The chief executive who master-minded ANZ's record near $2 billion profits has gone. His reputation shattered over the use of so-called "chauffeured cars", David Hisco formally left the bank on Monday, with just one year's pay and forfeiting $6.4 million in shares. ANZ New Zealand chair Sir John Key talks to Fran O'Sullivan over what led to David Hisco's departure.
It was the late-night phone call from ANZ Banking Group boss Shayne Elliott that alerted Sir John Key a major problem was brewing.
Key remembers it clearly.
"He rang me quite late one night about three months ago. He said 'I am ringing you in your capacity as chairman of New Zealand' – that is the company policy for the way we would deal with an issue like that - I will also be ringing the chairman of the group'.
"And he then said, 'Look we have some suspicions that there could be a problem but they are very early days and I don't want to alarm you, but there's been lots of examples in the past where there's been a been a really genuine and reasonable answer and there hasn't been an issue'."
In the frame was David Hisco, an old-school banker to his bones, and with a stellar record as probably ANZ Group's most effective executive.
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In his nine years as CEO he had built ANZ into New Zealand's biggest bank and its most profitable company. It was a large part of group business. Its chair – the former Prime Minister - sat on the Australian board like his predecessors. It is the Australia New Zealand bank, after all, as Key is keen to point out.
As typical of bankers of his vintage, Hisco had sported a gold-plated ex-pat package worth close to half a million dollars which was signed up when he left Australia for New Zealand nine years ago. He was personable with staff, had promoted women to senior positions, including Antonia Watson who is now acting CEO, and played a mean guitar, even tweeting on his now disbanded ANZ Twitter account that AC/DC's Malcolm Young had sadly passed away. "Who will write guitar riffs for the younger generation to copy now?"
But he had a blind spot.
On the other side of the Tasman, Elliott had pledged cultural change and a new regime of full accountability in the wake of Australia's brutalising Royal Commission into Banking.
The Melbourne-based group CEO had weathered claims that the bank had tolerated a culture of sex, drugs and alcohol, faced a interest rate rigging scandal and fines against the bank for manipulating the bank bill swap rate.
The commission carpeted Elliott personally over ANZ's remuneration regime. It was obvious any further scandal would damage efforts to bring cultural change and bring the regulators wrath back down on ANZ.
Key sat down for the Herald interview at his chairman's office at ANZ on Wednesday afternoon before plans to fly to London for advisory board meetings.
He was confident the ANZ's review had uncovered the major issues relating to Hisco and that the bank could set about hiring a new CEO - ideally not an executive "air-dropping" in from Australia on their way on the ladder to a CEO role back home.
But new disclosures over property deals involving Hisco's wife Deborah Walsh and the bank means there will be more questions for Key to face when he gets back.
Before he left, Key revealed that earlier this year, Elliott changed how the expenses of his top executives were reviewed to a system of open transparency.
"You can see absolutely what David's spent, what Shayne spends. And there were no issues with that."
The review uncovered concerns that some of Hisco's use of what ANZ claims were "chauffeured cars" – in reality Corporate cabs - was "clearly of a personal nature" and had been mischaracterised as "business" after it was directly charged back to the company.
"There was a complete lack of transparency," Key said. "So, it was very difficult really to pick up."
Asked why he didn't call the regulators straight away, Key said he was aware of criticism but it was just not practical to alert the Reserve Bank on suspicion.
"We wouldn't do that on day one."
ANZ's Group Integrity arm began a forensic investigation.
"You have to get the information as best you can; you have to make sure it isn't tampered with.
There's a very thorough process of dealing with it. It's not simple. There are different vendors. There are different people. There are different locations. There's a lot of other supporting documentation you might want to review – it takes quite a while.
"At that point where we established that 'look there are some questions that need to be answered', we had a discussion with David. "
There was a further complication.
Australia had introduced the Banking Executive Accountability Regime (BEAR), which was designed to make banking executives more accountable.
"David was also in an unusual position because he was a BEAR executive – so he was caught under their legislation," Key said.
For Key, there was another angle, as he had been a strong proponent of BEAR New Zealand "much to the criticism of some of the other bank chairs. "
"I do think banks enjoy a special place in society and actually our executives have to be held to a high degree of accountability and that's been true with myself. I've been a willingly signatory to such."
Key reveals he finally called Reserve Bank Governor Adrian Orr a few weeks before this Monday's press conference where Hisco's departure was announced.
"I said to Adrian, 'look I'm very uncertain I don't have a lot of facts but there could be an issue and if the issue is such and I need to call you I hope that it's okay'."
A review by the Reserve Bank and Financial Markets Authority had not found any systemic problems in the New Zealand banking system. But it did point to the need for greater transparency.
"That was something we were obviously very conscious of when we took the steps we took."
Group Integrity investigators spoke with Elliott's predecessor Mike Smith and former ANZ New Zealand chair John Judge. Hisco had argued that while the disputed use of Corporate Cabs was personal it was covered by oral undertakings that they were part of his employment arrangements.
Key says in Judge's view it was quite plausible – as Hisco had argued – "that there was an agreement between Mike Smith and David on this matter."
"It's a delicate employment matter with someone that's been with the bank for a very long time. He's done a lot of things right by us. And cultures changed from one chief executive to another. From Mike Smith to Shayne Elliott. I think in my mind at least it's eminently plausible that David had authority and I've always accepted that."
Once the facts were established, Key confronted Hisco personally.
"He was very calm about it," Key said. "He knew Shayne was looking at expenses.
"He was absolutely adamant he had authority. He was extremely transparent with me and clear with me about both his belief that he was entitled to do it and an acceptance that he hadn't been transparent enough.
And he himself said, "Look it falls below the standard I would set.' And he was of the view that it was of such a nature it was likely that we would part ways.
"So it was very mutual. He owned the responsibility for what he did.
"So in the end he's paid a pretty heavy price for that in that regard."
Key says there was profound disappointment at New Zealand board level.
"David is really well liked. And actually very good at what he does. I think I described it in the media in that he had a blind spot for this.'
"I don't know how many calls the New Zealand board had on it – but someone was trying to suggest last night in excess of 20.
"I've spent an enormous amount of time on this issue in the last while.'
The board did not ask Hisco to repay the disputed cab charges.
"At the heart of if it, was "Did he have authority to use some vehicles of a personal nature? The answer is most probably yes. Were they characterised in the correct and accurate way? No."
Asked if was Hisco's family – not just himself - who were charging back cabs to the company account, Key said "Well I don't want to go into all of the details of that all I can tell you is they were of a personal nature."
"But in the end he is responsible for and he accepts his responsibility for the fact that the way that the recognition of these expenses in our books fell below the standard."
Key disputes claims the board was too soft on Hisco and should have pursued him personally rather than pay out his statutory entitlements. "I saw somebody argue on TV that he shouldn't got those.
'Well, we are a law-abiding company, we pay our legal requirements. And that's what our company policy is. But clearly he's left the better part of $6.4m performance rights on the table."
Litigation was not an option.
"It goes back to the heart of the issue and his belief that he has authority and our acceptance of that. Legally it wouldn't be clear-cut."
Nor is Key expecting Hisco to mount employment litigation against the bank.
"In the end it is a matter for him, but I don't think so."
Key admits the bank also has to take responsibility because it's taken a long time to get to the bottom of the matter.
"As you would expect us to do we're in the process of asking ourselves the hard questions. How was this allowed to carry on for the period of time that it did? Again, it's just worth people having some perspective. It wasn't that everyone was asleep at the wheel and not minding the credit card bills. It wasn't as straight forward as that. And I strongly suggest in a lot of companies it wouldn't be that different. Charge backs are just part of the scene."
There was another complication.
Hisco was under severe personal stress.
Apart from the expenses issue - which also included storage fees for his wine collection back in Australia - he had been dealing with other matters like the review of ANZ's risk capital model which uncovered problmes and resulted in the bank and its directors censured by the Reserve Bank.
Key confirms Hisco knew the board would make a public statement on his departure.
"I can't go into his health issues – because I can't do that. But it is genuine that he has been having some health issues and it is totally genuine that this would add to that.
"And as we were going through further parts of the process you would expect us as a good employer to take on board that.
"And in our desire to get to a conclusion and reach answers we would never put at risk the health of our employees."
Hisco took sick leave on May 29. Watson, who stepped into his shoes and was the bank's managing director for retail and business banking, told staff: "His doctor says the prognosis is good, so long as he slows down and takes some time off to recover. David has told me he's keen to get back to work as soon as possible but realises how important his health is. We obviously all wish David a speedy recovery."
That same day, ANZ brought the Reserve Bank formally into the picture.
Key says the board was utterly adamant it wasn't going to do something that damaged David's health in the interests of speeding up the process.
"We had to make sure he was in a fit and proper condition to be able to answer. Otherwise, it is a very serious matter.
"I certainly want to be the chairman of a bank that can stand up for the way we treat people and part of this whole issue is I tried to say we're going to treat people right across the organisation in the same way.
"And even if they don't like the outcome, they can at least believe in the consistency. One of our other core values is that we treat people with integrity and respect and that means that if you have to take a bit more time to make sure their health is in order then you do that."
Key counters sentiment in parts of the business community that it may have been more sensible to simply issue a very short truncated statement and pay Hisco out on ill health grounds.
"That's a plausible line of thought from people. But here's the counter argument that if I said that and then one day someone said that well actually that wasn't the case. As you know in politics it's always how you handle things not the initial issues. Then those very people would be screaming at maximum decibels that I wasn't transparent and upfront."
Such an approach would not have matched the assurances that ANZ had given the Reserve Bank and the organisation's code of conduct which had been established by a board sub committee chaired by Joan Withers.
"We're doing a lot of work in that area – we've gone away and looked at the Royal Commission in Australia and asked ourselves the question about whether potentially any of those issues in NZ and road tested them.
"But one of the big things that came through the Royal Commission is that there wasn't transparency and so wouldn't we have failed at the first hurdle? If you go through all the things we've done in terms of transparency with the regulator, with our customers and the staff with the market in general. There's an argument you could write a case that says, well this is a whole new level that probably the market hasn't seen before and in fact Australian media that was the line that they took."
For Key, this has not been an easy matter. He joined the ANZ board in late 2017 and could have expected an easier trot.
"We're in a really difficult position and we're trying to deal with things in the best way we can. As difficult as it is, I personally think that on balance we've done the best that we can. But these are difficult and finely balanced decisions for the board to make and he's paid a pretty heavy price for that.
"But, equally, we also have to recognise what he did for the firm and us. He's a very good banker and he's done a very good job."
"I am paid to get the big calls right. And this is a big call.
"And I reckon our board got it right. It's painful but I reckon it's right."
