal values. So we would be looking for someone who demonstrates complete transparency. So that would be particularly in relation to operating with the Board, someone who has a very collaborative style, because leadership is a collective dynamic, it is not down to one individual, and we would want to know the person could develop a team and work with a team, and demonstrate leadership. And also someone with a very strong moral compass, because in these roles, as you know, the right and wrong are clear but the judgment calls made along the way can be very challenging and we need someone with a very strong sense of that moral compass. And as you know those are the qualities that we have currently in Ian. And we would seek to ensure that we would have those in his successor.

Kate ABRAHAMS: Thank you James. The next question from Scott Murdoch from The Australian.

Scott MURDOCH: Oh hi Catherine. My first question is in terms of this changeover, do you expect any other senior leaders from the Bank will also leave? And secondly, you mentioned before disclosure. From both a disclosure issue to the Board and the market, as an experienced Chairman, how could you not think that an AFP investigation into money laundering should have been disclosed firstly to you, and secondly to the market?

Catherine LIVINGSTONE: Can I just reiterate that, so if I come to the second part of your question first, we exist in a very highly regulated environment. And we have inquiries and reviews underway from multiple regulators at all times, as do all participants in this sector. So regulators are raising issues with us and we respond to those issues. We form a view on issues that do arise as to whether continuous disclosure obligation has arisen. 

In terms of the first part of your question on the Senior Executive Team, again our focus is on providing the clarity and certainty for the business by making this announcement so that everyone can focus on the job that they have. And in terms of any other accountability we have said we have established a Board committee, which as it works through the AUSTRAC issue will be addressing any further management accountability to the extent that matters come to the committee’s notice.

Kate ABRAHAMS: Thank you Scott. David Fickling from Bloomberg.

David FICKLING: I just wanted to clarify one thing that I know we’ve touched on a couple of times. But in terms of the underlying issues based on the AUSTRAC case, you’d said you’d been in constant contact with AUSTRAC. The Board has been aware of those issues since 2015 when these matters were brought to light with AUSTRAC?

Catherine LIVINGSTONE: Yes. As we have said again in our statement last week, we became aware of these issues in the second half of 2015, and that is when we put in place the program of action to address the immediate issue, which was the coding error, and then the follow on for longer term actions which as I detailed in our statement last week involved improving individual capability, recruiting more people, putting in technology, and strengthening our KYC processes and establishing a specialist hub. So all of those actions have been underway since 2015 and intensively through 2016. And AUSTRAC has been aware of those actions.

David FICKLING: And the Board has been involved in that process since 2015?

Catherine LIVINGSTONE: The Board has been aware of the program of action and its progress.

Kate ABRAHAMS: We will now move to James Thompson from the Fin Review.

James THOMPSON: Hi Catherine. There was a question last week at the results briefing to Ian as to whether he offered his resignation to the Board. He didn’t want to answer. Are you able to provide any clarity around that?

Catherine LIVINGSTONE: I have provided the clarity, that the Board has full confidence in Ian and in the Executive Team, and the statement that we put out today is only really to provide clarity in terms of the CEO’s succession timing.

James THOMPSON: So he didn’t offer to resign, or he did?

Catherine LIVINGSTONE: Ian has done a remarkable job and the Board has full confidence in his continuing as CEO right up until the day that he leaves. There is no one who puts the interests of the Bank as a higher priority than Ian does.

Kate ABRAHAMS: Thank you James. Andrew White from The Australian.

Andrew WHITE: Hi Catherine. Just wondering if you can tell me does the Board’s sub-committee have any involvement in this decision? The Board sub-committee that you’ve set up in the decision to move on the succession?

Catherine LIVINGSTONE: This is a Board matter, it does not come within the remit of the sub-committee specifically, but the Board obviously has formed the view in conjunction with Ian who of course is a Board member, that providing this clarity to the market will be helpful in terms of providing certainty to those working inside the business.

Andrew WHITE: Right. And can you tell us, has the Board committee met at all, what sort of progress are they’re making?

Catherine LIVINGSTONE: The Board committee is in place, yes.

Kate ABRAHAMS: Thank you Andrew. James Frost from The Australian Financial Review.

James FROST: Hi Catherine. As I’m sure you’ll appreciate, we’ve had little time with the remuneration report this morning. Has there been any consideration of clawback of long term incentives for Executives who have left the business over the last 12 or 18 months and had oversight of these issues? And further, have there been any additional measures for Executives spelt out in the Rem report this year?

Catherine LIVINGSTONE: So the Rem report reflects a significant change to the remuneration framework which followed on from the first strike at last year’s AGM. So you will see quite a different framework when you do have a chance to work through it, and that framework was finalised about a month ago. So hopefully you will see that it demonstrates much more transparency, much more accountability, and that is also reflected in the whole format of the annual report.

I think you will see reference in there to actions taken in terms of deferred remuneration. So I will leave you to read that. But very clearly saying the Board has discretion at all times and the reason for having deferred remuneration is so that the Board can exercise that discretion, which it does and will continue to do. And you will see in our new framework we have actually extended the period of deferral for short term incentives in particular, and that deferral is in the form of equity, no longer in the form of cash. So that will give the Board more ability to exercise that discretion to require forfeiture of deferred remuneration should that be appropriate.

Kate ABRAHAMS: Thank you James. The next question from Adele Ferguson from The Age.

Adele FERGUSON: Hi Catherine. In September 2015 CBA had a $5 billion raising. And in its entitlement offer it has risks of participating in the entitlement offer. And it says “CBA may be adversely affected by harm to its reputation”. And one of those things was money laundering breaches. Given everybody knew about the AUSTRAC investigation in April/May 2015 and AFP, just wondering why this wasn’t mentioned?

Catherine LIVINGSTONE: The first day the Board and management became aware on the AUSTRAC investigations was in the second half of 2015. When we have a prospectus and we describe risks, we as you would know, give a very fulsome description in terms of all of the possible risks that could arise.

Adele FERGUSON: No, but this was actually August 2015, so CBA would have already been aware of it.

Catherine LIVINGSTONE: But in terms of material risks, as I have said, we have issues with regulators at all times, and form a view about the extent to which they are material and require disclosure.

Kate ABRAHAMS: Thank you Adele. Next question from Paulina Duran from Reuters.

Paulina DURAN: Hi. Thank you. Good morning. My question is, how do you respond to views that you might not have contingencies for capital to cover this kind of operational risk, including penalties here and overseas?

Catherine LIVINGSTONE: Sorry Pauline, could you just repeat that question?

Paulina DURAN: How do you respond to views that you might not have the proper contingencies for capital to cover these kind of operational risks?

Catherine LIVINGSTONE: We carry a significant level of operational risk capital as required by the regulator.

Kate ABRAHAMS: Okay. We really only have another three to four minutes to go. We have no first round inquiries left on the line. I will not have time to get to everybody who has got a second question. I will go to John Durie at The Australian now.

John DURIE: Hi Catherine. Just a quick one. Do you agree with the Governor of the Reserve Bank that there are cultural problems within the CBA?

Catherine LIVINGSTONE: John, many people use the word ‘culture’, but can I just say how I and the Board look at culture? Culture is made up, it is the outcome of many elements. And you have to work on the elements to get an improved outcome. And those elements are the people, their capability, processes, policies and systems, including those that pertain to the risk management framework. So we work at that level of granularity, because that is where you actually deliver the change. So we said we have upgraded our capability in this particular area and the program of action has focused on the processes, policies and systems.

Talking about working on culture is like talking about working on your health for example. If you are going to talk about working on your health you have got to talk about diet, sleep, exercise and so on. Well the equivalent in the culture context is talking about what you are doing with your people, processes, policies and systems. And that is the work that has been done. That is what the program of action is in this particular instance, and that is what the Board looks at and gets regular reports on, not just in relation to this matter but in the ordinary course.

Kate ABRAHAMS: Thank you John. And this will be the final question from Tony Boyd, the AFR.

Tony BOYD: Oh yes, look, I just wanted to know, just following up John Durie, the Reserve Bank Governor talked about accountability for things that had happened, and he actually specifically said banks shouldn’t money launder and they should know who their clients are. I’m just wondering Catherine whether your process of accountability is just in relation to remuneration, or does it also include people who work at the Bank?

Catherine LIVINGSTONE: Well I think Tony we have made it clear that in terms of our accountability the ultimate collective responsibility is the Board, the CEO and the Group Executives. But the sub-committee that we have set up will actually have a role in addressing any further management accountability or accountability of other individuals. I would reiterate what we said in our announcement last week that we have no reason to believe that any of the allegations arose from deliberate or unethical behaviour or any commercial motive.

Kate ABRAHAMS: And with that we will close off the call. I am sorry we did not get round to everybody with their second question, but please do contact the CBA media line and we will do our best to be able to respond during the course of the day. Thank you very much for your time this morning and with that I will close the call.

Catherine LIVINGSTONE: Thank you everyone.