Those chosen for Harvard’s fast track to executive empowerment lived in near-identikit apartments. Bedrooms at Baker Hall, the Business School’s hulking campus by the Charles River, were little more than the size of ship cabins, intended to force the resident ‘living group’ into a more generous communal space that doubled as an intellectual salon, where prospective captains of industry could augment their studies through the robust exchange of ideas. That was the theory, at any rate.
Morgan tended to find that he absorbed the more lasting lessons from such seasoned, hard-boiled US business leaders as Gene McGrath, who defied a bruising upbringing in public housing to become the long-serving chief executive of Consolidated Edison, an energy company of such clout that it long held a virtual monopoly over gas and electrical supply in New York. ‘An unflashy character, he would tell me, “Business is actually quite simple,”’ Morgan reflects. ‘“Take the right decision for the long term, not the short term. Do the right thing, not the political thing.”’1
This was not the modesty of message Morgan had anticipated, having crossed the Pacific to join the Advanced Management Program (AMP). A purist on all forms of higher education, he expected to approach the private sector with the same sophistication of analysis that was his stock in trade as an economist. Instead, he encountered Harvard’s beloved case-study method, one he was conditioned to regard as ad hoc, arbitrary and lacking in rigour. Where were the frameworks, the neat conceptual rubrics?
A Sunday evening conversation with one of his professors, after many hours’ toil at the Baker Library, disabused him of this presumption. ‘David,’ said Theodore Levitt, a man acclaimed as the global guru of modern marketing – despite reputedly never having read a book on the subject before he started teaching – ‘there are no analytical foundations of business.’
The purpose of this bespoke Harvard training has long been to lay out a path to leadership. Since its inception in 1945, the AMP has enticed ambitious executive climbers on the cusp of assuming heavier responsibilities. But in Morgan’s class of 1989 it was also a form of consolation prize, a halfway house for those aspiring to greater glories.
This was partly true of his own circumstances: it had been tacitly agreed within Treasury that Chris Higgins would succeed Bernie Fraser, off to take the reins at the Reserve Bank, as secretary, which left Morgan confronting a stick-or-twist decision on his professional future. He had received many expressions of private-sector interest and Harvard’s promise to demystify this parallel universe would give him both the time and insight needed to judge the merits of a move.
‘It was part of a deal, saying, “David, what do you want to do?”’ he explains. ‘I was forty-one. I recognised that if I was going to make the leap, I had to do it soon. Plus, I had felt distinctly uneasy, ever since my earliest days at Treasury in 1972, that I knew very little about how the private sector operated. We made all this tax policy assuming – rather than understanding – how the private sector would respond. This was not just a shortcoming of Treasury, but of most of the discipline of economics at the time.’
For all that the Harvard route multiplied Morgan’s options, it was not initially received with raptures at home, with Kelly facing three months with two small children to care for and a complex ministerial portfolio to master. A dinner party in Red Hill with their close friends Jill and Peter Wilenski, who had just been appointed Australia’s ambassador to the United Nations, brought matters to a head. Kelly, listening to the three others chat animatedly about their American adventures to come, rose slowly to her feet and, in a scene never witnessed in their marriage before or since, threw the fish supper at her husband. ‘I was exhausted,’ she says. ‘I didn’t believe that there had been any concession to me, either to have babies or to have time off. I felt left out. So, one night, at our tiny square dinner table, I thought, I’ve had enough of this. Everybody was shocked. They had never seen me lose my cool.’2
Over time, such resistance was tempered. Morgan’s immersion at Harvard was, in his words, ‘life changing’, fundamentally reshaping the prism through which he viewed the perfect business leader. Such a person, he had assumed, was invariably the smartest in the room, to the point where he began the AMP still anxious that he had not studied for a Master of Business Administration. But through living in the pockets of 159 fellow CEOs-in-waiting, he found these misgivings were assuaged.
‘In the dying days of the course, I looked around to see who I thought might make CEO and who wouldn’t – and I surprised myself,’ he says. ‘They weren’t necessarily the brightest guys. They tended to be those who were good with people, decent human beings with ambition and a track record of execution. It broadened my model of leadership.’3 While most had enrolled coveting the top job, overtly or otherwise, there was no finishing school for crafting the optimum candidate.
Morgan returned to Canberra with a growing conviction that his public-service career had run its course. Higgins’ appointment as secretary was rubber-stamped in September 1989, and there was a nagging suspicion that Kelly’s likely next move to a Cabinet role would be incompatible with his own as the second most powerful figure at Treasury.
‘We both knew we had pushed the envelope as far as we could,’ Kelly explains. ‘It wasn’t the money. We didn’t have goals to have a waterfront home in Sydney. But David has always had a hankering to explore, even if the problem with any shift to the private sector was that we would no longer be able to live in the same city.’4
Two distinct offers had materialised: the first to join a Melbourne brokerage, the second to enter the wealth management division at Westpac, then Australia’s second largest bank by market capitalisation.5 Initially, Morgan leant towards the Melbourne option, before receiving some inimitably blunt advice from his friend and confidant Paul Keating – ‘I told David that I believed he was an institutional person, that he would be much better off at Westpac than he would as an elevated broker.’6
Morgan headed off with Kelly on a parliamentary delegation to Geneva, for a telecommunications conference, where the crisp Swiss air brought clarity to a vexed decision. One morning, he broke it to Kelly, fresh off an early-morning lakeside walk, that his mind was set on Westpac.
The kudos was undeniable. Westpac revelled in a reputation as the oldest company in Australia, a constant of national life since 1817, when Joseph Hyde Potts, a porter and servant, walked into the solitary branch of the Bank of New South Wales as its first employee, agreeing to be paid £25 a year so long as he slept on the premises. Its proudest moments were stitched like red threads into the canvas of history: it was Lachlan Macquarie, last autocratic governor of New South Wales, who saw in this institution a chance for a private economy to flourish in an era when Australia itself was virtually a state-owned enterprise, and it was Alfred Davidson, the bank’s general manager in the thirties, who forced – contrary to the prevailing mood – a devaluation of the Australian pound to mitigate the ravages of the Great Depression.
And yet in the eighties, buoyed by a flood tide of liquidity and enamoured of the notion of being the country’s global bank, its leaders overreached themselves. Westpac, as it became known after a 1982 merger with the Commercial Bank of Australia, succumbed, in its restless burst of poorly thought through asset building, to what Morgan would later call the ‘cancer of hubris’.
Desperate to expand beyond its Australasian base, Westpac threw vast bounties at such heedless buccaneers as George Herscu, who created US shopping malls of an extravagance to match his personal taste. Where the bank liked to imagine that it was taking the best of Australia to the world, Herscu, an enduring emblem of eighties greed, was opening his latest outlet in Cincinnati as the band played ‘Tie Me Kangaroo Down, Sport’.7
If this backdrop of misguided and excessive lending threatened to complicate Morgan’s move to Westpac, so too did the cosiness of the corporate culture he would encounter. He recalled a conversation some years earlier with Sir Bede Callaghan, former head of Commonwealth Banking Corporation, who had described how banks’ usual criteria for hiring in the sixties would extend little further than looks, personality and sporting prowess.8 The upshot was a monochromatic profile to the workforce: reactionary, often right-wing, overwhelmingly male, where a fresh recruit from secondary school could all but expect a job for life, on a prescribed path from teller through to retail manager, and where the premium lay on attracting the ‘bonzer bloke’ rather than the brightest mind.
‘These were oligopolies, primarily run by the staff, for the staff,’ Morgan says. ‘Historically they set rules in rural areas that you could never poach another bank’s customer. They would devote huge amounts of time refining the details of their pension schemes, working out what car they could have, even what parking space. When we deregulated the financial system, there was some real decision-making power at last placed back in the hands of the banks, but parts of the old guard remained.’9
Morgan received some frank advice from James Wolfensohn, later a ‘force of nature’ as president of the World Bank but then running a boutique investment bank in New York, about his Westpac plan.10 ‘They will find you very threatening there,’ Wolfensohn told him. ‘Ignore the politics. Just put your head down and do a really good job.’11
It was sage counsel, but easier to give than to act upon. The very act of appointing Morgan was mired in strife within Westpac, as managing director Stuart Fowler expressed doubts about embracing a senior bureaucrat known for his closeness to Keating and his marriage to Kelly, whose Labor politics were anathema to the bank’s ultra-conservative establishment.12
Impressions of the bank, from both outside and inside, were of a boys’ club. Just ask Helen Lynch, the first woman to assume real seniority at Westpac. ‘I was an outsider, no question,’ she recalls. ‘I found, when I left Queensland for the Sydney headquarters on a huge promotion, that I couldn’t take all the cliques on. I made some significant statements: I told them, for example, that I could not be on a selection panel unless it had other women involved. But I let other things go, lest people muttered of me, “Oh, she’s that aggressive feminist from Brisbane.” I had to learn how to play the game, to stand up for myself only when it was a matter of integrity and principle. David felt this insidious discrimination, too. External people were not welcome, but tolerated.’13
The homogeneity of the place was extraordinary: of Westpac’s seven-strong executive committee in 1989, only one member, Peter Wilson, had been to university.14 Sir Robert Norman, whose own career at the bank spanned fifty-six years, including thirteen as its leader, stuck fast to a view that the institution alone could provide all the education an aspiring general manager required.15 To him, the idea of a public servant with three academic degrees – let alone one with the most intimate ties to Labor – gatecrashing the monolith that was Westpac seemed too much to bear. It took chairman Sir Eric Neal, who had built a reputation for toughness as head of construction giant Boral, to recognise that Morgan’s connections to government, coupled with his deep economic learning, could prove invaluable.
The wrench that Morgan felt at leaving Treasury was powerful. It had defined his career for almost two decades, ever since he first strode in for his cadetship, full of the audacity of youth, to request a one-on-one meeting with then secretary Sir Richard Randall, whom he all but instructed to read his honours thesis. Ted Evans, his friend and confidant throughout these years, and later secretary himself, had by 1989 left to become executive director of the IMF but faxed a tribute from Washington. ‘You will always be a Treasury man, just as you have always been a consummate performer on any stage,’ it read. Evans added, drily: ‘An old IMF colleague once complimented us at Treasury on progressing David’s “descent from the trees”. His untimely departure cuts short that process and we are obliged to leave to Westpac the difficult process of turning grass into lawn.’16
Morgan’s pangs about his departure from public service were writ large in the remarks he gave at his farewell dinner that December. His exit had, he acknowledged, given him sleepless nights. He said, ‘I’ve never left a marriage, but I imagine it must involve the same deep-seated agony. I realise the private sector is held in some contempt in this room, and by ex-Treasury people who have gone there to essentially presentational roles. This job, it is fair to say, represents a far greater challenge, and I leave with the intention of giving Westpac the same loyalty I have shown here. Thank you for the privilege.’17
As soon as Morgan was implanted into Westpac, he felt like an ‘artificial kidney that the host body was constantly trying to reject’. His detractors’ label for him, ‘Chifley’s Revenge’ – a nod to former Labor prime minister Ben Chifley, who had a referendum in the late forties to nationalise the Australian banking industry – whispered through the corridors. Even before his formal start date, he turned up at the 1989 Christmas party to be greeted by a well-watered Sir Robert, who slurred, with nary a hint of irony or sarcasm, that there was no room for ‘socialists’ like him at Westpac. A mortified chairman offered his apologies on the bank’s behalf.
Still, Morgan hardly did much to shake the charge of socialist sympathising when he enticed Garry Weaven, his old sparring partner at La Trobe, the son of a lorry driver and a union man to his bones, to follow him to the bank. An advantage of his Treasury training was a capacity for predicting how the financial system would evolve, and he was quick to call a key change in the composition of Australians’ household savings, where money was increasingly shifting from bank deposits to superannuation. Weaven, as a prime architect of the country’s superannuation revolution, could ensure that Westpac was best poised to exploit this trend, but his appointment was nothing if not provocative. ‘For an outsider to bring in somebody from a union background?’ says Andrew Cornell, then of The Australian Financial Review and a keen chronicler of Morgan’s transition into banking. ‘You can see why the clubby Westpac world would go off its nut about that.’18
Morgan was making the leap across the public–private fence with gale-force gusto. His first office, at Endeavour House on Pitt Street, was down the hill from Westpac’s headquarters in Martin Place, but he refused to be detached from the heart of the action, soon requesting that he be based at the main building. Unlike Jim Goldman, whose imminent retirement promised to propel him to the summit of the wealth section, Morgan attended Fowler’s 7.15 am coffee meetings with the executive committee.19
Aware that he was perceived as the rogue scholar, he formed a view of early nineties Westpac as arrogant, hubristic and obstinately anti-intellectual. He was taken aback by the haphazard nature of much of the bank’s bookkeeping. Some years later, he wrote a note, intended for limited circulation, on the lack of discipline and detail he found upon his arrival. ‘There were no files to speak of,’ Morgan observed. ‘Major decisions were taken on the basis of what I thought was quite flimsy analysis and documentation. Many were taken without any at all.’20 He advocated the use of management consultants to comb through the chaos, only to hear the common reply: ‘What do we need them for? They just take your watch and hand it back to you, telling you the time.’21
One evening, Kelly – who, after Labor’s March 1990 election win, held a sweeping government remit as minister for arts, sport, environment, tourism and territories – accompanied Morgan to a typically lavish boat party at The Spit, for her introduction to his fellow executives. ‘You can’t stay at Westpac,’ she told him as they left. ‘Those people are not good enough to get the bank out of its difficulties.’22
While Morgan agreed, privately, about the delusions of adequacy among certain colleagues, he did not see the same reason for abandoning course. He intuited that the storm looming over Westpac could provide opportunities to prove his worth that would be unthinkable in more placid waters.
Bad debts were accumulating month by month, to an extent that neither the bank’s prudential regulator nor external auditors had envisaged, and yet Westpac Financial Services Group (WFSG), the realm over which Morgan would soon preside, remained essentially untouched.
Its success as the only major division to meet its forecasts helped ensure, by October 1990, a seamless transition from Goldman to Morgan, who was also channelling his acting background to give exuberant speeches about WFSG’s feats and aspirations on the road. His profile rose, fuelling both restless personal aspiration and a resolve to make his section of the business an example to emulate. Experts from Boston Consulting Group were brought in to enhance its status as the fastest growing area of Westpac, as Morgan relentlessly emphasised his belief in the importance of integrity, commitment and esprit de corps in depoliticising the culture.
***
No best-laid plans, though, could account for the twisted capriciousness of fate. On the evening of 3 December 1990, Morgan received a telephone call that would hold any thought of Westpac in abeyance. It was Veronica Goldrick, a Canberra physician well known to Morgan and Kelly, ringing to say that Chris Higgins had died. It was a shock too grievous for those who knew him to absorb properly. He was just forty-seven years old. Passionate about his running – his personal best for a marathon was a remarkable two hours, forty-six minutes – Higgins had been advised by doctors aware of his heart condition not to overdo it, but after a 3000 metre race at the Australian Institute of Sport he collapsed and could not be revived. At the funeral, Morgan, a pallbearer, was inconsolable. The two had drunk together, dreamt together and had collaborated in shaping an electrifying economic period. ‘Wunder’, they had nicknamed Higgins at Treasury, for his lightning intelligence, after the German wunderkind.
‘I don’t want to paint Chris as too good to be true, because he wasn’t,’ Morgan says. ‘But there was nothing ostentatious about him. He was unshowy, unpolitical, a true meritocrat. Rather than having to be the guy who took all the credit, he just wanted the right outcome.’23
Keating, under whose command the two of them worked, was similarly shattered by the loss. He changed the wording of his normally boisterous speech to the National Press Club the next evening, telling journalists: ‘This game is all about whether you want to be a participant or a voyeur. Chris Higgins was a participant.’24
If ever Morgan needed another reason to heed Keating’s urgings, over several years of breakneck reform, to make each moment count, then here it was. The passing of Higgins, far too young, was a warning of life’s cruelties and of the pitilessness with which time ticked on. It came with a suddenness, too, to create an unexpected void within Treasury. Higgins had served as secretary for barely fifteen months, having given a grimly portentous promise: ‘David, I’m not going to be here forever. I’ll give you whatever you want.’ In the saddest of circumstances, the job for which Morgan had once busily auditioned was available. Keating, deploying a trademark blend of charm and cajoling, offered Morgan the role of secretary to the Treasury, knowing full well that he had committed to Westpac for the long term. ‘It’s like a former fiancée who comes back after you’ve married someone else,’ Morgan said, wryly.
All through the Australia Day weekend of 1991, Morgan wrestled with the conundrum, finally choosing to stay where he was. ‘You’ve made the right decision,’ Keating said, matter-of-factly.
‘You bastard,’ Morgan shot back, albeit good-naturedly. ‘You’ve been trying to talk me into the other option for four days.’
‘I know. But this way, you can be king of the big league, leading the private sector in Australia, as opposed to king of the little league here.’ Time has not tempered that verdict. ‘David had the intellectual equipment to be secretary to the Treasury,’ Keating argues. ‘But I think he took the right path.’25
Not that he appreciated it at first, given how strongly Westpac’s management viewed him as a threat. ‘The academic’, many called him, less than flatteringly. Frank Conroy, who rose to the level of chief operating officer – in effect, CEO-designate – in 1991, mooted an alliance with the Australian Mutual Provident Society (AMP), which would hold a 15 per cent stake in Westpac and thus help staunch the haemorrhaging of money. Morgan, however, interpreted this as a flimsy pretext for AMP to exit banking gracefully and for Westpac to give up on life insurance. At a board meeting in Melbourne, Conroy’s plan looked sure to sail through without objection, until Sir Eric Neal asked if there were any further comments. Morgan took his cue to make his displeasure plain.
‘While I said that I could support a genuine strategic alliance, I stressed that this was nothing of the kind,’ he reflects. A major problem for financial institutions around the world, he argued, was a ‘them and us’ tension between the wealth arm and the bank arm, which the sale of Westpac Life, then a crown jewel under his control, was only likely to exacerbate. ‘I portrayed it as it was, a ridiculous sell-out, and convinced the bulk of the board to reject it.’26
As he left in a hurry to fly to Europe, he sensed that he had won the day, even using a conference address in London to highlight the wisdom of Westpac’s decision to grow a life insurance company from within. But he was wrong: his absence was used to reconvene the board and overturn the earlier decision, while the chairman compounded Morgan’s indignity by saying that he was to play no part in implementing the AMP tie-up, as he so vehemently opposed it.
Even though Morgan later made Conroy see sense, explaining that he could hardly be expected to run the Westpac side of the joint venture without any say in negotiations, he grew frustrated by the perpetual politicking.
One antidote was the emergence of a key ally at board level, in the quiet, self-assured form of John Uhrig. The pair had met once before, in the Trans Australian Airlines lounge at Sydney, when Morgan was first contemplating a step away from Treasury. He knew Uhrig by reputation and admired him. Uhrig had chaired a committee of inquiry that recommended reducing tariff protection, despite the fact that he was a direct beneficiary of existing protection as chief executive of Adelaide’s Simpson Holdings, a white goods manufacturer. This laudable stance cut against the grain of attitudes in the business community. Westpac had dealt with Uhrig already, when he oversaw their purchase of a defence service home loans scheme from the government, and soon invited him to become a director. From the outset, he was supportive of Morgan, strongly backing him over his rejection of the AMP deal and identifying in him qualities that could take him far. But where Keating’s credo had always been to seize opportunity with a breathless intensity, Uhrig preached the virtue of patience. ‘I saw David, from day one, as a person with a wonderful career in front of him,’ he says. ‘I told him, though, that he had to be recognised for what he did well, rather than what he said well. He listened intently and behaved accordingly.’27
A chance for Morgan to demonstrate that he could match rhetoric with reform arose, unexpectedly, in New Zealand. Having been assigned by Conroy, in late 1991, to head up Westpac’s Asia-Pacific operations, he recognised that his best hope of making a blueprint for the bank’s future lay across the Tasman. New Zealand had slid into recession earlier than Australia, and arguably more deeply. As such, the cycles of crisis enveloping Westpac, from bad debts to merchant banking subsidiary problems, tended to be manifested in Auckland before they reached the Australian franchise.
From Morgan’s perspective, it was close to an ideal scenario: not only could he remove himself from the vipers’ nest of internal politics in Sydney, but he could effectively use New Zealand as his testing ground for change. ‘The problem with these banks is that they are big ocean liners, with lots of moving parts,’ he explains. ‘It can be hard to work out cause and effect. But in New Zealand, just one-sixth the size of Australia, you could pull the lever and see what happened. The country was smaller, nimbler, less political. It was a model that distilled the issues of a more complex world.’28
Although successes on the Kiwi front redounded to Morgan’s credit, they could not mask the bank’s wider malaise. Come May 1992, Westpac announced a $1.6 billion loss, then the largest ever recorded by an Australian corporation. All of the bank’s exotic sidelines – its experiments in trading gold bullion, buying commodity bond dealers’ licences, positioning itself as the seventh largest lender in the US even though it had no source of comparative advantage – had reduced it to a castle built on sand. Brian Johnson, a respected equity analyst in Australia since 1987, says: ‘Westpac had essentially lost 120 years of shareholder funds in one quarter, because they were just too big in everything they did.’29 The consequences of a contracting property market were calamitous, with half of Westpac’s problem loans earning no money. In October 1992, Sir Eric Neal and four other directors resigned en masse as Uhrig took over as chairman. Uhrig also demanded the resignations of all remaining non-executive directors, but was rebuffed.
‘It really was dramatically difficult,’ Uhrig says. ‘There was a strong feeling in the community that we could not survive as an independent organisation.’30 The delusions of grandeur that had fuelled an expansionist rush now threatened to sink Westpac altogether. Facing a yawning hole in the balance sheet created by $2.2 billion worth of commercial property write-downs, the bank opted for a deeply discounted, three-for-ten rights issue at three dollars a share, but it failed. Credit Suisse First Boston, which had underwritten the issue, was left holding $883 million in unsold shares, having not managed to dispose of any during a one-day tender offer. Westpac, a victim of its own cupidity, teetered on the precipice.
Worse, the barbarians were at the gate. Billionaire media mogul Kerry Packer, in tandem with his fearsome American lieutenant, Al ‘Chainsaw’ Dunlap, chose his moment to pounce, acquiring a 10 per cent stake for $500 million to make him the second-largest shareholder. Immediately, Packer, fresh from a polo trip to Argentina – not to mention cash-rich from asset sales that had turned his company, Consolidated Press, into a $2 billion investment house – cut a swathe through the Westpac hierarchy. At the first board meeting that he and Dunlap attended, on 17 December, the knives were out. Within hours, Conroy, who had dutifully wished Packer a happy fifty-fifth birthday, was summoned by Uhrig to the twenty-eighth-floor boardroom at Martin Place and told to resign.31 It was a dramatic defenestration, but Packer had made his mind up in a flash.
‘He had come to a view at a pre-Christmas party, when he saw Conroy glad-handing and back-slapping all these complete third-raters who were part of his history at the bank,’ Morgan says. ‘Packer, who wasn’t particularly educated but who had acute business acumen, said, “This guy hasn’t got the balls to get rid of these people, and he’s not good enough to attract new talent.”’32
It was merely a precursor to the mayhem that followed. The bull-headed Dunlap, whom British financier Sir James Goldsmith had once dubbed ‘Rambo in pinstripes’, decided that he wanted Uhrig gone, too. It was part of his bloodthirsty New Jersey style that if a company could not be turned around within twelve months, then it was not worth bothering. While this reflected a crass indifference to local sensitivities, Packer himself, a titan of Australian business if a neophyte in banking, was not showing much sureness of touch either. On a visit to Westpac’s Avalon Beach branch in Sydney’s northern suburbs, he thumbed through the brochures on the shelves and called Morgan, enraged. ‘These are bloody hopeless,’ he said. ‘They need to be rewritten.’ Rob McLean, a McKinsey consultant whom Morgan had enlisted in New Zealand, recalls the episode with amusement: ‘It was a tumultuous time, with so much uncertainty, and Packer somehow thought that David’s forte was going to be rewriting term deposit brochures.’33
The interlude was as bizarre as it was abbreviated. No sooner had the Packer–Dunlap duo set about a slash-and-burn exercise at Westpac than they walked away in a fit of pique. On 14 January, their first meeting as directors was marked by an ultimatum to replace Uhrig with former Reserve Bank governor Bob Johnston. The night before, Packer had circulated a note to the board to this effect, and he appeared confident he had the numbers to roll Uhrig. But Uhrig, in typically forthright style, responded by calling for a vote of confidence that soon changed the mood. First to speak was Peter Ritchie, former CEO of McDonald’s Australia, who said, gravely: ‘This is not the right way to go, Kerry.’ Next came Peter Baillieu, who, in spite of his marriage to Edwina Hordern, Packer’s cousin, also expressed disapproval. It quickly dawned upon the two raiders at the table that they had overplayed their hand. ‘Al, we’re out of here,’ Packer told Dunlap, as both stalked out of the room, continuing a furious row as they rode down in the lift.34 Such was the wild hurry in which they left, they forget that they had left some of their board papers behind. Among them was a purely vindictive ‘dirt file’ that Packer had prepared on Uhrig. The only person ever to read this file was Reg Barrett, Westpac’s legal counsel and later Supreme Court judge in New South Wales, who assured Uhrig he had no undue cause for concern.
Morgan had been scheduled to have dinner with Packer that evening, at the tycoon’s Bellevue Hill home. Ever since he had attended a lunch at Packer’s Park Street headquarters, in his role as head of Asia-Pacific, he had become a primary point of contact, and he sensed that he was being assessed for higher responsibilities. At 5 pm, he was sitting in his office wondering anxiously if the arrangement still stood, when Packer rang. ‘Mate, why don’t we postpone dinner for a while,’ he said. ‘It might not be good for your career to go ahead with it.’ The message was cordial, but Morgan had seen enough over a giddying few weeks to conclude that Westpac had been reprieved by Packer’s retreat. A lunch with Dunlap, a man since found guilty of massive accounting fraud and barred from serving as an officer of any publicly traded corporation, had flagged the dangers all too clearly. ‘He was infected by self-obsession, probably the vainest person I’ve ever met,’ Morgan wrote subsequently. ‘I could not countenance letting Australia’s first company fall into the hands of this vile and untalented individual.’35
As the dominoes fell, Morgan’s stock rose. Shortly before Conroy’s exit, he had been assigned control of retail, small business and commercial banking, not to mention wealth management, technology and operations: a brief effectively encompassing two-thirds of Westpac. The promotion – conveyed via a brief telephone call, in which Morgan was told to cancel a trip to Fiji – was a response to the imprint he had left in New Zealand, although he has since interpreted the move perhaps as less an act of munificence on Conroy’s part than that of a CEO under extreme pressure to enact the board’s wishes.36
Either way, the trade press lapped up the tale of his warp-speed rise. In a generous profile, which included an interview with Morgan, The Australian Financial Review noted that his rate of progress had, in a little under three years, been ‘nothing short of breathtaking’.37 The coverage raised eyebrows at Westpac: indeed, shortly after the interview, Conroy had called his office to say, ‘David, this is not going to help you.’38 But such was the tempest engulfing Westpac, with Uhrig under pressure to find a leader who would repair the community’s shattered confidence, a tilt at the vacant chief executive’s post did not seem out of the question.
Uhrig, however, had other ideas. For all Morgan’s vaulting ambition, the chairman knew that a beleaguered Westpac needed a name that would impress capital and equity markets. To that end, he sanctioned a search that spanned the entire English-speaking world. Cutting short a fishing holiday on Kangaroo Island, he flew to Los Angeles to interview the man who would quickly emerge as the outstanding candidate to haul Westpac out of the mire.
Bob Joss, having launched his career as a White House fellow at the US Treasury, had grown renowned for his subtle analytical skills during twenty-two years at Wells Fargo, as well as for an unpretentious leadership style borne of a spell as a bank teller while he put himself through university. At Uhrig’s invitation, Joss spent several days at the Park Hyatt in Sydney, with unfettered access to Westpac accounts, but he stressed that he wanted some time back home in California before deciding whether to commit. A worried Uhrig was left, at the annual general meeting, to confront the wrath of 5000 furious shareholders without any succession plan in place.39
When Joss finally agreed, thirty days after the first contact was made, to take the reins as CEO, Morgan absorbed the news with some ruefulness. ‘David was very disappointed when the board chose Joss,’ says Paul Keating, whose counsel he often sought at such moments. ‘I sense he thought they might have chosen him then. He used to get worked up about these issues, but I reminded him that agitation would only end up being in inverse proportion to his progress. If you are less agitated, you will go faster – and more smoothly.’40
By the same token, Uhrig used all his straight-dealing to encourage Morgan towards a sanguine view. ‘Most pages of the Financial Review were printed on the back of Westpac’s shortcomings,’ he says. ‘What we were about to deal with had to be something that the public across the country could believe was possible. To appoint somebody who didn’t have the widest experience at the very top of a bank wouldn’t have got us there. David accepted the situation, with regret. I tried to assure him that his time would come.’41 Maturity, ultimately, brought realisation that it was too much, too soon. Morgan concedes: ‘To think I was ready then was just pure fantasy on my part.’42
With his remit vastly enlarged by the retail move, the markets reacted auspiciously, Westpac’s share price improving. With six chief general managers answering to him and a division that had the best scope for profit growth, Morgan drastically revised ambitions for the bottom line, which he expected to show at least $341 million of improvement by September 1993. ‘Westpac had never had that kind of stretch before,’ says McLean, who had been retained from McKinsey as a senior advisor. ‘It required meticulous care in both planning and execution.’43
All Christmas and New Year leave was cancelled as Morgan, in an echo of the day-and-night graft he had championed in the Treasury’s tax bunker, strived for fresh ways to place the bank on a firmer footing.
An underlying failing of Westpac was that it had reacted so inappropriately to the challenge of financial deregulation. In the eighties, Morgan had conveyed to successive treasurers, first Howard and then Keating, his belief that a deregulated environment could produce a truly world-class banking system in Australia. But when at last the revolution came, Westpac fluffed its lines. As opposed to nurturing the retail bank, its core business, it embarked upon an orgy of grabbing whatever assets it could, out of a misplaced conviction that bigger meant better. Elsewhere, National Australia Bank (NAB) was illustrating what was possible with a modicum of restraint, astutely deciding to keep credit conditions tight during the property boom and resisting diversification into areas where it lacked expertise. Ironically, Conroy, within days of confirming a once unthinkable Westpac loss, scoffed at such an approach as ‘strategically sterile’.44 ‘It was an idiotic remark,’ Morgan says. ‘He later had the decency to call his counterpart at NAB to apologise.’
In 1993, the effects of the two banks’ contrasting philosophies were mirrored in the numbers, with Westpac finding that its overall expense base was almost $500 million greater than NAB’s. The diagnosis was grim, and the treatment necessarily severe. ‘The bank was in a parlous situation,’ McLean says. ‘We said to the board: “This truly looks bad. You have to get out of the US, where you’re losing money and have no cause to be. You have to do a work-out on all your non-performing loans. Plus, you have to transform your retail franchise into a profit machine, to give the kinds of returns that investors expect.”’45
One oddity of Westpac’s make-up lay in its preference for hiving off huge power to the states. From Queensland to Western Australia, these state offices were laws unto themselves, miniature fiefdoms that ran their own human resources, their own public relations, and where anybody on the outside needed express permission just to visit. All were run by near-untouchable executives who tended to resent external interference. ‘Crown princes’, Morgan called them, and made it his priority, metaphorically at least, to lop their heads off. ‘Under their influence, there had essentially been six Westpacs, not one,’ he says. ‘So, I abolished their positions, and the bureaucracy around them. People would say, “Don’t do it. They’ll get you before you get them.”’46
Trudy Vonhoff, then working for Bill Brewer, who had Queensland as his domain, recalls the swiftness with which the sackings were carried out. ‘Nowadays, there has to be HR in place, where you make a call, arrange a meeting, explain it face-to-face,’ she says. ‘But David fired my boss by fax. I pulled the message off the machine myself.’47
The backlash was fierce: the deposed princes, affronted at being offered lowlier alternative employment, thought that if they resigned from Westpac altogether, they could strike a blow that would force Morgan out. It was a miscalculation: the dismantling of the state citadels, a process unthinkable against a calmer and more stable backdrop, continued unabated.
Few could dispute the strength of the business case. The retail bank was bloated and chronically overstaffed, with personnel costs consuming 55 per cent of Westpac’s total expenses, but Morgan believed it was nothing some brutal streamlining would not cure. By 1994, he had overseen the culling of almost 5000 jobs. For this, he was depicted in some quarters as a ruthless hatchet man – ‘Dr Death’ was one nickname. ‘Bob Shearer, one of my HR guys, was in tears as we were putting through involuntary redundancies,’ says Morgan. But he was unrepentant about forcing through stringent measures he saw as central to the bank’s revival. ‘Taking out 5000 people was unprecedented, but we had to do it to make the other 15,000 jobs safe. Those were the facts.’48
Morgan relayed this message with a bracing, sometimes disconcerting starkness. He had grown to detest the cliquey culture that endured in parts of Westpac, where adversaries plotted against each other like Elizabethan courtiers. Tom Saar, among the McKinsey experts assigned to the retail recovery program, says: ‘My most vivid memory was David telling his top team that behaviour needed to change, especially the back-stabbing and gossiping. He said, “If I hear of it happening from this day forward, then you are out. That includes if you did it yesterday and I hear about it tomorrow.” You could hear a pin drop – and ten throats gulp.’49
For all his aversion to underhand scheming, Morgan did grasp the need for a certain political astuteness, after experiencing at first hand the cost of careless talk. Come September 1994, Westpac was facing pressure to raise the variable interest rate on mortgages to buttress its profits, even though there had been no rate change by the Reserve Bank. Instinct told Morgan to resist, but internal forces at Westpac pushed him to fall in line.
Pat Handley, the chief financial officer, agitated for a rate hike that proceeded despite vehement government criticism. Morgan, knowing that he had erred by supporting a decision he thought would be ‘reputationally terrible’ for the bank, compounded his mistake by claiming to the press that he was responsible for it. ‘I was shuttling between meetings in Darwin, when a Financial Review reporter called to ask how it had happened,’ he says. ‘I admitted, off the cuff, that I had to take accountability. Then it got written up on the front page as if I was the sole author. I guess you could say I took one for the team.’50
In the five years since attending his first Harvard lecture, Morgan had learned enough about the machinations of corporate politics to last a lifetime. Having felt a connectedness and a kinship at Treasury, he long harboured a sense of being a lone wolf at Westpac, shunned for his academic approach. But he was compelled to examine his own deficiencies closely, too. As Daniel Kahneman, the Nobel Prize–winning author of Thinking, Fast and Slow, put it: ‘I look for ways of changing my mind. I have been shifting positions all my life.’ Kahneman contended that the person who never changed their mind never learned, a pitfall that Morgan was hell-bent on avoiding.
Helen Lynch, who as a company lifer saw how much Morgan needed to adapt to thrive in Westpac’s world, suggested that he should submit to rigorous, 360-degree executive development under Stephen Drotter, a noted authority on leadership. The review was based on anonymous comments from colleagues; the results rocked Morgan back on his feet.
Some said that he was too tough on people, others that he could seem excessively self-interested. Although his first reaction was shock, followed by denial and anger, Morgan resolved to make the adjustment, moving away from the command-and-control style to which he had become accustomed with men such as John Stone and Paul Keating.
‘David started to read a lot of books, to surround himself with people who had skills different from his,’ Lynch says. ‘It took him a while to get it – longer than it should have done – but get it he did.’51 It was an ability that Joss, too, would come to admire. ‘I would say his most remarkable quality was to improve and learn,’ he argues. ‘He would actually change. You would see him, within a matter of days and weeks, modifying his thoughts and behaviour. Not many people do that.’52
The stresses involved in such change had not been without a personal toll. The two-city, two-career life pattern, where Morgan would leave on the first flight out of Canberra at 6 am on Monday and not return from Sydney until 7 pm on Friday, was proving unsustainable for his young family.
His son Ben, now eight, was clearly missing a steady paternal presence. ‘Every morning I would leave him at his new school, Canberra Boys’ Grammar, crying his eyes out,’ says Kelly, who in 1994 was fighting her own battle in the ‘sports rorts affair’, as opposition MPs demanded to know whether $30 million of sports grants were unduly benefiting those in marginal Labor seats. ‘Then I would go to parliament to face Question Time. I was a nervous wreck.’53
All the joy that she had experienced through the sport brief, as Sydney won the rights to host the 2000 Olympic Games amid riotous celebrations in Monte Carlo, evaporated as shock jocks such as John Laws – ‘particularly vile’, in her words – subjected her to character assassinations. Morgan, while powerless to prevent it, seethed at such treatment.
‘The thoughts I had towards one particular journalist were quite violent,’ he says. ‘It is a horrendous situation when the person you love is under attack.’54
By February 1994, Kelly had resigned as a minister, and eleven months later gave up her seat to step away from political life. It was a heavy sacrifice of a prize that she had spent the better part of her life chasing, but it was conducive to a less rootless existence.
By making a permanent home in Sydney, Morgan regained his attachment to areas of his children’s lives in which he felt he had missed out. The challenge of assimilating into Westpac, and then dealing with the fallout as it flirted with oblivion, had burdened him like nothing before. A life without commuting, which had only ever been a means to an end, would restore crucial equilibrium. For his turbulent journey through a troubled bank was about to gather pace.