But fate had other punishments in store for Henry. At the bank’s annual general meeting in December, the Melbourne-based company was forced to scrap its new executive pay scheme after suffering the largest protest vote in Australian corporate history against management remuneration at a blue-chip company.
“The board is hearing loud and clear that our new scheme is not right,” Henry told shareholders. “We tried, but we got it wrong.”
The biggest retribution, however, came this week, when Commissioner Kenneth Hayne singled out the NAB for particular pointed criticism in his final report.
As ill-luck would have it, the final report was released at a time when NAB board members and senior management were huddled together in Manly, on Sydney’s northern beaches, for an offsite strategy meeting, which was scheduled to last a day and a half.
Directors were deeply disturbed as they turned to page 411 of the report, and read through Commissioner Hayne’s scathing criticism of Henry and NAB chief executive Andrew Thorburn.
“Overall, my fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains,” the Commissioner wrote.
The immediate response of Henry and Thorburn was to try to mount a furious defence of their behaviour.
In a press release issued on Tuesday morning, Thorburn announced his decision to cancel his plans to take long-service leave, and tried to refute Commissioner Hayne’s comment that he was not persuaded that NAB was willing to take responsibility for deciding the right thing to do, and then ensuring staff acted accordingly.
This “does not reflect who I am or how I am leading, nor the change that is occurring insider our bank,” Thorburn said.
Henry also rebutted the damning verdict contained the final report. “Commissioner Hayne said I seemed unwilling to accept criticism of how the board had dealt with some of the issues… I am disappointed that the Commissioner formed this view. I know that it is not so.”
But NAB’s independent directors were working through a range of emotions, trying to find a balance between their loyalty to Henry and their utter dismay at the final report’s comments.
It took them some time to absorb the ramifications of Hayne’s very pointed criticisms. By Wednesday and Thursday, as they gathered for the pre-arranged two-day board meeting held in NAB’s Sydney head office in George Street, their disquiet had become more pronounced.
They knew that the NAB’s behaviour had taken up a disproportionate amount of hearing time at the Hayne royal commission, and they were uneasy that this likely signalled that the commission’s staff thought there were deeper problems at the bank. They did not believe that Commissioner Hayne’s blistering comments singling NAB out from the other three major banks were simply a reaction to Henry’s singularly misjudged performance.
They were also unsettled by other recent setbacks: the failure of judgment that left NAB with a stinging 88 per cent vote against its remuneration report, and the police investigation into allegations that Thorburn’s former chief of staff and a corporate event contractor were involved in running a sizeable fraud against the bank.
Bank directors realised that they could not rely on NAB staff to provide them with an objective assessment of just how serious a predicament the bank was in. The executive’s loyalty would inevitably be to the existing management.
As a result, independent NAB directors decided to call on a couple of corporate elders to provide them with an independent, more dispassionate view of what steps they needed to take so that the bank could begin the long process of rebuilding trust with both the customers and the community.
Meanwhile, other bankers watched with a mixture of horror and fascination as the week passed. They knew that the NAB’s internal spin doctors would be advising Henry and Thorburn that they should try to hold on until the storm passed.
But high-level corporate observers were convinced that either Thorburn or Henry would ultimately have to be sacrificed. A macabre guessing game developed as to whose head would roll. “When you destroy so much shareholder value … one of them has to take accountability,” shrugged one highly regarded chairman.
On Thursday night, it became clear how the game would play out: both men would leave the bank, with Thorburn going at the end of the month, while Henry would stay on until a new chief executive had been appointed. In the end it was Henry’s decision to go and one he made on his own; it’s understood he faced no pressure from the board to resign. An NAB director, Phil Chronican, would serve as interim chief executive while the NAB conducted a global search for a new chief executive.
The choice of Chronican was widely applauded. “He’s definitely one of the best bankers around,” noted one leading chairman. “He’s got the capacity to be an interim chief executive and keep things moving along. He’ll be more than a caretaker in my view. They’re very lucky they’ve got the bench strength to do something like that.”
But the country’s corporate leaders were astounded that Henry was staying on the board and would be overseeing the appointment of the next NAB chief executive, and the process of board renewal. (The board not only needs to fill the gap left by Henry’s departure, but also to replace Anthony Yuen, a director since 2010 who is stepping down this year.)
“I certainly think it’s wrong he’s leading the transition. He is the person, more than anyone else, who has demonstrated flawed judgment,” one of the country’s most highly regarded bankers told AFR Weekend.
“Also, the chemistry and rapport between the chief executive and the chairman is fundamental to any company’s success. For the selection of the chief executive to be led by someone whose departure is imminent is an absurd approach.”
A leading chairman agreed, pointing out that potential recruits to the NAB board are likely to hold back until they see who is appointed as the bank’s next chairman and chief executive.
“They’ll wait and see who they appoint and then make up their minds,” he said, adding that if Chronican is selected as the next chairman, there’ll be “no hesitation”.
Chronican, however, defended the decision whereby Henry would stay on as chairman for a period of time.
“It’s just the way that things have moved”, he told AFR Weekend. “I think the right sequence is to identify more directors, make an assessment whether any existing board members or new directors are the right person to be chair, and work through that process.”
And he dismissed criticism that Henry would be spearheading the search for a new NAB boss.
“We’ll have a nomination committee process in place to conduct the search for the new chief executive. And as chairman, Ken Henry will oversee the process and make sure it happens in an orderly fashion”, he said.
But while Henry may be trying to ensure an orderly succession at NAB, he’s also managed to ruffle the feathers of his fellow bankers, who are riled that Henry appears to be spreading the blame for the NAB’s shortcomings across the entire industry.
On Thursday night, Henry told journalists that the decision that he and Thorburn had taken to resign reflected “NAB’s failure to meet customer and community expectations for which we are deeply sorry”.
When he was asked whether he thought it appropriate for other banks to follow NAB’s lead, given that the failure to meet customer and community expectations was rampant across the industry, Henry replied that he was proud that Thorburn had “demonstrated what senior executive accountability means”.
But other banks see little need to follow in NAB’s footsteps. “It’s an act of corporate sati,” noted one top banker. “Henry wants to drag everybody into the funeral pyre with him.”
Meanwhile, Thorburn appears to have reconciled himself to leaving the bank he’s been with since 2005 with relative ease. After the spectacular announcement on Thursday night, that he would be leaving the bank within weeks, Thorburn went back to his home in Melbourne’s Middle Park, where he was joined by some close friends.
“He said he’d opened a bottle or two of wine last night,” an NAB executive said on Friday morning.
And, of course, Henry himself – a former head of Treasury who was lauded for guiding Australia through the financial crisis – has been given a scorching lesson in humility. “I really wish I had performed better, I really do,” he told journalists. “I’m quite upset about this.”
All the same, Henry has the solace of reflecting that if he tires of the corporate world, he can always retreat to his large property in northern NSW, and live off his generous public sector pension.