Ken Henry is the chairman of NAB.

He was Treasury Secretary under Wayne Swan. Henry credits himself as saving Australia from the GFC.

He taught Swan everything Swan knows about economics. Can you see the problem already?

He likes big-noting himself. He’s a very important person, is Dr Henry. Just ask him!

But like many a great man, he suffers from hubris. The gods don’t like hubris.

Henry’s hubris hits home horribly

Henry should have been more humble – even tried to fake it – when he appeared before the Hayne Royal Commission in November 2018 (the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, if you insist on proper titles).

To say his performance was tone deaf fails to appreciate just how bad it was. Imagine Britney on Percocet. That’s how bad it was.

Here’s a highlight which must have scared the bejesus out of NAB shareholders.

Watch the whole thing. Seriously, it is remarkable.

Here’s another example. Asked by Counsel Assisting Rowena Orr QC whether he’d previously seen the very first document she showed him on Tuesday, Henry said he couldn’t remember.

“It doesn’t matter really, does it?” he said, before looking up at Orr and hastily adding: “Maybe it does.”

Winner, winner. A bit of advice from the poor seats: that’s not how you make friends at a royal commission.

The AFR reported at the time:

Henry worked to portray himself as a deep thinker, looking not just at the reasons that NAB did the things it did, but the philosophical questions at play behind them.

But in doing so he muddied the waters around NAB’s attitudes towards key issues of governance and customer care.

For example, a question around how the board wanted remuneration incentives to align with shareholder outcomes led to a discussion of the “state of capitalism”.

“The capitalist model is that businesses have no responsibility other than to maximise profits for shareholders,” Henry opined. “A lot of people who have participated in this debate over the past 12 months have said that’s all that you should hold boards accountable for, is that they are focused on the maximisation of profits for shareholders.”

He went on to say that views on this differ. “It’s open, obviously, to the commission to enter into this rather important debate. It could play a valuable role by doing so. But anyway, for what it’s worth, NAB’s view clearly today is that incentives should be aligned with customer experience.”

Henry wants to save capitalism

Henry’s arrogance stinks of Rudd’s arrogance when, during the GFC, Rudd thought he was going to save capitalism from itself. Remember this:

Rudd’s magnus opus in The Monthly (unreadable).

The problem is a muisunderstood theory around th enotion that businesses must solely seek to maximise shareholder value.

Rudd, Henry and 1000 other undergraduates have all sought to save or hang capitalism, based largely on this theory that came from a NYT Magazine article entitled The Social Responsibility of Business is to Increase its Profits. It was published in 1970 and written by Milton Friedman.

A lot of people criticise the theory. Before you do, read the article. [We can wait …]

The basic theory is that businesses should concentrate on shareholder value(that would have saved a lot of time, wouldn’t it).

The theory has since been blamed for every ill committed by businesses.

The problem is that Friedman’s theory has been bastardised because short-term wealth creation may be a different policy from long-term wealth creation. The banks only concentrated on short-term wealth creation.

Friedman wrote the theory at a time when capitalists wanted long-term wealth creation because it was their money. Capitalists actually existed.

We are no longer in the age of capitalists. We are in the age of managers. Managers like Henry.

He and his senior executives live and die on shorter timeframes because they won’t be in the job for 1000 years like Murdoch is at News, or Packer was at Nine, or … you get the idea. We no longer have capitalists and owners, we have managers who want maximum pay before they can move on.

Blaming Friedman’s thoery is to misunderstand the context and times in which it was written. And Friedman did not say companies should flaunt the law – doing so destroys shareholder value because it brings the heavy hand of regulation. Which we are about to see.

That’s an interesting side note … but back to the main game … the excoriation of Henry.

Henry gets done

It was delightful to see Henry torn apart by Hayne’s final report.

The highlight is on pages 408-09, where NAB’s inability – or unwillingness – to work with ASIC was highlighted in relation to its wealth business.

Westpac was praised for trying to improve its relationship with the regulator. On the hand, NAB:

stands apart from the other three major banks.

Having heard from both the CEO, Mr Thorburn, and the Chair, Dr Henry, I am not as confident as I would wish to be that the lessons of the past have been learned.

More particularly, I was not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly. [OUCH!]

I thought it telling that Dr Henry seemed unwilling to accept any criticism of how the board had dealt with some issues.

I thought it telling that Mr Thorburn treated all issues of fees for no service as nothing more than carelessness combined with system deficiencies when the total amount to be repaid by NAB and NULIS on this account is likely to be more than $100 million.[1]

I thought it telling that in the very week that NAB’s CEO and Chair were to give evidence before the Commission, one of its staff should be emailing bankers urging them to sell at least five mortgages each before Christmas. 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. [Breaks added for readability.]

It is childish to enjoy seeing comeuppance get got, but it is cheaper than Netflix.

[1]    See ASIC, Media Release 18-229MR, 7 August 2018.