Rob Ferguson’s CV reeks corporate establishment. He clocked 15 years at the top of one of Australia’s largest and most successful investment banks, BT, and two decades sitting around the boardroom tables of big-end-of-town companies including Westfield and GPT.
A University of Sydney alumni with degrees in economics and law and a career start in stockbroking round off his pedigree.
But Ferguson never really felt he was a member of the elite corporate club that dominated Australia during the 1980s and 1990s.
The seeds of his disrupter, even renegade, attitude appear to have been sown in his early years at BT Australia during the period the local banking industry was opened up to foreign competition.
The success the US-owned BT Australia achieved in carving out a large financial services business cemented Ferguson and his predecessor, Chris Corrigan, as challengers to the status quo.
Having hung up his business spurs last year when he resigned from the chairmanship of Primary Health Care (now Healius), Ferguson has left behind the last vestige of inhibition or political correctness and speaks openly on the economy, boards, the corporate regulator, auditors and in particular what he sees as the corporate equivalent of a ‘protected species’ – the big four banks.
Having been in the financial services industry but outside the five-pillar club, made up of AMP, the Commonwealth Bank, Westpac, ANZ and the National Australia Bank, Ferguson observed their behaviour over a long period – well before anyone was agitating for a royal commission.
Banks provide an especially rich vein for discussion when he sits down with The Sydney Morning Herald and The Age.
READ THE FULL TRANSCRIPT OF THE INTERVIEW HERE
As Ferguson sees it the royal commission crescendo was something the banks definitely deserved. They had it coming.
“Yeah, absolutely they deserved to have it. I think the banks were arrogant, were out of touch, and all of that’s sort of been revealed by the process we’ve been through. So, I think it’s a fantastic process of calling them to task.”
And Ferguson has little sympathy for those who run them.
“There’s a fundamental problem with banking in Australia, it’s so oligopolistic that the ability to earn super profits is like a sugar hit for the ego of the people that are running those organisations. They feel that they’re cleverer than they actually are.
“That hubris shows up in lots of different things. It shows up in those organisations really not managing themselves properly. Because it’s sort of a license to print money at the big bank level, the big four level.”
Ferguson’s view is that the protection afforded the banks by being too big to fail has also made them too big to manage.
Too big he thinks for the senior management and the boards to know what is going on multiple layers down in the organisation.
Yeah, absolutely they deserved to have it. I think the banks were arrogant.
He argues that it’s not a matter of the directors of banks not being fit for purpose rather that the organisation is not fit for purpose.
“Because the banks are too big, too complicated. One of the expressions I use is that a bank – any company or any entity – should know pretty quickly if it’s stubbed its toe.
“I think what happens with these banks, (is that) they’re so big that they stub their toe and it takes a year for the pain to come up to the organisation, and then it’s too late. The damage is done.”
By this time what Ferguson describes as ‘gangrene’ has set because the people at the top couldn’t register the pain in real time.
National Australia Bank chairman Ken Henry was the biggest and most prized scalp of the post-royal commission search for responsibility.
In the corridors of big business there is division on Ken Henry. One view points to his arrogance and his tin ear to the seriousness of the banking industry’s culpability. The other sees him as a sacrificial lamb. Ferguson sits on the side of Henry’s supporters believing NAB’s former chairman spoke his mind, rather than followed political correctness.
In that sense, at least, Henry and Ferguson appear to be kindred spirits.
“I felt great sympathy for Ken because I felt he was thinking out loud and he was made an example of.
“He’s not your conventional businessman. He wasn’t being political and toeing the line. It’s a body on the tarmac in these environments….’
But Ferguson’s sympathy doesn’t extend to banks at large.
“I think they’ve abused their social licence in the sense that they’ve gone for profit rather than recognising the privilege that they have. To have the privilege of lender of last resort protection is just an enormous privilege, which means that they earn super profits. I think that organisations that earn economic rents are prime – and are fundamental to the system just as electricity and gas and water is.
‘The financial system and the banking system is just as fundamental. We expect it to work, we need it to work, the place grinds to a halt if it doesn’t. To have the people running those organisations not having the sense of responsibility that other regulated utilities have, I think that’s a bad thing,” he says.
Despite having sat on the board of several large companies, Ferguson’s hot button issues often mirror those of the broader community – not just his opinions on banks but on corporations in general.
It is rare to find a current or former board director who is openly critical of the excesses of executive pay. It’s rare to find one that even concedes that there is an excess.
For Ferguson the drift towards overpaying management folds neatly into his broader theory on gatekeeper conflicts of interest. In this respect Ferguson also singles out auditors for being unwilling to take corporates to task for fear of “biting the hand that feeds them”.
“The mechanism for paying chief executives is flawed by the fact that boards – I don’t think they’re tough enough in terms of compensation.”
The well-worn argument that big salaries are needed to attract executives in a competitive market doesn’t wash with Ferguson.
These banks, they’re so big that they stub their toe and it takes a year for the pain to come up to the organisation, and then it’s too late. The damage is done.
“To me, that’s just a thoroughly lazy argument. In a way, their [board’s] bread is buttered by management as well. Management make them comfortable; they take them on trips to America and to visit plants and all this sort of stuff, which is all fine to do.
“But I think among boards, there tends to be a ‘let’s not rock the boat’ thing on the compensation thing, …. after all, it’s not the board’s money it’s the shareholder’s money. You’re asking somebody to be tough when their inclination is not to because it’s easier just to [say], oh, well, we’re just paying the market. It’s all too hard.”
It seems a curious stance given Ferguson’s former membership of the Westfield board whose executives were renowned for the generous size of their pay packets.
He agrees the executive team at the shopping centre group, at various times dominated by the Lowy family, were highly paid but said the performance justified the salaries.
“They [the salaries] were [large] but ….. how do you work out what to pay them when you look at the spectacular returns that the shareholders got?
“I don’t t think the shareholders whinged. I think the proxy advisors whinged and the amounts were large.”
In many respects while Westfield was not a governance star, given it was run more like a large family company, its performance for many years (and in the years when Ferguson was a director) was stellar.
But Ferguson was not averse to accepting a corporate challenge. It was in the dying days of the global financial crisis that Ferguson joined the board of then-financially troubled property group GPT.
Last year, after nearly a decade in the chair, it was during his farewell shareholder meeting that he regaled attendees with a few hair-raising anecdotes about the process of being invited to join the board of the property group which at that stage had no chief executive and was in desperate need of capital.
The mayday call came from fellow BT alumni Ian Martin, who wanted Ferguson to become a director.
“You’ve got to be joking, you’ve got issues with your balance sheet that need to be fixed before anyone would look at the board idea,” he told Martin who had, rather unluckily, joined GPT’s board a few years earlier, according to press reports of the meeting.
Ferguson told shareholders that a few months later Martin approached him again reporting the news that a chief executive had been found and equity had been raised.
An agreement was reached that Ferguson would become chairman of GPT within a year – on the proviso that “he behaved”.
It would seem that Ferguson’s penchant for being outspoken preceded his retirement from the corporate community.
Elizabeth Knight comments on companies, markets and the economy.