[The following submission was made to the Royal Commission before hearings started.]
Auf wiedersehen, Fraulein Longmuir
I refer two letters to NAB, my previous banker, that are set out at the end of this note. Those letters refer to acts of what I would describe as misconduct by a bank – and I don’t think threatening to renege on bank cheque can be dismissed as mere discourtesy. I offer the following observations, based in part on the conduct referred to in the letters, but mainly on a lifetime in dealing with banks – and acting for and against them.
- My father and mother, Mac and Norma Gibson, had banked with a NAB predecessor, CBC, throughout their married life. Miss Longmuir at Queen Street looked after them in my lifetime until I married. Those days are long gone, and my two letters to Mr Clyne were in large part a lament for their passing.
- Shortly after the incidents referred to, I wished to change my will. Before the bank produced it, they demanded payment of arrears of storage. So much for two generations of patronage. This was too much for me, and I terminated the connection.
- I now bank with Bendigo. Although I do a lot on computer (and COMMSEC looks after my super), I enjoy going to the Kyneton branch of the Bendigo Bank, and talking to real, live human beings. I actually got to speak to an account manager who knew what she was talking about – and who wasn’t stitched up by parroted bumpf about bank ‘products.’ Too many bank employees soon convince you that you have arrived at the perimeter of their safe knowledge. And, if you are a lawyer, you might then wonder just how forensically vulnerable they may be because of their lack of understanding.
- My super fund has shares in Bendigo and the big four – except for NAB. I first got into them because a mate who was a stockbroker said to me that banks might generate returns to shareholders by doing the very things that so annoy us as customers.
- The truth is that the big four are a kind of oligarchy or protected species. They’re like koalas, but they’re not loveable. The government protects them by a regime that would surely provoke anti-trust inquiries elsewhere. And you and I get to stand behind them as de facto You would therefore expect them to have a decent sense of community, if not gratitude.
- Although I am reasonably happy as a bank shareholder, I feel very squeamish about being a party to the payment of huge salaries – say, twenty times what we pay High Court judges – to people who earn about 100 times what they pay their tellers, and whose bonuses may turn on how many of those tellers they sack. On reflection, ‘squeamish’ is not nearly strong enough. I am revolted. It’s like being a resident of Dachau in 1936 and looking the other way. (And when I went there in 1966, the residents were still skittish about acknowledging that they knew where the concentration camp was.)
- I was initially against conferring another Christmas bunfight upon lawyers with an inquiry like this, but one thing in particular changed my mind. People in the financial press were fond of talking about the ‘culture’ of banks. Some, including those who should know better, said that the culture of a bank was a matter for the CEO. They were incandescently wrong about that as a matter of law. The board of directors may be able to delegate powers, but they cannot absolve themselves of their legal responsibility. I got an uneasy feeling that too many bank directors didn’t know what they were there for.
- The fallacy about the responsibility for culture is in my view related to the shift in powers in major corporates over the last generation or so. The law says point blank that the ‘business of a company is to be managed by or under the direction of the directors.’ As best I can see, too many boards now act as glorified audit committees and leave the running of the bank to the CEO and management. They need to be reminded – in neon lights – that they, the directors, are as a matter of law responsible for every aspect of the management of the business of the bank. They are not there just to pick up their pay cheque, and check their insurance policies.
- I am told by someone who has been much closer to banks than me that the problem is compounded when too many bank directors do not know enough about the business of banking. Smart managers can then sell them pups. If you see a lawyer on a bank board, ask them how they would feel about a bank manager running a law firm.
- But one fallacy should not lead to another. The directors are not answerable to their shareholders alone, and the bottom line of profit is not their ultimate aim or justification. People succeed in business when other people want to do business with them. When we speak of the worth or value of a business, we often refer to ‘goodwill.’ In substance that is the willingness of people to keep doing business with that entity. That goes for fish ‘n’ chip shops, service stations, hairdressers and banks.
- We know that the term ‘goodwill’ can be difficult for accountants and lawyers, but most of those difficulties are avoided in public companies. A market value is put on each item of ownership of the company or each loan instrument that it issues as another way of raising capital. In the result, the market sets one way of looking at the value of a publicly listed bank.
- That may lead to a sense of security in the directors of banks that is misplaced. How much actual goodwill do banks have with or from their customers? How many of us enjoy doing business with our banks and want to keep going back to them? In my experience, very few of us would happily say ‘yes’. My impression is that the standing of banks with their own customers and with the community at large has been on the slide for at least two generations.
- On any view, the low opinion that most Australians hold about their banks should suggest to the directors of those banks that they have not been managing their business properly. Perhaps those directors might stop being sated by figures, even whoppers, and concentrate on intangibles. In colloquial terms, there is more to being a bank director than counting beans.
- May I give an example of how distrust of the big four banks operates? My super fund is in part invested in four banks. I only hold shares. I will not deal in bonds, in part because I accept the advice of Mr Buffett not to invest in something I don’t understand, and in part because dealers in bonds seem to me to be the worst of a bad lot. Nor would I go near bank hybrids. Why not? There is too much gobbledegook in the fine print, and frankly I would not trust one of the big banks to do what I would regard as ‘the right thing’ if things turned sour.
- As it seems to me, one fundamental question facing the directors of our banks is as follows. In the year of Our Lord 2018, can you acquit yourselves of meanness to your staff, indifference to your customers, and a failure to give back to Australians by saying ‘But we are making buckets of money’?
- There are many reasons why the duties of bank directors extend well beyond looking after the bottom line. As I mentioned, these banks are owned and guaranteed by millions of Australians. They are protected by our government. These facts of our communal life have allowed banks to lead a sheltered, even cloistered, lifestyle which may well have soothed their directors into apathy.
- But community attitudes to large corporations have changed in the space of one generation. The GFC properly put the fear of God into a lot of people, including me. Many people, including me, are angry that more of the malefactors are not doing time for their role in bringing the whole world to the brink. We were told that some of these constructs of greed were too big to fail, and that we, through our governments, had to intervene to save them. For this relief, we don’t appear to be receiving much thanks.
- This apparent immunity of those directing what should have been failed businesses is another aspect of the lesion of inequality that corrodes our community. After the GFC, many people feared and distrusted big corporates in equal measure. This fear brought to mind something that the late Mr Justice Smith told me about what ordinary people thought about judges. His Honour said that the average bloke looked on judges as being not far removed from coppers – they were people who had power and who might, unless you were careful, do you some kind of harm.
- It’s not just that people pay less respect to big business – paradoxically, they now expect much more from it. We saw it with the willing participation of many corporations in the marriage equality debate (even if this was above the pay level of some of our thicker politicians). We see it now in the guns debate in the U S where, as with climate change, some corporates are accepting responsibility for communal welfare, in default of decent government. We can see it with the #MeToo movement. Mark Shields of The Boston Globe (and PBS) said that corporates are learning that they can no longer be morally neutral. I think he’s right and that the change is fundamental.
- And all that’s before you get to the legal obligations of banks as employers, and as institutions that hold positions of trust and confidence with their customers. Here, too, things are much in flux.
- About thirty years ago I was acting for a bank with the late Brian Shaw, QC in a matter that got to the High Court. I think it was one of those cases where a farmer had borrowed in Swiss Francs and taken a huge hit. As best I can recall it, the trial judge had taken a shine to the cocky – but certainly not to us. In talking with Brian, whom I greatly admired, I made a mistake that I wouldn’t make now. ‘Brian, the banks get very jittery about being lumbered as fiduciaries.’ I got one of those angular, quizzical looks. ‘Do they deny, then, Geoff, that they owe obligations of confidence and secrecy to their customers?’ That served me right for using a weasel word that is attractive to people who like going round in circles. (And after all, even Swiss banks learned of the price they were paying for aiding and abetting crooks.)
- Two points come out of that case. The law says that directors and other employees owe their companies duties that are described as fiduciary – such as obligations of good faith, and avoiding conflicts of interest and duty. The time is I think coming when that traffic will cease to be so one-way. I am aware that there is some dispute about this in the cases, but I think that the arid rigour of the syllogism will soon surrender to what Oliver Wendell Holmes called ‘the felt necessities of the time.’
- One example might come when a bank learns that an employee poses an unacceptable risk as a predator to other employees. Another will surely come when the bank accepts that an advisory service it offers puts it, and its staff, in a hopeless position of conflict. It is in my view likely that big corporates will find themselves under a legal obligation not to leave their staff compromised. I will deliberately leave the language as loose as that. The corporates are liable for the wrongs of their employees but, at least for the most part, the employee may have a personal liability to the victim. There may also be an issue of moral responsibility. People who think that the law has nothing to do with morals are dead wrong.
- There have already been marked changes in the general law relating to the duties of banks. Take the Swiss Franc cases in the eighties. At one time or other, I acted on different sides while these cases were in vogue. Customers of banks, many on the land, complained that they had been lured into borrowing in Swiss Francs by bankers who had not adequately explained the risks inherent in such a course. Many of those borrowers got badly burnt. They then sued the bank. At bottom, one business person was saying to another: ‘When we entered into this contract, you knew more about this kind of transaction and the risks inherent in it, and because of your superior position, you owed me a legal duty to inform me of those risks before signing me up. Had you discharged that duty, I would not have gone on with the deal. It’s therefore only right that you should bear the loss.’ When such a proposition was first uttered, it sounded heretical – and not just as a matter of law. Capitalism is built over the graves of dead competitors. But most of the time, the farmer got up, either by verdict or compromise.
- There were I think two reasons for this. First, most litigation falls to be determined, thank heaven, by what lawyers call the merits. If you go into a court room where a bank is confronting a man of the land whose life work it has written off in a deal that now looks as dodgy as Bitcoin, it will not be long before you detect which way the breeze is blowing in that court. Banks rarely get to kick with the wind. The best that they can do is take solace, if that’s the term, from the gorgeous nicety of the language of Lord Devlin.
The fact that juries pay regard to considerations which the law requires them to ignore is generally accepted…It is, for example, generally accepted that a jury will tend to favour a poor man against a rich man: that must be because at the bottom of the communal sense of justice there is a feeling that a rich man can afford to be less indifferent to the misfortunes of others than a poor man can be.
- Secondly, counsel for the farmer was often able to say to counsel for the bank, something like: ‘Having seen your branch manager’s diary notes, I have no doubt you will not be calling him to give evidence. Nor will your people want to see any of it on the front page of the local paper. The poor bloke didn’t know what he was doing. He wouldn’t know the difference between a Swiss Franc and a Swiss tart.’
- This kind of problem suggests a vulnerability of big corporates generally. Those at the top know how to look after themselves. They are trained in various techniques involving what might be called massaging. Those who actually deal with people over the counter are far more vulnerable. As I indicated above, you can often see this if you get to talk to a fellow human at a bank. You sense that they are all at sea as soon as they go off script about the ‘product’ that they are trying to flog. I referred to some examples in my letters to Mr Clyne. Such people could undergo real pain and cause real hurt to their employer in the witness box. You don’t have to be a member of the Smorgon family to know that the bigger they are, the harder they fall.
- The late Neil McPhee, QC had a better nose for the currents of the law than any lawyer I have known. I was talking to him about the forensic susceptibility of the banks that had let people down, and he shared this insight with me. ‘Geoff, I have been involved in a number of cases for and against banks. I have examined and cross-examined economists and other experts about fluctuations in currency markets – what’s called volatility. These experts have established, to my complete intellectual satisfaction, that there is no rational basis on which anyone, no matter how smart or wise, can predict fluctuations in currency markets. But I cannot help thinking that many of the promotions of the banks to their customers are somehow premised on an implied assertion that some people can predict such fluctuations. Any such assertion must be false.’ It seemed to me then, as it does now, that such an argument must have weight. And woe unto the lawyers who are charged with framing, and then defending, the disclaimer.
They are the issues I would to raise for the consideration of this commission. I am sorry that this letter is so very long. I can only say that the issues appear to me to be of substance.
I hope that this commission will encourage the directors of banks to seek to recover the trust of their customers and the respect and decent careers of their staff. Mac and Norma are long gone, but is it too late to aspire to the return of Miss Longmuir?
We may not get the Domesday Book from this royal commission – but neither will we need the great F W Maitland to decipher it.
14 Breakneck Road,
- I am known to the commissioner, but I don’t think that fact precludes my making these comments to the commission.
23 March 2012
Mr Cameron Clyne
Chief Executive Officer
National Australia Bank
Reply Paid 2870
MELBOURNE, VIC. 8060
Dear Mr Clyne
SALES TEAM D
You don’t know me. Neither do any of your employees. Since you have been my banker for 60 years, I think that that is very sad. Don’t you think that is very sad, Mr Clyne?
When I bought my present house, I was subjected to treatment by some of your operatives that in part caused me to write the attached paper on ‘The Decline of Courtesy and the Fall of Dignity.’ You will see that your bank has the misfortune there to be compared to Telstra and Qantas. That is not good company to be in, Mr Clyne. The part that really got me was the threat – that is exactly what it was – to pull the pin – that was the phrase – on a bank cheque. Your staff could give a customer a heart attack threatening to do that to them on the day that they are settling on a house purchase. A bank threatening to renege on its own paper? It is hard to imagine a better example of how banks have lost their way – how once respectable business houses have now become unrespectable counting houses.
Being minded to move home, I thought I should confirm my leeway with your bank before making an offer. I drew Sales Team D in the lottery. I said I was happy to go to your Kyneton Branch and talk face to face, but, no, Sales Team D told me they were on top of my case.
Your staff can fill you in on the sad results, Mr Clyne. I had to prove my identity – at least twice. Sad after 60 years, is it not? The property I am looking at is worth under half of a city property that I can offer for security. The increase to the existing facility is modest. For any bank that knew me as its customer, and wanted to look after me, the proposed transaction would hardly raise a query. Not so with Sales Team D, Mr Clyne. I was required to produce tax returns, and then told I would have to surrender one credit card and submit to a reduction on the remainder. I began to feel for the people of Greece. Now, Sales Team D wants to go beyond the tax returns, and I now have two accountants wondering just what has got into Sales Team D.
How would you or your fellow directors like it if they were treated like this by someone they have been doing business with for ten minutes, let alone 60 years? In the course of more than 40 years’ legal practice, I have held various statutory appointments, including running the Taxation Division of the AAT, later VCAT for 18 years. Some people – including Her Majesty the Queen in right of the State of Victoria – therefore felt able to take me at my word. But not Sales Team D. Do you know why, Mr Clyne? My bank does not know who I am.
Perhaps they are worried about my recent expenditure on credit cards. Let me assure you, Mr Clyne, so was I. Very worried and very annoyed. I bought a CLK Mercedes about six months ago at a very good price. I just needed to extend a borrowing facility by six thousand to get the $26,000. I got handballed around four operatives, having to prove my identity along the way. I got referred to various teams. Most asked my occupation. (Sales Team D the other day asked if I was still a member of a firm I left about ten years ago and which ceased to exist the other day.) I was told my case was difficult because the facility was secured. Then I was asked to produce tax returns to support a request to extend a secured facility by six thousand dollars. That is when I gave up, and used the credit card to buy the Mercedes.
I do not blame any of the few employees you have left. They are trained – programmed – to be automated and not to think. They also know that the market, which can never be wrong, values their contribution to the bank at about one hundredth of yours.
Do you know what I think, Mr Clyne? George Orwell was wrong. It is not big government that is tearing up the fabric of our community by Big Brother – it is Big Money, and Big Corporations. I think that you and your fellow directors should be ashamed of yourselves.
If it matters, I hold shares in the bank, and I am not a happy shareholder either.
3 April 2012
Mr Cameron Clyne
Chief Executive Officer
National Australia Bank
Reply Paid 2870
MELBOURNE, VIC, 8060.
Dear Mr Clyne,
SALES TEAM D
Well, they did it for you. Sales Team D – may we just call them STD for short? – stopped me from buying the new home that I wanted. It was not perfect – it was just ideal. Ideal for me, Mr Clyne. But, then, what is a mere home to someone like me to a great Australian banker?
How did STD manage to pull it off, you may ask, Mr Clyne? Quite simply really. They did not know me, and they did not know what they were doing. This all became sadly but inevitably apparent when a roaming STD cell-commandant opened his phone talk with me after my first letter to you with the gambit that my problem was that I had overstated my income. Really, Mr Clyne, your attack-dogs and flak-catchers would want to be on the highest level of dental insurance if they want to go around behaving like that. No wonder you forbid them to meet your customers in the flesh.
But I suppose that the ADs and FCs of STD kept you safe from my letter. You would prefer to stay like Achilles gleaming among his Myrmidons, except that you would not stay sulking in your tent – no, you would be glowing over all that lucre.
You and the people at STD are a real threat to business in this country, Mr Clyne. You should be helping the flow of capital. The big Australian banks are doing just the reverse.
And you should really stop those ads that tell the most dreadful lies. Lies like your people are free to make decisions, or that the big banks like competition. Nothing could be further from the truth, Mr Clyne. The people at STD know that they are forbidden to think, much less make decisions, and STD shut up shop completely, and have been in a surly sulk ever since I told them I was talking to another bank. (Although they did ring the other bank to inquire – without my consent – about what I was doing.) The major Australian banks are just a collusive cartel operating sheltered workshops that rely on the people of Australia to bail them out whenever they balls it up – and then they pass on their guilt and paranoia to those same people by refusing to lift a finger for their customers when they need a bank.
Those people do not hold your staff responsible for the shocking fall in the standards of our banks, Mr Clyne. They hold you and your like responsible. You do after all get paid about one hundred times as much as the folk of STD.
If you and your board step outside your cocoon of moolah, minders, and sycophants, you will not find one Australian – not one – that has a kind word for any of you. What all those people should do to the big banks is to take their business elsewhere. That is what I will do. You never know, Mr Clyne, I may meet a real person in the flesh, one who might know what they are doing, and who will even know who I am.
No answer came the firm reply.