Future Fund chairman Peter Costello has slammed the transition process underway at the National Australia Bank and says outgoing chairman Ken Henry should not have a role in appointing a new chief executive to replace Andrew Thorburn.
Mr Costello, a former Liberal treasurer and chairman of Nine Entertainment, said it was appropriate that Mr Henry and Mr Thorburn were leaving but said Dr Henry should “go first” to allow a new chairman to make the decision.
“If the NAB was managing itself well, the chairman would go first and the new chairman or chairwoman would appoint the CEO,” Mr Costello.
“Normally you get a new chairman before you get a new CEO. I don’t think it’s good practice to have an outgoing chairman appoint the CEO.”
Both Dr Henry and Mr Thorburn were forced to resign last Thursday after commissioner Kenneth Hayne said in the royal commission’s final report he was not confident “that the lessons of the past had been learned”.
However, speaking on Thursday last week, NAB’s acting chief executive Phil Chronican said it would have been “massively disruptive” to have both the chair and CEO depart in quick succession.
“It’s very difficult practice to have a CEO and a chairman leave in short succession and that’s one of the reasons the board was keen that Ken stay on,” he told reporters.
“Obviously with my stepping into an executive role temporarily, that’s further taking away resources from the board.
“So we’re recognising in this that we’ve got a big job as we look for directors to add to the board strength, look for a new CEO.”
Dr Henry served as Treasury secretary for the later half of Mr Costello’s time as treasurer in the Howard government, before continuing to serve under the Rudd Labor government.
Fund voted against NAB and AMP remuneration reports
In response to the final report, Mr Costello said the royal commission was a “good exercise” in highlighting bad conduct across the financial services sector, but especially at banks.
“Charging people for service that wasn’t rendered and, in some cases, charging the dead. In some cases not putting [superannuation] trustees obligations as paramount,” Mr Costello told reporters.
“I don’t know if any charges will come out of it but it’s possible and that’s still being looked at.”
Mr Costello said NAB had “responded appropriately”, and that both Dr Henry and Mr Thorburn had taken responsibility, but that it was critical for the remaining board members and top executives to manage the transition in the wake of Kenneth Hayne’s scathing criticisms.
NAB was the subject of a shareholder revolt at its annual general meeting in December, with a staggering 88 per cent vote against its remuneration report.
Mr Costello confirmed The Future Fund used its shares to vote the report down, as it did with the embattled wealth manager AMP in May last year.
“We have been voting against what we regard as inappropriate remuneration structures,” Mr Costello said.
“We think that renumeration should reward a job well done but conversely there should be ‘pay at risk’ if it’s not well done.”
Fund braces for ‘potentially increased volatility’
In a portfolio update to December 31, Mr Costello said the $147 billion fund is bracing for increased volatility on financial markets with an eye on fallout from Australia’s housing correction and simmering trade tensions between the US and China.
The fund is selling $5 billion in illiquid assets to prepare for “potentially increased volatility and to increase portfolio flexibility”.
Mr Costello said, while the average balanced fund returned 0.6 per cent in the year to December 31, the Future Fund returned 5.8 per cent in a nervous market.
Mr Costello cited Australia’s housing correction as a factor and said the market had “definitely turned down” in Sydney and Melbourne.
“This does have a wealth effect and people see the value of their properties going down. They may feel less inclined to spend and that may have an effect on the general economy,” Mr Costello said.
Mr Costello said the fallout from the housing downturn was a factor in the Reserve Bank last week downgrading its economic growth forecasts and signalling an interest rate cut was possible.
On concerns about the $2.7 trillion superannuation sector, Mr Costello rejected suggestions that the Future Fund should become the default fund for people who do not select their own superannuation fund.
“The Future Fund is a sovereign wealth fund. It is not open to the public. It is not a superannuation fund. And it doesn’t aspire to become a superannuation fund,” Mr Costello said.
The Future Fund – established to cover public sector superannuation liabilities – has delivered a 10-year return of 9.7 per cent despite volatility on global markets.