Unusually plain speaking from big three

By Peter V O'Brien

Friday 12th March 2004

An unusual element of plain speaking emerged in statements associated with three overseas-based, New Zealand-listed, companies in the past month.

All companies should adopt this admirable development in corporate communication, despite the suspicion that the three referred to (National Australia Bank (NAB), Foreign & Colonial Investment Trust (FCI) and AMP had to explain matters that could not be buried in spin-doctoring fudge.

Recently elected NAB chairman Graham Kraehe was first up with a letter to shareholders in late February, following a humble farewell missive from former chairman Charles Allen.

Kraehe said he looked forward to working with new chief executive John Stewart to "rebuild confidence in Australia's leading financial services company." There was no reference to his years on NAB's board, during which there was presumably an erosion confidence, nor to his chairmanship of the bank's risk committee at the time of the rogue trading.

Kraehe had three short-term priorities:

"deal with the foreign currency options matter in an open and transparent manner;

accelerate the renewal of the board;

lead by example in creating an open culture in the organisation."

That language may have been woolly but additional comments were blunt.

His statements about co-operating with regulatory authorities, accountants Pricewaterhouse Coopers (PwC) and the Australian Federal Police were understandable, because NAB was in no position to be unco-operative.

Kraehe referred to the report into rogue trading commissioned from PwC. "My expectation is that the report will show several control breakdowns."

There was less bluntness in January when the bank was hauling the covers on to an already saturated pitch.

The board intended to make as much of the PwC report public as possible "while ensuring we do not prejudice any future legal position."

Comments about renewal of the board were understandably vague.

"I am committed to building a world-class board, which properly reflects the National's status as one of Australia's largest companies."

It was difficult to resist seeing an implication that the current board was less than "world class."

The "open culture" bit drew a remarkable comment.

"The National has been criticised for being arrogant and lacking in transparency in its dealing with key stakeholders. I commit to listening to all of our stakeholders and doing whatever is needed to rebuild confidence in the National."

Kraehe did not specifically agree with the arrogance and lack of transparency tag but neither did he deny it. The lack of waffle in his letter was unusual for a bank chairman.

FAC chairman Mark Loveday's comments accompanying the trust's reports are usually waffle-free, but he did extra well in the preliminary report for the year ended December 31.

FAC is no midget. Net assets were £2.04 billion at December 31, so the chairman's words had clout.

"2003 was the first year we have made you some money since 2000 and I sincerely hope we can now put the terrible years of 2001 and 2002 firmly behind us.

"We got most of the big decisions right in terms of asset allocation and gearing. However, our manager, F&C (Management), was generally less successful in stock selection, tending to be more cautious and defensively positioned and not adjusting fast enough to changing market conditions."

Governance rules and recommendations for UK investment trusts changed over the year.

FAC said the board had to state publicly it s reasons for reappointing the manager.

"As I have mentioned earlier, our three-year investment performance has been disappointing but there has been an improvement during the last year and our long-term performance remains good. The manager also provides excellent company secretarial, administrative, financial and marketing services. In these, appointment of F&C as manager on the terms agreed is in the interests of shareholders as a whole."

That was hardly an ecstatic endorsement.

AMP chief executive Andrew Mohl had a tough job last week dealing with a $A5.54 billion loss for the year ended December 31, although the market had earlier decided the company had a future and raised the share price ahead of the result.

Some Australian observers reckoned last year that Mohl had an almost impossible task with AMP.

His comments accompanying the preliminary report were optimistic about the future and blunt about the past.

"Dealing with the problems of the past has been an extremely painful process but doing nothing in the hope that things would get better was simply not an option."

Mohl said the demerger to separate the company along geographic lines (Australia and the UK) was undoubtedly the right strategic direction for the company. He said AMP had a lot more work to do and added a comment that was indirectly a reminder to all company directors and executives.

"Management focus is firmly on driving operational excellence to better meet customer expectations and deliver increased shareholder value."

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