Crikey's Cathy Walter coverage
By Stephen Mayne
January 15, 2008
Here is a compilation of Crikey subscriber-only sealed section material in early 2004 on the NAB's response to the PwC report into its $360 million forex scandal and the emerging power-struggle between former audit committee chair Catherine Walter and the rest of the board.
Kohler, Walter, Gottie and leak protocols
Sealed section - 24 March
The Australian's Robert Gottliebsen has weighed into the debate on Alan Kohler's controversial column about whether isolated NAB director Cathy Walter was his indirect source attacking the independence of the PwC report into NAB's forex scandal. Check out what Gottie had to say here. The key lines from Gottie were as follows:
"Like most journalists, I go to extraordinary lengths to make sure the source of the leak can never be discovered. But under board rules of conduct, leaking information on debates is one of the worst things a director can do because it strikes at the heart of board confidentiality and causes directors to lose confidence in each other. The board can become unworkable. Once a person is a proven board leaker, they really have to leave the boardroom because no one can be sure they will not do it again. But it is hard to prove.
"What has happened at the NAB has few precedents in Australian board meeting history. The business commentator for Melbourne's The Age (and The Sydney Morning Herald) Alan Kohler last week wrote about a split on the NAB board over PricewaterhouseCoopers independence. Yesterday he revealed that the source of the report was a third party. Although he does not know who was behind it, 'Cathy Walter seems to be a fair bet', Kohler says.
"I can imagine that Walter, who puts enormous effort into all her directorships (including the NAB), would feel hardly done by, which is why she missed an easy opportunity to go with grace. But now she is being accused of probably leaking board information through a third party by the respected journalist who published the leak. It's another chapter in an incredible saga.
Alan Kohler is not taking this lying down and told Crikey today that he is "definitely not a source-dobber".
"When I wrote that 'Cathy Walter would be fair bet' as the person who leaked to me, I meant it would be a fair bet for the board because, apparently, she was the only one complaining in board meetings about PwC's independence," Kohler told Crikey.
"I still don't know who it was and there has been no further contact through the third party. I wrote what I did because I felt I was in a difficult position commenting about the consequences a boardroom leak when the leak was to me and a reader would reasonably think I knew who was behind it and therefore had a conflict."
CRIKEY: Okay, Kohler was not speculating who his source was, he was only saying it was a fair bet for the board to think that. We reckon Kohler probably regrets putting that line in. Crikey has been in this situation on many occasions. We have numerous sources who we don't know but generally try to avoid speculating as to who they might be. Readers presume that you are best placed to name an anonymous source so if you do it, people believe you are correct. Maybe the lesson from this is that leakers should be direct and identify themselves, that way a journalist can't even get into the speculation game as Kohler did on Tuesday.
Alan Kohler's extraordinary Cathy Walter column
Sealed section - 23 March
Alan Kohler had an extraordinary column in today's Age/SMH which really turned up the heat on former National Australian Bank audit committee chair Catherine Walter who is fighting a rearguard campaign to stay on the board.
We say extraordinary because Kohler talks openly about who was the source of a controversial column on March 10 which came indirectly from a director and attempted to undermine the then upcoming PricewaterhouseCoopers report into NAB's $360 million forex loss.
Kohler writes:
"In fact the NAB board believes that because of that expectation she [Cathy Walter] tried to undermine the credibility of the report by leaking - to this correspondent - that there was dissent within the board about PwC's independence.
"There was, indeed, plenty of disagreement but we now learn - thanks to my colleague Malcolm Maiden's story over the weekend - that it was Cathy Walter versus the rest.
"For the record, contact with me was made through a third party; I did not know who was behind it and still don't (although Cathy Walter seems to be a fair bet).
"And as discussed in the context of the Telstra board leak about the abortive Fairfax deal a few weeks ago, no board can tolerate leaking."
Crikey hears that Catherine Walter has a difficult relationship with Craig Hamer, the PwC partner who handled the forex investigation and also led the unsuccessful pitch to pick up the NAB audit contract from KPMG after the Homeside fiasco.
Walter is said to be very close to KPMG and was clearly expecting a spray from PwC so she launched a rearguard campaign of self-preservation which included attempting to undermine the very report which was going to restore confidence in the NAB.
Directors can't do this sort of thing so we reckon today's Kohler column is the final nail in the coffin for Walter. She either has to point blank deny that she put the third party onto Kohler or admit it and resign immediately.
The Catherine Walter debate
First sealed section - 22 March
The power struggle on the NAB board has dramatically escalated after The Age reported on Saturday that a majority of directors were considering calling an extraordinary meeting to boot former audit committee chair Catherine Walter from the board.
It was a good get by Malcolm Maiden which you should read here: NAB split as director digs in
Labor's Stephen Conroy then cranked it up another notch on Business Sunday as you can see from this transcript.
The key Conroy quotes were as follows and apologies for the Packer transcribers laughably coming up with Kathryn (sic) Walter and Graham Cray (sic):
CONROY: Well I've consistently said more heads should roll. The Price Waterhouse Coopers report is an indictment on the board and in particular the audit committee of the board.
ALI MOORE: So Kathryn Walter – she should go, despite reports that she is resisting board attempts to make her resign?
CONROY: Well I think that certain members of the audit committee should take responsibility for what has happened and ultimately they should step aside. I understand that …
ALI MOORE: All members of the audit committee?
CONROY: At a minimum the Chair should step down off the board. It is up to the shareholders ultimately, and if the audit committee and the members of the audit committee don't want to take responsibility, ultimately it is in shareholders hands. There are provisions in the corporation's law for shareholders to seek the dismissal of directors and people shouldn't lose sight of that. It is shareholders money, the corporations law allows shareholders to take these mattes into their own hands.
ALI MOORE: So if Kathryn Walter, should go, who else – name names – who else should leave that board?
CONROY: Well at a minimum the Chair of the audit committee has to take responsibility but I believe other members of the audit committee have a responsibility. Unfortunately, what you have seen is most of the other members of the audit committee have been promoted into new positions so it is very difficult to understand how people have got promotions after being on the audit committee.
ends
This naturally gave the Monday papers plenty to run with, especially with Australian Shareholders' Association chairman John Curry renewing calls for Walter's resignation.
Check out today's business lead by Richard Gluyas in The Australian here.
The Age also led with yarn as follows: Reveal all on fiasco, NAB told
And this was backed up by a strong Malcolm Maiden comment as follows: Shareholders may have say in NAB board feud
Maiden makes a very good point. What on earth were the institutions doing just three months ago giving Walter another three year term with 615.7 million votes in favour and just 7.5 million against? Crikey spoke out against Walter at the 2001 and 2002 AGMs, citing her role in Homeside and the decision to reappoint KPMG as auditors for another 7 years. But no-one listened. As as nation we still lack a culture of shareholder pressure and a culture of corporate accountability amongst non-executive directors. Part of the problem is that NAB pays huge fees to third party fund managers through its giant MLC division so institutional Australia is very reluctant to upset the bank by voting against a director. This is a good example of why Australia needs a church and state type separation between big banks and fund managers. You can't provide the debt and equity for an economy.
Walter should not just resign because of her position as the long-standing audit committee chair. Crikey hears that she was the director referred to by Chanticleer columnist John Durie in the Fin Review attempting to undermine the PricewaterhouseCoopers report by pointing to various conflicts.
This was first raised in an Alan Kohler column on March 10 as follows: NAB's expert not so independent
We doubt that Walter would have directly spoken to Kohler but suspect a "supporter" might have been behind that column. Boards cannot tolerate leakers (assuming Durie is right about Kohler's source) and the rest of the directors should press ahead and see the back of Walter promptly. The only problem with this approach is that two of Walter's fellow audit committee members, Graham Kraehe and Dr Ken Moss, have seemingly been promoted. However, she is the clear third in line and the leaks cement the argument.
There are some interesting parallels between Catherine Walter's struggles at NAB and the only Melbourne woman with a better portfolio of directorships, Margaret Jackson. By hanging on and campaigning so publicly, Walter is risking her reputation although we very much doubt a NAB resignation would jeopardise her other board seats such as ASX and Orica.
In Crikey's opinion, Jackson should have been booted from all the boards she sat on because she chaired the BHP and Pacific Dunlop audit committees as billions were lost.
However, shortly after Don Argus took over as BHP chairman in 2000, Jackson quit the board and the spin she used was that her appointment as Qantas chairman meant she had to lighten her workload.
Check out the Argus explanation from BHP's 2000 annual report.
Similarly, Jacko's departure from the Pacific Dunlop board, where she also chaired the audit committee, was announced on May 28, 2000 Retirment of director.
It seems that as long as you slink off a board with a good excuse, it is not held against you, even if the performance has been disastrous. Afterall, Jackson remains on the ANZ board (including its audit committee), subsequently followed her mentor Gary Pemberton onto the Billabong board and was even reportedly offered the governor generalship by John Howard after the BHP and PacDun disasters.
So much for people being held accountable for poor performance.
Jim Kennedy comes out swinging for Catherine Walter
Sealed section - 19 March
While Crikey has been questioning Catherine Walter's responsibility and accountability over NAB's forex trading fiasco, not everyone is calling for her head. This letter appeared in today's Fin Review:
Wrong to make Walter scapegoat
On a number of occasions it had been reported by your newspaper - as well as other publications - of calls by the Australian Shareholders Association and others that National Australia Bank director Cathy Walter should be sacked or should resign from the board because she chaired the NAB audit committee.
Such calls are unfair and fail to appreciate the fact that the audit committee role - at the NAB and other banks - is responsible for the half- and full-year accounts. The risk committee is required to monitor the other risks, whatever they are, including credit risk, liquidity risk, currency risk etc. This approach is encouraged by the Australian Prudential Regulation Authority for all banks.
There is no doubt in my mind that the NAB board lost the plot and it seems from its latest appointment of a director specifically to deal with shareholder matters that it still doesn't have a clue about what a board's role and function is all about. However, attempts to make a scapegoat of a dedicated, experienced and competent director such as Walter are wrong.
Jim Kennedy
Hawthorn, Qld
CRIKEY: This isn't any old Jimmy Kennedy. It happens to be the best regarded and most powerful professional director from Queensland and he also happens to sit on the ASX board with Walter. Surely this should be disclosed.
Crikey is a big fan of Jim Kennedy and rates him in the top 10 Australian independent directors. But we are disappointed that he has allowed his personal friendship with Walter to get in the way of good corporate governance.
It is powerful stuff for an influential director to go on the record saying that another board "lost the plot" and he is directly trying to sheet blame for the fiasco home to Graham Kraehe as chairman of the newly formed NAB risk committee, a committee that was formed because of the failings of the audit committee.
Walter chaired the NAB audit committee during Homeside, the forex scandal and the reappointment of KPMG as auditor. It is a case of three strikes and you're out and club members like Kennedy do themselves no credit trying to protect her.
Chanticleer reports in the Fin Review today their are rumours of mass departures from KPMG because of the SEC investigation into the failure to uphold independence of the NAB audit. Surely the chairman of the audit committee knew about these illegal secondments from the accounting giant into the bank.
Finally, the Fin Review letters editor deserves a rap over the knuckles for not alerting the news desk because this is actually a very strong story because the power struggle between Kraehe and Walter is now out in the open. Crikey is happy to break if for them and any business section worth its salt will be onto this story in tomorrow's papers.
McCrann protects his friend Catherine Walter
Sealed section - 16 March
Dear oh dear, remember the huge campaign that Terry McCrann ran against AMP audit committee chair Richard Grellman last year. It was a good effort and we totally agreed with what he was saying.
So why isn't McCrann extending the same logic to Cathy Walter, the chair of the NAB audit committee who has just been demoted.
"The call for heads to roll is way out of proportion," McCrann wrote this morning.
Hmmm, we wonder if McCrann's "soft on Walter" approach reflects the fact that he is friends with Cathy Walter.
Cathy Walter should not be ousted because of the forex scandal but she should be ousted because she was also chair of the NAB audit committee when Homeside blew up and she was the person who drove the process that re-appointed KPMG as NAB's auditor.
Meanwhile, Chanticleer had a very strong comment this morning about the appointment of Dr Ken Moss as "senior independent director" at NAB.
"Kraehe has vowed to change all that, so why do we need Moss to double his team? In short, the concept is a joke and smacks of a board ridden by guilt of past mistakes and running scared."
Crikey agrees. The entire NAB board is independent, with the exception of new CEO John Stewart who represents management. "Senior independent directors" are needed when you have a dominant chairman like Frank Lowy. For instance, Macquarie Bank appointed a "senior independent chairman" because it has four executives on the board, including executive chairman David Clarke.
NAB clean-out - well done
Sealed section - 12 March
The National Australia Bank board should be congratulated for the blood-letting announced this morning after the release of the PricewaterhouseCoopers reports into the $360 million foreign exchange trading loss.
Before today we'd already seen the four traders suspended and the departure of CEO Frank Cicutto and chairman Charles Allen.
Today the traders were "summarily dismissed" and also departing are their immediate boss Gary Dillon and three of the bank's top 10 executives:
- global head of risk management, Chris Lewis,
- head of corporate and institutional banking, Ian Scholes and;
- head of markets, Ron Erdos,
NAB released three statements to the ASX today which you can access here.
The first announced the reaction to the report, the second was the 69-page report itself and the third was a one-pager announcing some important changes to the board committees.
So what is new out of the report? Firstly, there were profit over-statements totalling $52 million BEFORE October 2003 when the scandal is said to have started.
In the December quarter of 2003 the boys then increased the US dollar exposure from $US271 million to $1.548 billion and dropped $49 million in the process.
The fun then really started from January 1 till January 9 when another $85 million in losses were accrued at which point the lads were suspended and the market informed. After that, the portfolio was revalued by $175 million, bringing us the final figure of $360 million in losses.
NAB hasn't minced its words in the 18-page summary which you really should read in full. The summary talks of the "false data" entered by the traders to "manipulate" the figures. They had "open contempt for controls" and were motivated to protect bonuses which ranged between $120,000 and $265,000 in 2003.
The board appears to have protected itself with references to "biased" board briefings by senior management and "insufficient escalation" of the problem once it became apparent. However, there is a line in the full PWC report saying the board should have taken more decisive action when first informed.
The board changes are subtle but important even though Fin Review journalists John Durie and Andrew Cornell were both calling for more heads to roll at this afternoon's press conference. Former Shell CEO Peter Duncan replaces Graham Kraehe as chairman of the risk committee and former Merrill Lynch heavyweight John Thorn replaces Catherine Walter as chairman of the audit committee.
Walter hasn't "resigned" or been "sacked" but we predict she will "retire" well before the next NAB AGM in December. It will be interesting to track how far away the next increase in retirement benefits is for Walter.
Strangely, Kraehe today tried to argue that Walter's demotion had nothing to do with the PwC report. Hmmm, that's a bit like Southcorp chairman Brian Finn claiming the departure of Don Argus and Dick Warburton from the Southcorp board had nothing to do with the $1 billion loss and impending Australian Shareholders' Association campaign to sack them.
Even though Graham Kraehe is an independent chairman, former Howard Smith CEO Ken Moss has been appointed "senior independent director" which is effectively deputy chairman and heir apparent to Kraehe.
The other interesting snippet in the PwC report is that the traders "colluded" with an external provider of revaluation rates. Hmmm, could be a writ in the wind over this one.
All up it is a decisive package of changes and you cannot argue that this isn't accountability and transparency in spades. The next step will be to sack auditors KPMG and they will probably be replaced by, wait for it, who else but PwC.
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