CHAPTER 10

Leaders Throw Long Shadows

It was on a stroll through the gardens of Sanssouci, the stately summer palace built by Frederick the Great as his haven on the fringes of Berlin, that a decision was made to breed horses. Morgan had travelled with Kelly to Germany for the 2003 International Monetary Conference, an annual meeting of around fifty of the world’s top commercial bankers, and was so smitten by the grounds’ soothing country air that he craved, much like the last king of Prussia, a bucolic hinterland where he could leave his worries behind.

Uneasy lies the head that wears a crown, as Shakespeare said of Henry IV, a piece of wisdom that Morgan was inclined to believe after observing the pressures particular to those holding the highest office. During Treasury days, he had seen how Bob Hawke could switch off only by betting on the races, and how Paul Keating found precious refuge in his sprawling classical music collection. For Keating, listening to, say, Bruckner’s Symphony No. 5 also had a humbling effect, reminding him that it was in soaring musical composition, rather than the worthy work of government, where true genius lay. ‘The scale of it says to you, “Sorry, you’ve missed out”,’ Keating once reflected. ‘I’m a mortal, but these are immortals. We’re just bit players on a very large stage.’1

Morgan’s own way to lighten the strain of leading one of the largest banks was to seek tranquillity in nature. If it had worked for Denis Healey, the former UK chancellor of the Exchequer who found no purer contentment than on his Sussex farm, then it was good enough for him.

In his mind’s eye, he envisaged a rolling rural estate, within a two-hour drive of Sydney, sheltered from the summer heat and with sufficient acreage for horses to roam. The Southern Highlands, with its blend of green pastures and dense bushland, he decided, was the place to start looking. Since the late nineteenth century, it had been the sanctuary for what Daniel Deniehy termed Australia’s ‘bunyip aristocracy’, the landed gentry who fancied themselves as English aristocrats. Morgan harboured no such pretensions – indeed, he had identified pomposity, along with cruelty to animals, as his two abiding hates in life. But by now he possessed the capital that would enable weekend escapes from the stress of Westpac, and a verdant retreat also promised a reconnection with the creatures he had been drawn to from his days riding around Woodend in his acting youth. ‘Some things you need to take up early for them to get into your soul,’ he says. ‘I love the spirit of horses, their independence, their loyalty. Such is the power of the noble steed.’2

Far quicker than they had imagined, he and Kelly found their perfect property, just outside Mittagong, with over 180 hectares and uninterrupted views across the Hawkesbury–Nepean catchment. Not only would it allow Morgan to designate Sundays as ‘white space’, riding out through pristine wilderness on his beloved mount, Matilda, but he could try his hand as a breeder, too, selecting quarter horses and watching them flourish. ‘Breeding is indescribable carnage for one’s personal finances, but the pleasure it gives me is quite irrational,’ he explains. ‘Equally, there is no way I could have done the Westpac job without this kind of outlet in my home life. I would have exploded.’3

Within this lush expanse was a small river house, which became Morgan’s hideaway while a family home was built. Here, he found that he was at his most constructive, hatching sweeping plans for where he wanted to take Westpac next. A vital priority was to ensure that the bank met, to the fullest extent possible, the needs of the so-called ‘fourth stakeholder’, beyond shareholders, staff and customers: namely, the community.

While it might appear axiomatic that any bank has at least some regard for its standing among its community, Westpac, like its competitors, had for too long been heedless of its wider reputation. In a dramatic break from industry norms, under Morgan’s leadership this fact was openly acknowledged. In 2001, Westpac’s annual report had carried, on its front page, a picture of a ripe, healthy tomato. ‘Juicy result…’ ran the headline. So far, so positive, but one only had to turn inside to find the kicker: ‘…versus public resentment.’ Noel Purcell, the executive who had written it, had wanted to say ‘revolt’ but was overruled by the board.4 Alongside the words was an image of the same tomato, this time squashed and splattered.

Dispensing with any pacifying platitudes, the report spelt out the bank’s situation in bald terms. ‘Not everyone is happy,’ it said. ‘Anti-bank sentiment is running red-hot. Many people feel our progress has been made at their expense or, at best, without benefit to them. We stand accused of abandoning our social responsibility by pursuing the bottom line, at any cost. This view is clearly not good for business. It is an issue so fundamental to the sustainability of our long-term success that it cannot and will not be ignored.’5 Even Morgan’s letter as CEO began, bracingly: ‘People don’t like banks.’6 Purcell, contemptuous of dry corporate-speak and stock photographs of board members with rictus grins, had been adamant that the language should pack a punch. ‘We genuinely believed that we could change the world with this,’ he says. ‘David was brave to go along with it.’7

The irony behind this jolting awakening was that Westpac had, for the better part of its existence, conceived itself as a company that was integral to the Australian social fabric. Kim Eberhard, the keeper of Westpac’s archives, has argued: ‘Virtues and values, held in esteem by society at large, were inherent in the spirit of the Bank of New South Wales from its very inception.’8 But in the rush to fathom the best response to deregulation, first by restlessly expanding and then by slashing costs, this original sense of purpose had, since the eighties, become lost. A Friedmanite view that the ‘business of business is business’, and that a bank’s sole raison d’être is to make profit, went largely unchallenged.9

Morgan had spent many years subscribing to this logic, until he recognised that it was poisoning perceptions of the industry. If banks did not give the disenchanted public what they reasonably needed, he felt, then politicians and regulators would do it for them, and in such draconian fashion that it would threaten even worse shareholder returns. So it was that, one weekend at the river house, he drafted a statement that captured Westpac’s fresh direction. ‘Manage long, manage broad,’ it proclaimed, ‘and with a consistent set of values.’10

To flesh out these values, it helps to study the social charter that Morgan had brought into force in 2001. As an expression of Westpac’s ‘principles of doing business’, the document recognised the rights of Indigenous Australians, the concerns of Westpac employees, as well as carrying a firm commitment to care for the environment. At a stroke, the bank was effectively endorsing the three focal areas of the United Nations Global Compact, introduced in 2000 to encourage businesses to adopt sustainable, socially responsible policies; Leon Davis, Westpac chairman, had written to UN secretary-general Kofi Annan to formalise support for the compact.

For Purcell, author of the principles charter, this move was not one where Westpac just offered grandiose abstractions about the necessity for banks to act more ethically. Instead, it was one where it bridged, once and for all, the gap between what it aspired to do and what it was actually doing.11 It could hardly boast, for example, of caring profoundly about rural Australia when it continued to shut down branches in remote areas. ‘The board agreed that we needed the charter,’ Purcell says. ‘It was very empowering, getting the agenda moving.’12

For all that Westpac might tacitly have espoused the values now enshrined in its charter, it was important to see them articulated. Today, many of the world’s premier corporations follow this lead: to walk into the lobby of Morgan Stanley’s global headquarters in Manhattan is to be greeted by an assertion of its belief in ‘doing the right thing’ and ‘giving back’ in foot-high letters on the wall. ‘People need to have a centring,’ James Gorman, its CEO, argues in his interview for this book. ‘If you don’t think that giving back to your community is important, that is entirely your call. I’m not judging you. But you’re not going to convince us to do it differently, so you can go and try somewhere else.’13

As early as 1997, among her pushes for gender equality, Sherry had made tentative suggestions that Westpac should begin thinking along other lines of ethics, but found that the subject was far from in vogue. ‘I brought it up at one of those long-winded strategy sessions, saying that our scorecard ought to include sustainability,’ she recalls. ‘Everyone replied, more or less: “That’s very interesting, Ann, but can we just move on?”’14 Through her years of working for the Office of the Status of Women, where she had represented the country to the UN on women’s rights, Sherry had learned, first, how one tended to be rated by the public according to a basic sense of fairness and, second, how it was political kryptonite to ignore the interests of such marginalised groups as Indigenous Australians.15 In 2001, Sherry was one of six Australians consulted by Jim Collins for his international best-seller Good to Great: Why Some Companies Make the Leap…and Others Don’t. Out of these discussions, she emerged more convinced than ever that Westpac had to grasp the nettle in making itself truly sustainable. ‘Banks were constantly looking back,’ she says. ‘Our reference points were in the past. But the companies that made it through were those that thought about the future all the time.’16

Morgan’s personal attachment to a more sustainable banking model sprang, in part, from Kelly’s influence, who, as environment minister for almost four years in the early nineties, had grasped the fine balance between the protection of the land and the aggressive pursuit of industrial growth. But as one who had seen for himself the grievous effects of Westpac’s branch closures, fee increases and mass staff layoffs upon its prestige, Morgan understood the imperative for the bank to take action that would elevate it from the pack. At Treasury, he had done much to establish the architecture of financial deregulation in Australia. At Westpac, he had the chance to set a template for how a bank should behave in such a landscape, proving it could stand for a cause greater than itself and not be fixated purely with a licence to print money. ‘I genuinely felt it was in that sweet spot of being the right thing to do and also good for business,’ he says.17

Just as Morgan had found in Canberra, a powerful convergence of personalities was crucial in driving the boldest change. By happy coincidence, the three key executives had all been shaped by a senior public-service background: Sherry in the Office of the Status of Women, Morgan at Treasury and Purcell at the Department of the Prime Minister and Cabinet. Backing up this triumvirate was Davis, who as CEO of Rio Tinto had devised a system where all directors of mines, whether in Mongolia or Madagascar, had to specify what they were doing to respect the rights of indigenous populations – when, after all, it was their resources that the mining giants were plundering. ‘From bad experiences, I was totally imbued with the idea that operating a company had a social element, one that needed to be furnished,’ Davis says. ‘People had to realise that it was just as important as turning a profit.’18

If it was Sherry who first drew the blueprint for a sustainable future, Purcell who advanced it, and Davis who championed it, then it was Morgan who, ultimately, had to own it. ‘Yes, David had somebody like me pushing the boundaries, but he was the CEO – and he had to be accountable,’ Purcell says. ‘He didn’t dodge that.’19

While Morgan was conditioned as an economist to analyse a policy’s merits based on the business case put in front of him, this was one example where raw instinct prevailed. He saw that the time-honoured custom where big business looked after shareholder value, while government looked after the people, was outmoded. There needed to be, he resolved, a renunciation of short-termism, a decisive move away from ‘delivering for just one stakeholder to delivering for all’.20

What exactly does sustainability mean in a corporate context? It defies easy definition, encompassing as it does strands as diverse as ecology, social justice and moral philosophy. But Gro Harlem Brundtland, former prime minister of Norway, came perhaps the closest of anyone when she expressed it in 1987 as ‘meeting the needs of the present without compromising the ability of future generations to meet theirs’.21

There are, broadly, three pillars to any sustainable outlook: economic, social and environmental. One project where Westpac won plaudits for combining all of them was the Cape York Indigenous partnership, designed to use the bank’s expertise to alleviate severe inequality in one of the poorest regions of Australia. At the tip of north Queensland, Cape York comprised several Aboriginal communities that had become both dislocated and disenfranchised. Cut adrift from an age of prosperity elsewhere in the country, people there endured living conditions that were an embarrassment to a first-world society. On an initial visit to the area in 2001, Sherry made no secret of her horror at how an affluent nation still tolerated the spectacle of people living on rubbish tips.22

She saw, however, that it was within the bank’s gift to redress such polarities. During her time at Cape York she had listened intently as Noel Pearson, an Aboriginal leader born and raised locally, argued against welfare dependency, instead advocating a path to recovery that could be smoothed by powerful companies such as Westpac. Inspired, she returned to Sydney to look for a few internal allies, who would throw their weight behind an ambitious collaboration between the bank and Indigenous Enterprise Partnerships, the umbrella group that upheld what Pearson called ‘our right to take responsibility’.23 While she had the seniority to push it through herself for a year or two, it would require the blessing of the CEO to be a sustainable solution. Morgan needed little persuading: a million dollars spent on lifting up struggling Aboriginal businesses would, he knew, be of more lasting value than if he simply signed a cheque for the same amount.

Over a year, Sherry held scores of meetings with people in Cape York, curbing her usual zeal for quick action to form a subtler understanding of problems that had become entrenched over decades. Eventually, on her guidance, Westpac settled upon two long-term programs, assisting families or communities to develop basic budgeting skills, and dispatching staff to the area for up to three-month periods to stimulate the growth of small business.

‘It was the old proverb about teaching people to fish, rather than giving them fish,’ Morgan says. ‘We put around one per cent of our pre-tax profits into non-commercial, charitable endeavours. We didn’t just write cheques, we sent executives up there to do the work and teach useful skills to Indigenous communities. It wasn’t tokenistic – it had meaning.’24

Those compiling the Dow Jones Sustainability Index, a cluster of indices evaluating companies on everything from labour practices to climate change mitigation, appeared to agree, heralding Westpac as the world’s most sustainable bank for five years straight from 2002.25 Such lofty recognition arose, in part, from its readiness to blaze a trail. It was already the first Australian bank even to issue a sustainability report, and the first to trade renewable energy certificates. In 2003, Westpac was among just ten founding signatories globally, and the only one from Australia, to adopt the Equator Principles, which bound financial institutions to a strict set of rules for first gauging, then managing the social and environmental fallout from their decisions. In one deeply resonant TV advertising campaign, the image of a stricken penguin, its feathers and feet coated in an oil slick, drove home the message that Westpac would not finance any projects that endangered the environment.

The same strict analysis would apply, as Davis illustrates, to its lending policy. ‘We would only lend to people who had proof of record to be sustainable,’ he says. ‘That was something we emphasised year after year.’ Under Davis’s chairmanship, it was an article of faith that for any message to be fully absorbed by the workforce, it had to be repeated almost ad nauseam. ‘My view was that whenever you said something in a staff lecture, people absorbed about 20 per cent of it, then forgot half of that as the year went on,’ he reflects. ‘So, “don’t change what you say” – that was my diktat. Keep on saying it.’26

Morgan was of much the same mind, sometimes claiming that it took, as a general rule, one year to mobilise each layer of management to accept a different working culture, until it became deeply inculcated. Given that there were at least seven such tiers within Westpac, this was a task likely to span almost his entire time in charge. Still, it was one he tackled with gusto, reaching to branch-manager level to impart the bank’s values to over 2500 people, twice a year, asking them to disclose any impediments or bottlenecks that hampered them from doing their jobs.27 An intranet site was also established for employees to raise issues with the CEO confidentially. Sustainability could be a broad-based concept, of which one element was an acknowledgment of the bank’s flaws.

‘It included transparency of both your social and financial reporting,’ Morgan says. ‘This included gutsy stuff like customer complaints, and where you had screwed up.’28 He wanted, essentially, to push Westpac beyond the idea that a sustainable bank was one wedded exclusively to charitable causes or to its environmental conscience, vital though these strands might have been. Instead, as he spelt out in an address to his executive team in 2003, the emphasis needed to be firmly on ‘running a responsible, ethical and trustworthy company – day in, day out’.29

There were comforting signs that Westpac’s rank and file would rally behind such a cause. By 2004, employee commitment was registered to have risen by 21 per cent, as Morgan made it a mantra to capture his staff’s ‘discretionary effort’: in other words, the level of effort people could give if they wanted to, above and beyond the minimum required.30 In one sense, Morgan was a subscriber to Jamie Dimon’s wisdom that an improvement in shareholder value – and Westpac’s profits had just shot up by over $350 million, then the largest annual increase of his tenure – could itself be a motivating force, as by and large people drew energy from belonging to a successful organisation. But in a speech that year to Bill Gates’ congregation of global CEOs in Seattle, he put more flesh on the bone, arguing that while it was increasingly impossible to micro-manage anybody, a workforce could still be galvanised by a simple and authentic set of values. ‘Shared values tell individuals within a company what is worth striving for,’ he said.31

The three that Morgan eventually chose for Westpac – teamwork, integrity, performance – were, as he saw it, not generic ideas plucked from a management textbook, but principles long encoded in the bank’s DNA. He invoked an extraordinary case from 1893 of Horace Walker, a clerk who had somehow made the journey from the gold rush Queensland town of Croydon to Georgetown, 140 kilometres away, travelling by horse he crossed flooded creeks and rivers, and sustained a fractured leg crossing one of the rivers. Nothing said ‘teamwork’ quite like riding to one’s next assignment across sodden grasslands and through the bush while nursing a serious injury.

Brian Hartzer, Westpac’s incumbent CEO, pushed for a reconnection with this heritage upon the company’s two-hundredth anniversary in 2017, emphasising how inextricably its prospects had been bound up with those of the colony, then the country. The US-born Hartzer, a keen student of history from his days studying the subject at Princeton, had already learned much about Morgan’s passion for this very theme. ‘David embodies a love of Australia and a love of economics,’ he says. ‘But he also has a love for the unique role Westpac has played in the nation’s economic life.’32

Morgan tried strenuously to exemplify the values he wished to see in his staff. ‘Leaders throw long shadows,’ he would often say, conscious that he was never off-duty and that many would take their cues from how the person at the top behaved. Brigitte Costa, who had assumed chief of staff duties from Trudy Vonhoff in 2002, reflects: ‘We had a system of coloured folders. Sometimes, he would come into my office and start to go through them. “No, David, they won’t be ready until next week,” I’d say, telling him he should go home early. “I’m the CEO,” he’d reply. “I can’t possibly leave early.”’33

His own intensity, he believed profoundly, could determine that of the bank’s employees who were watching his example. While he made sure never to demand more of people than he gave himself, the benchmark he set was prodigiously high. ‘David had the highest work rate of anyone I have ever known, to this day,’ says Phil Chronican, his loyal and trusted second-in-command, appointed as CFO in 2001. ‘He was unlike many I have come across in business, in that he would focus on high-level goals while insisting that every little loose end was tied up. He could translate from strategy to execution very clearly. I remember leaving our hotel in New York, where we had been for a May investor meeting, and David asking the receptionist if there had been a fax for him overnight. It turned out that a 200-page fax from Sydney had blocked the whole system. But it was printed out and handed straight to me to read on the flight home, ready for a conference as soon as we returned. That was the rate at which you had to work with him.’34

The relationship between Morgan and Chronican was exceptionally close, largely because their styles were complementary. At root, both were hard-boiled, numbers-driven, devotees of detail, but Chronican, a Kiwi who had earned an MBA at Insead and been part of Westpac’s evolution since the early eighties, understood the bank’s internal mechanisms more intimately than most. ‘Whereas David would tend to know what he wanted, I knew how things actually got done,’ he explains. ‘I was more of a banker, in a technical sense, and he gave me the headroom and autonomy. Very rarely did he question why I was doing anything, so I felt that I had his trust.’35

‘We were joined at the hip,’ Morgan agrees. ‘He knew exactly what problems to solve and what to elevate to me.’36 Where Morgan would toil slavishly on Friday evenings, not repairing to the farm until every last ‘i’ was dotted and every ‘t’ crossed, Chronican preferred to down tools at around 6 pm, enjoy a glass of wine and then tackle the next round of heavy lifting on Sundays.

As his right-hand man for several years, Chronican acquired a singular insight into what made Morgan tick, and an appreciation of the human complexities that deterred him from taking unnecessary gambles. ‘For all that David had an amazing drive to succeed, he had an almost equal drive to avoid failure,’ he says. ‘It all goes back to the story of how his father’s business failed. When things were off the rails, you could see that it really hurt him. Visibly, he hated the sense of being out of control.’37

One area that Morgan was fanatical about keeping in harmony was his family life. Scarred not just by the folding of the paternal hat company but by his memories of a broken home, he vowed that his role as CEO, however onerous, would not envelop all the time he could spend with Kelly and their two teenage children. Vonhoff, who as his first chief of staff would orchestrate his every working day in a way that minimised distractions, ensured a private telephone line to which only Kelly, Jessica and Ben had access. Morgan was scrupulous, too, about imparting some of his economic acumen during his daughter’s and son’s formative years, to protect them from the same upheavals he had suffered as a young man four decades earlier.

‘Goals were set for Jess and Ben around what they wanted to achieve,’ Vonhoff says. ‘They would come in and do a performance assessment. David would put a lot of thought into how he could involve them in the family finances, in making portfolios, so that they were comfortable with the position they would undoubtedly inherit.’38

Noel Purcell was another who, on frequent road trips together, observed this trait of Morgan’s at close quarters. ‘After twenty hours of flying, we would arrive at JFK, jump in the car to Manhattan, and the first thing David did was ring the kids,’ he says. ‘It didn’t matter where he was. I got the impression that he didn’t want them to experience what he had gone through. I admired him in that regard.’39

***

Come 2005, the consistency of Westpac’s upward curve was unmistakeable: a record net profit of $2.8 billion, a much-improved expense-to-income ratio of 47 per cent, and a thriving domestic operation that persuaded Morgan to resist any aggressive expansion into Asia. With the bank’s Australasian influence surging, he declared, confidently: ‘We have filled in all the gaps in our geographic footprint.’40 Still, he was unswerving in his insistence that Westpac had to be built to roll right over whatever crises the cyclical banking industry might throw up. ‘Yes, we want growth,’ he told the 27,000 employees, ‘but the right growth at the right time. What we don’t want is growth that ultimately proves value-destroying.’41

Jon Nicholson, who was taken on in 2006 as chief strategy officer, was deeply struck by Morgan’s hard-nosed stance on risk. The pair shared some Canberra background, from Nicholson’s time as senior private secretary to Bob Hawke, and he noticed echoes of Morgan’s Treasury training in the way Westpac was now being run.

‘David had a very strong sense of public policy and of the social licence to operate,’ he says. ‘Plus, he understood, from Westpac’s nightmare in the early nineties, what it meant to put a major institution at risk.’42 Morgan could not be swayed from his conviction that there was far more downside than upside attached to decisions in banking, a view that his lieutenants would seldom second-guess. ‘It’s the saying no that saves you,’ Nicholson argues. ‘It’s the most important skill. People tend to move with the herd, because saying yes makes your short-term profits look better. The crash, however, always comes.’43

Focus, Morgan found, was the most underrated concept in the management lexicon. All too often, a chronically unfocused approach seemed to lie at the root of corporate mediocrity, whether in Westpac’s restless thrust into exotic geographies and financial services during the eighties, or in NAB’s myopic preoccupation with mergers and acquisitions throughout the nineties.

Morgan had little time, though, for any such glamour fever or grass-is-greener syndrome. Having swooped to capture BT at a knockdown price in 2002, he was content for Westpac to concentrate on enriching its core business, lending prudently and sustainably, while ensuring that hard-won customer satisfaction did not slide back into disillusion. In particular, he set stall by the bank’s ‘Ask Once’ commitments, which pushed it to answer all customer queries the first time. ‘It was very well regarded within the market,’ says Hartzer, then a competitor running ANZ’s retail division. ‘We thought it was very clever.’44

Nicholson, likewise, discovered that the Westpac he joined had weathered the blowtorch of wider public criticism, by signalling that it would place the concerns of the community ahead of its own short-term economic interests. ‘In championing corporate social responsibility, David was a pioneer,’ he says. ‘In Australia, there is an “all banks are bastards” school of thought, so the public was taken aback at the notion that a big, greedy bank would do what was right. It seemed incomprehensible.’45

These deeper forces are vital, according to Andrew Cornell, long-time observer of the banks at The Australian Financial Review, to any overarching perspective on Morgan’s body of work. ‘As there weren’t too many acquisitions in his time, people might assume that he was just a steady-as-she-goes CEO, but this would be a misreading of what went on beneath the surface,’ he explains. ‘David was very clinical on banks being safe, resilient, capable of absorbing shocks. He was the stand-out banker of his generation.’ It is a sentiment endorsed even by John McFarlane, Morgan’s counterpart at ANZ from his accession to the role in 1999, who reflects: ‘Of the banks, I thought that he had the most successful tenure.’46

In early August 2007, Australia’s banks had a preview of the global picture changing for the worse. Short-term credit markets in the US had shut down, as France’s BNP Paribas opted to freeze three of its funds, indicating that it had no means of valuing the bundles of complex assets within them, known as collateralised debt obligations (CDOs). As such, it became the first major bank to acknowledge openly the risk of exposure to the murky world of subprime mortgages.

Within Westpac, this first blip on the seismograph did not go unnoticed. ‘I remember Curt Zuber, then as now the bank’s treasurer, coming into my office unannounced to tell me, “David, something really funny is happening with the markets,”’ Morgan says. ‘“They’re saying it’s just because the traders are on holiday, but we think there’s something else going on.” I could see the look in his eyes – it’s one of those moments that stay with you. It turned out to be the first breaching of the dam wall.’47

The two of them sat together for an hour, thrashing out how best to proceed. Morgan, mindful of the benefits that NAB had derived in the early nineties recession from being the nation’s lowest-risk, most resilient bank, had made it the abiding quest of his tenure to ensure Westpac was the best conditioned to withstand the next worldwide shock. On this front, the portents were promising: even at the early signs of crisis, Westpac was the least likely to follow the lemmings jumping off a cliff.

Nicholson recalls the example of one junior credit officer at the institutional bank, who penned a memo that advised against succumbing to the fashion for CDOs: ‘The guy said, “I’ve had a good look at some of the derivatives and home loans that they’re selling in the US. I can’t for the life of me understand them. Therefore, we shouldn’t buy them.” It was about doing the sums, being hard-nosed.’48

All around, the threads that bound the entire financial system together continued to fray. Come September 2007, Northern Rock, a British building society that had taken too many risks and found itself with no alternative sources of funding once the markets dried up, ran out of money. This prompted the first run on a UK high street bank for 150 years. In the US, four months later, analysts announced the largest single-year drop in home sales in a quarter of a century.

The anomaly was Australia, which skated over the escalating crisis. The reasons behind such durable performance ran deep, with household credit growth in the country underpinned by rising incomes and employment, as opposed to declining credit standards. The strength of the Australian relationship with China sheltered national resources from precipitous falls in demand elsewhere, while a catalogue of recent failures, not least Westpac’s own brush with insolvency in 1992, had brought more robust regulation.

Ian Macfarlane, from his vantage point as Reserve Bank governor until 2006, posits a different theory: namely, that the greatest protection for Australia lay in its strict curbs on corporate control of the banking sector. ‘Now people say that we did well because we had effective supervision, but I don’t think that’s the explanation,’ he says. ‘In other countries, banks were competing not just for customers, but to save their own lives. Due to our “Four Pillars” policy in Australia, there wasn’t the same intensity of competition, or the same temptation to chase short-term profits. It is no coincidence that the only two countries with prohibitions on the major banks taking each other over, Australia and Canada, were the same two that came through events unscathed.’49

There were, however, some stark disparities between the Big Four in terms of how convincingly they prevailed. NAB had its fingers badly burnt when, at the solicitation of US investment banks, it bought $1.2 billion of CDOs in 2006, only to write down 90 per cent of the investment later on. Westpac, by contrast, refused to take the bait, wary of repeating the same careless dabbling that had dragged it to the edge of extinction. Under Morgan’s direction, resolve had hardened to avert the volatility of what had gone before.

Even before the global economy started to creak alarmingly, Morgan had asserted an aim, at all his public meetings, to make Westpac ‘second to none’ in its ability to ride out a storm. Today, the judgment by one of Australia’s most respected banking analysts is that he succeeded. ‘When Westpac entered the global financial crisis, it was in a much stronger position than its peers by virtue of what David had done,’ reflects Brian Johnson, then of J.P. Morgan. ‘For me to be complimentary about bank CEOs is not a normal state of affairs. While ANZ and NAB had a torrid time, Westpac and Commonwealth Bank more or less breezed through. “De-risking” the bank might hurt your earnings there and then, but it makes them more resilient for the future. Commonwealth’s power was essentially a legacy of history: a very large, stable deposit base, not much institutional lending. But Westpac genuinely went into the GFC lean and strong.’50

To this day, Morgan’s record of buttressing the bank against cataclysmic change is one recognised by its leaders. ‘You’re there to increase shareholder value,’ says Hartzer, the chief executive since 2015. ‘To do that, you need to manage your return on equity, simplify your business, cut costs, focus on your knitting. Those are important parts of why we sailed through the GFC so well.’51

That legacy is firmly entrenched. Indeed, in a book to herald Westpac’s bicentennial in 2017, the double-page spread on Morgan’s CEO-ship was headlined: ‘Recovery, Responsibility, Resilience’.52 Not that he could have predicted such eulogies a decade earlier, when the full repercussions of the GFC had still to play out.

In late 2007, the sweep of economic horror unfolding beyond Australia’s shores was as yet unleashed: the failure of Bear Stearns, the collapse of Lehman Brothers, the unprecedented stock market meltdown. Morgan, though, already knew that he was leaving the company to which he had rendered eighteen years’ service.

There are no hard-and-fast benchmarks for CEO longevity – Jamie Dimon, who has presided over the J.P. Morgan Chase empire since 2005, argues: ‘What difference does it make? An average of ten years? You can’t have set rules for every person.’53

But Morgan’s thoughts had turned, beyond his fifth year, to the issue of succession planning. ‘I used to say that if you haven’t given your best as a CEO to a company in nine years, then you haven’t been doing your job properly,’ he says.

Still, this cold logic did not make the task of stepping away any easier. Emma Beames, his chief of staff at the time, describes the conflict of emotions with which he struggled deeply. ‘David knew it was time to go, but he agonised,’ she says. ‘He was tangled up about it, having increasingly frequent conversations with executive coaches about when to announce a successor. He wanted to minimise the lame-duck period.’54 Or as Brigitte Costa, Beames’ predecessor, puts it: ‘Westpac was his baby. The question was, “The baby has grown up. What do I do next?”’55

It was during Morgan’s sixtieth birthday party at the family farm, an affair grand enough for guests to be asked on official invitations whether they would bring their own horses, that the name of Gail Kelly first surfaced as a prospective next in line. Born in South Africa and a former Latin teacher, Kelly had worked her way up from teller level to lead St George, Australia’s fifth largest bank. As the country’s first female banking CEO, Kelly had carved a formidable reputation for her powers of persuasion and empathy, going so far as to answer some customer complaint emails herself.

Ted Evans, who, in a neat symmetry, had gone from being one of Morgan’s closest Canberra friends in the eighties to his chairman for his final years at Westpac, was among Kelly’s most fulsome admirers. ‘At David’s party, Ted spoke to me about the possibility of being “in the mix”, about whether I was willing to be considered,’ Kelly says. ‘Soon after, we went into the process.’56 Evans, for his part, is not shy of illustrating why she leapt straight to the top of his candidate list. ‘Gail was an extraordinary individual,’ he says. ‘In particular, she was a wonderful public speaker. She could speak for forty minutes, never using notes, never putting a word wrong.’57

Kelly came with the recommendation of both Morgan and Ros Kelly, with whom she shared a commitment to advancing the cause of women in business. From Morgan’s perspective, the one regret was that Chronican, his steadfast deputy, would miss out on a job for which he was eminently qualified. ‘In my heart, I wanted to give it to Phil,’ he concedes. ‘I felt absolutely wretched about it, actually.’58 It was an awkwardness of which Gail Kelly herself was aware. ‘I knew it would be difficult for David,’ she says. ‘He and Phil had a very close and long-standing relationship.’59

An elegant transition had come to be regarded as a distinguishing feature of any well-run bank. Indeed, the board of NAB had made it clear to chief executive John Stewart that it would form a central part of his performance review. There were few unsightly joins when, on 17 August 2007, Westpac confirmed that the flame would be passed from Morgan to Kelly. It seemed, wrote Macquarie Research experts struck by Kelly’s relentless emphasis on customer satisfaction, a ‘sensible fit’.60

On reflection Kelly is candid, too, about the robustness of the position bequeathed to her. ‘There was real credit quality,’ she says. ‘David had been there during the whole 1991–92 scenario, and it had embedded itself deep in the psyche of Westpac-ers. He systematically strengthened the risk management framework of the bank. Where our counterparts had been seduced by US-structured credit, he had made a conscious decision not to get involved.’61

Fastidiously resistant to risk though he might have been, Morgan took his impending departure as a cue to speak more freely. Having learned from bitter experience to be guarded in public statements, he marked his twilight at Westpac by firing off a few Exocets. At one trans-Tasman business circle lunch in Sydney, he lambasted the Four Pillars banking structure as anachronistic and inimical to growth, deriding it as a ‘woolly mammoth dug from the Siberian tundra and shipped still frozen to Australia’.62

Across his nine years at the helm, the tale of the tape for Morgan, a numbers man to his core, stood up to any scrutiny: an unbroken run of record increases in cash earnings, total shareholder returns of almost 15 per cent every year, and a share price rising, on average, more than 11 per cent per annum, from $9.50 when he took over to a peak of nearly $32.

Equally, it was a source of much pride that the proportion of women employees had swelled from 25 per cent in 1998 to 42 per cent by 2007. ‘What mattered was the way in which it was done,’ Morgan says. ‘It’s wasn’t by setting rigid quotas, but by allowing paid maternity leave or working from home, avoiding unsocial hours for meetings. We got rid of the unconscious discrimination, and the barriers to a true meritocracy.’63

The path did not always run smooth: during a talk in 2006 at the University of New South Wales Business School, attended by his daughter, Jess, Morgan was told by one female member of the audience, an employee at the state Treasury, that it was a ‘turn-off’ for women to hear him extolling the virtues of working six days and five nights a week.64 There was broad support for his approach, though, from the women on his senior team.

Ilana Atlas, who served as group secretary and general counsel from 2000, attests to his contribution in moving beyond the old boys’ club of the past. ‘In a way, David was agnostic on matters of gender, which for the time was highly unusual,’ she says. ‘I didn’t feel, when he hired me, that my gender was ever an issue. While Bob Joss had started the organisation on this journey, David was a very significant part of women having opportunities there.’65

But as Morgan faced up to his exit, even a stocktake of all that had been achieved did not palliate the pain of leaving. A position to which his entire career had built, at a company with whose history and philosophy he felt inextricably wedded, could hardly be vacated without some pangs of emotion. Walking out of his office for the final time would, he accepted beforehand, be a ‘hard thing’.66

Throughout his working life, Morgan’s wisdom had often intersected with that of Bill Clinton. ‘It’s the economy, stupid,’ a slogan adopted for Clinton’s victorious 1992 presidential campaign against George Bush, was a truism of which he was fond. In times of peace, it had tended to be concerns about jobs, trade and economic growth that preoccupied the typical voter above all else, and it was these that had most animated Morgan since his earliest days at university. It seemed fitting, then, that he ended his valedictory speech at Westpac by adapting another example of Clinton’s folksy charm.

Invoking the pay-off line of the former president’s autobiography – ‘I think it’s a good story, and I’ve had a good time telling it’ – Morgan told the gathering at the Sydney Institute: ‘For nearly two centuries, Westpac’s story has weaved in and out of Australia’s story. The two are inseparable. It was true of the bank’s first thirty years, and profoundly true of the last thirty. To have been a part of that, to have participated in the drama of it, I count as one of the great privileges of my privileged life. This is my story, and I’ve had a wonderful time in the thick of it.’67

Four months after Morgan delivered those words, the bank agreed to a dramatic, uncontested $18.6 billion takeover of St George. At a stage when much of the developed world was engulfed by the economic conflagration of 2008, Westpac was completing one of the largest deals in Australian corporate history. The merger, running counter to the currents of the global credit crunch, created a financial institution of far-reaching power, as Gail Kelly swooped quickly to buy a bank that she had led for six years.

While it represented an undoubted coup for Kelly, mere weeks into her reign, the idea had long since been mooted. As far back as 2002, Morgan had held talks with Kelly, in her capacity as St George CEO, about the prospect of a merged entity. While she expressed a preference for St George to remain independent, Morgan would later endorse her elevation to the Westpac job partly in a belief that it was the best hope of consummating a deal. Jon Nicholson, retained by Kelly as head of strategy, also identifies Morgan’s success in making Westpac the safest of the Big Four as a critical factor behind the eventual move.

‘If things had got worse, Westpac would have been the last player standing – no question,’ he argues. ‘The prize for that was St George. It would have been impossible unless we were in good shape and our competitors were not.’68 It was a feat that could scarcely be overstated. ‘When David took charge, Westpac was not a well-run bank,’ Nicholson says. ‘But he made it a very strong and safe one. You can’t really do anything better. People will never understand the value of that to every single person in Australia. He created a bank strong enough to survive, with hardly a glancing blow, the biggest economic event since the Great Depression.’69

In the eyes of James Gorman, the seamlessness of the handover from Morgan to Kelly counts among the most telling tributes to his near decade at the top. ‘He brought a highly disciplined management philosophy to an Australian institution,’ says Gorman, still one of Wall Street’s most influential bankers. ‘He handed it off to his successor, and he gave her room to grow. There are very few testaments more powerful than that.’70